High price of failure: Government recommends additional 749M kroner in aid, loans for Store Norske over four years

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The price of keeping Store Norske barely alive keeps increasing, with the government now asking Parliament for 749 million kroner during the next four years to support operations at Mine 7 and maintenance of two larger mines in the hope coal prices recover.

Store Norske would get 112 million kroner this year and 144 million a year during the following three years, plus a loan of 205 million kroner, according to the proposal announced Friday by Norwegian Minister of Trade and Industry Monica Mæland.

“It is important to maintain activity and a settlement in Svalbard,” she said in a prepared statement.

The funding is far more than what Store Norske’s board of directors asked for last fall when they voted to suspend operations at the Svea and Lunckefjell mines, and double the work shifts at Mine 7. The board requested 95 million kroner a year for three years to support the plan.

The ministry, after what many local political and business leaders said was a too-long evaluation process, recommended in December what appeared in a press release to be a 400-million-kroner assistance package during the next three years. But legislation drafted at that time – not cited by the ministry, and overlooked by the media and local leaders – requested the higher-cost, four-year plan announced Friday.

Mæland, in her statement Friday, did not directly address why the ministry is asking Parliament to a much larger amont of funding over a longer timespan than Store Norske sought.

“The Svalbard community is in a difficult situation,” she said. “It is good that we have found a solution that doubles the number of jobs at Mine 7. Unfortunately, there is not a market base for operations at Svea and Lunckefjell. Pausing operations is important to give the community time to build up new industries. Meanwhile, we maintain the ability to start up again if the market picks up.”

The announcement comes a day after Norway’s oil wealth fund announced it has sold its holdings in 73 companies during in the past year due to social or environmental policies that could hurt profitability, according to The Guardian. While the companies were not named, officials confirmed most were coal or energy companies using coal, plus mining, cement and heavy construction companies.

“We expect companies to communicate the impact of their activities on the environment and the factors that could affect their long-term profitability,” said Yngve Slyngstad, head of the fund, in a prepared statement.

Store Norske has been in a crisis since the latter half of 2014 due to a sharp drop in coal prices. Parliament approved a 500-million-kroner bailout package, split between a loan and the purchase of all of Store Norske’s property, last May as the company teetered on the brink of bankruptcy.

The government, which already owned 99 percent of the company, also acquired all of the remaining private shares. In the formal legislation submitted by the ministry to Parliament for the new bailout package, the government’s ownership status and interest in Svalbard as a strategic asset was emphasized.

“After an overall assessment, the objective of maintaining and developing the community in Longyearbyen in a way that supports the overall objectives of Norway’s policy objectives for Svalbard weighs heavily,” the legislation states.

While Norway is hardly likely to lose sovereignty over Svalbard no matter how bad the economic crisis in Longyearbyen gets, the sense of a strong presence – even if unprofitable – is shared by other countries with a foothold here – or who would like one. The Russian settlement of Barentsburg, for example, 60 kilometers from Longyearbyen, has taken extensive pains to keep its coal mine operating despite numerous setbacks – including several deaths in recent years and a fire that closed the mine for two years – and experts say work there is being stretched out as long as possible to justify the settlement’s existence.

The government also recommended last November that 50 million kroner to promote local business development be awarded to Longyearbyen’s municipal government and Innovation Norway. In January, Norway’s Marine Resources Act was amended to allow commercial fisheries in Svalbard and several companies have since expressed an interest in operating processing plants here.

But the 500 million kroner in bailout money intended to keep Store Norske operating through 2016 ran out faster than expected due to the contining price slump, despite massive layoffs and cutbacks. The company, which had about 400 employees in 2012, downsized to about 270 employees in two rounds of layoffs through 2014. In September of 2015, the company’s board of directors voted to elimate all but 100 employees – at most – and suspend operations at Svea and Lunckefjell by this summer.

Mine 7 produces a relatively low amount of coal, but is expected to be able to supply Longyearbyen’s coal-fired power plant for the next decade in addition to the revenue from remaining supplies sold to Europe. Svea, the company’s main production site since 2001, has only fringe areas remaining that be mined. Lunckefjell, which opened at the beginning of 2014 after development costs exceeding two billion kroner, was expected to be Store Norske’s main revenue source for about four years while new mining sites were developed. Lunckefjell closed after roughly a year due to the coal price crash, meaning it will be written off as a near-total loss if it is permanently shut down.

2 Responses to High price of failure: Government recommends additional 749M kroner in aid, loans for Store Norske over four years

  1. Maren Wryn says:

    Very scary times indeed. Svalbard’s strategic location is obvious. Putin’s expansionist campaign would be happy to claim the rest of it. On a more personal level, it would be deeply disappointing to know that the extended family that is Longyearbyen might be diminished. Best possible luck to you all.

  2. The interesting aspect of this is the government is proposing spending more than twice what Store Norske asked for merely to suspend operations. I can’t recall the exact figures, but this may be nearing what it might have cost to simply subsidize full mining here, thus preserving the jobs even though the company would keep losing money. Safe to say, I’ll be trying to figure that question out when everyone is back in their offices Monday.

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