Higher price of failure: Shutdown of Store Norske mines will cost far more, take longer than thought, minister says


It turns out shutting down and dismantling the Svea and Lunckefjell is going to cost a lot more than expected. With Parliament scheduled to debate the issue Thursday, at what point does the cost get so high it would be more sensible to spend the money reopening the mines?

Apparently, never, according to the head of Store Norske.

“There is no use in debating these issues now and we have not made that comparison,” Administrative Director Wenche Ravlo wrote in an e-mail. “(The Norwegian Ministry of Trade, Industry and Fisheries) state they have made their proposal to close down Svea/LF based only on financial considerations.”

“They believe the risk of losing money through the period of operation is too high due to market uncertainties. They also state that paying for the shutdown is necessary whatever the cost is. Thus – making the comparison makes no sense.”

The government is proposing spending 141 million kroner in next year’s budget and an additional 170 million the following two years to remove all infrastructure and restore the two mine areas. But Trade and Industry Minister Monica Mæland, in a letter to Parliament, noted a much larger – but undetermined – amount is needed and the work will take longer than originally anticipated.

“I would like to inform the committee that the ministry in this dialogue (with Store Norske and others) has recently revealed new information from the company indicating that the costs associated with cleanup at Svea and Lunckefjell could be significantly higher than stated in the budget proposal,” she wrote.

There were “significant uncertainties” with previous estimates due to the unique nature of the project, Mæland noted.

Store Norske officials have previously estimated restarting operations at the mines would cost about 900 million kroner. But while the reopening would allow the company to rehire most of the 300 employees laid off during the past few years, there’s no assurance coal prices would remain high enough to avoid the record losses incurred – let alone operate profitably – before operations were suspended.

The company has also stated continuing its work during the past year of maintaining the mines in the hope the market stabilizes is too costly and impractical.

But some locals haven’t given up hope getting Parliament to alter the recommendation by the Conservative-led government, even though that will would mean swaying members of a majority coalition led by the same party. A delegation of Store Norske workers and labor officials met with Parliament members earlier this month to argue reopening the mines is a more sensible use of funds.

“We are talking about industrial coal and not all politicians know that,” Rune Mjelde, the company’s union steward, told Svalbardposten. “Norway will consume about two million tons of coal this year and there is no product that can replace it.”

He told the newspaper the ministry’s recommendation was based on now-outdated data.

“Coal price have soared since the report was presented,” Mjelde said. “The coal price now stands at almost $95 a ton. We can break even with a price of $76 and this is enough to operate at a profit.”