Coal-to-oil boosted
Staff and Wire Reports

Gov. Edward G. Rendell has announced a major boost for plans to construct a coal-to-oil plant near Morea.

At a press conference in Harrisburg Thursday, Rendell said the state will guarantee loans for most of the $612 million cost of building the nation's first commercial facility that will convert waste coal into diesel fuel.

In addition to $465 million in loan guarantees, the state has earmarked $47 million in tax credits for the project, spearheaded by John W. Rich Jr., Auburn.

The governor also announced that the state will join with two private business partners in a consortium to guarantee a market for most of the 40 million gallons of diesel fuel that will be produced by the plant, a move that particularly pleased Rich.

It ensures a market for the facility's product before Rich's firm, Waste Management and Processors Inc. (WMPI), Gilberton, undertakes the project.

Coupled with the loan guarantees and the tax credits, the ensured market places the coal-to-oil facility, a longtime dream of Rich's, on the road to fruition.

"These are the types of instruments that make this thing (the coal-to-oil facility) doable," Rich said Thusday evening from his home.

"It's unprecedented what's going on with the state offering these agreements, because it's a really meaningful step in reducing dependence on foreign oil and creating jobs. That's what's at the core of this project," he added.

He also touted the benefits of the project in stabilizing the supply and cost of diesel fuel.

"Wall Street doesn't put a nickel in unless the company is going to have an attractive product that people are going to buy," said state Environmental Protection Secretary Kathleen McGinty, who joined Rendell and business executives involved in the project during the Capitol news conference.

Construction on the plant is scheduled to begin next spring. It will use an updated version of technology first developed by German scientists in the 1920s. It will burn waste coal, known as culm, to produce not only diesel fuel, but also home heating and potentially other petroleum-based fuels.

Of the 40 million gallons of fuel that the plant is expected to produce annually, the state has agreed to buy 15 million gallons a year for its vehicles and heating needs, McGinty said. Most of the rest is expected to be purchased by other consortium members Worley & Obetz Inc., a Manheim heating-oil company, and the Keystone Alliance, a fuel-purchasing group for the trucking industry. There also are other, unnamed businesses, she said, adding that 38 million of the 40 million gallons are "spoken for."

During a teleconference on tax reform preceding the announcement, Rendell also briefly discussed the coal-to-oil project.

"Not only will it create 1,000 construction jobs, there will be 600 permanent jobs," Rendell said.

WMPI plans to build the plant next to its Gilberton Power Co. cogeneration plant. In August, after $100 million in U.S. Department of Energy grants was secured for the project, Rich, WMPI president, said it would take about 30 months to build the facility after ground is broken.

Rendell said the plant will be part of a national effort to find alternatives to increasingly expensive imported oil.

"This is the hub of a strategy for energy independence for the U.S.," he said.

The governor said that turning coal into oil will not be the sole solution but will have to be used in combination with other fuels. He mentioned ethanol, soy diesel, biomass and others.

Rendell said the project reflects his administration's commitment "to lead, not follow."

The state, he continued, will be able to buy diesel fuel from the plant at 75 cents a gallon less than what is currently on the market.

He said he has been in discussion with his "fellow coal governors" of Montana and West Virginia and that other such facilities are in the works.

A second coal-to-oil plant may be built in the southwestern area of the state next year, the governor said.

Meanwhile, during his earlier teleconference, Rendell continued to defend his plan to reform public school funding.

While leaders in the state legislature are talking about eliminating school real estate taxes by changing the state sales tax, Rendell still wants lawmakers to make Act 72 mandatory, which will direct money generated by slot machines to school districts to lower the tax burden on property owners.

The law currently allows school districts to choose to accept money raised by taxes on legalized slot machines and use it to reduce property taxes. In return for receiving the money, districts that opt for the plan are required to increase their local earned income taxes (EIT). They are also required to gain voter approval before further raising taxes above the rate of inflation. The requirement for voter approval was subject to several exceptions for state and federal mandated spending.

However, only 111 of the state's 501 school districts chose to sign up for Act 72.

"It isn't that my plan is my way or the highway," Rendell said. "It's just that I think my plan is the best."

The governor wants Act 72 imposed across the state, although he would like to see the increase in the EIT tax removed from the law.

He criticized Republican plans to change the state sales tax because GOP leaders are talking about extending the tax to cover food, clothes and medicines, which are currently exempt, instead of just raising the current tax of 6 percent.

Rendell said such an action would hurt working families.

He said the plans the GOP leaders are talking about would be $3 billion short in their efforts to eliminate school property taxes.

When asked if he was open to any change in the sales tax as part of the solution to high property taxes, Rendell said he wants the gaming revenues distributed to the schools first, but that other efforts at reform should follow.

"We can't view Act 72 in a vacuum," the governor said several times. He said that his administration has increased the state subsidy to public schools and that he has called for raising it to 50 percent of all school funding.

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