The Quoddy Tides

Eastport, Maine

2010 May 14

BIA cancels Quoddy Bay LNG’s Split Rock lease

by Edward French

Quoddy Bay LNG's land lease with the Passamaquoddy Tribe for a liquefied natural gas (LNG) terminal at Pleasant Point was cancelled by the Bureau of Indian Affairs (BIA) late last month. Following the dismissal of Quoddy Bay's application by the Federal Energy Regulatory Commission in 2008, the action would seem to spell the end for the controversial project on Passamaquoddy Bay. But Quoddy Bay LNG President Don Smith says that reports of the project's demise are premature and he is still planning, when financial conditions improve, to resurrect the proposal, if not at Split Rock then at another site.

However, the Passamaquoddy governor at Pleasant Point, Rick Phillips-Doyle, says, "From our point of view, it's over, and we're going to be moving on. I hope this ends it."

Referring to Smith, Doyle adds, "I'm kind of glad that we're rid of that guy. We like to do business with honorable people. We had a deal, and he broke it." The Passamaquoddy governor says that Quoddy Bay breached the lease agreement with the tribe when the company stopped making payments to the tribe in July 2008. In June 2009, the Sipayik Tribal Council had voted unanimously to notify Quoddy Bay LNG that the council considered the ground lease for the Split Rock site to be expired. "We said that therefore there's no lease, if both parties don't uphold their end of the bargain."

Doyle doubts if the current Sipayik council would enter into another agreement with Smith. If new councillors are elected next fall, Doyle hopes "they would learn from our experience that he didn't play fair the last time."

In its April 23 notice to cancel the lease, BIA cites Quoddy Bay's failure to make required lease payments to the tribe and the company's abandonment of the lease. Quoddy Bay had been notified of the lease violations in February and had not responded to indicate it was remedying the violations, disputing the determination or requesting additional time. The February notice, from the acting director for the Eastern Region, BIA, stated, "It is my determination that Quoddy Bay's failure to make required lease payments constitutes a violation of the lease, warranting its cancellation." The letter also stated, "Notwithstanding its assertion of continued interest in the lease, Quoddy Bay's failure to pursue a FERC license and its present lack of natural gas supply and financing are clear indications that it has in essence abandoned the lease." The April 23 notice gave Quoddy Bay 30 days to vacate the property or file an appeal.

But Smith says he had sent a response to BIA's February notice and will resend the letter. If necessary, he will appeal the decision.

Smith says that under the lease agreement he and the tribe had obligations, and he maintains, "I fulfilled my side of the obligations up to a point." One of the reasons he stopped making payments to the tribe was because he was not able to close a deal with a financial partner, since the tribe had not fulfilled its obligation that would have allowed for BIA's full approval of the lease. Smith says $35 million in financing for the project ended up falling through.

"I had arranged for financing to complete the development of the project, the development of the terminal and the supply, but it was conditional on due diligence, including BIA's approval of the lease." According to Smith, a solution had been worked out concerning the issue of BIA approval, but then the tribal governor, Doyle, refused to sign the necessary document. "It was a lack of cooperation by the governor," Smith says. He explains that BIA had to go through an environmental impact statement for the project in order to approve the lease, but Quoddy Bay was not able to proceed without a valid lease. Smith says the solution was for BIA to approve the lease, conditional on approval from FERC, which would study environmental and cultural issues.

The LNG project is currently on hold, but Smith plans to resurrect it when it's financially and economically practical. He notes that if the lease is terminated, the tribe will be out of the $10-$12 million annual payments from Quoddy Bay, which would be made when the terminal was operating. "If Quoddy Bay resurrects the project on other land, the tribe will not receive any payments," says Smith. "It costs the tribe nothing to keep the lease in cold storage for a few years."

Quoddy Bay LNG so far has spent $17 million on the project. Smith says the current delays are because of the economic conditions in the U.S., which have made financing impractical, and the discovery of shale gas supplies in Texas and other parts of the southern U.S. He says Quoddy Bay and other LNG companies are waiting to see if it will be more economical to pipe the shale gas into New England or ship LNG gas from Maine to the Boston area markets. If the economy rebounds and if it proves to be too expensive to bring the shale gas supplies to New England, he will work to reestablish the Quoddy Bay project. Smith says he is presently looking at other sites for the LNG terminal, but he declines to specify any locations.

Concerning the two lawsuits by contractors, who are suing Quoddy Bay for nonpayment for services, Smith calls them "hassle suits." He says Quoddy Bay does owe some money but does not presently have any. The company has agreed to pay the amounts when it does have funding. TRC Environmental Corporation is suing for $1.2 million, and Coler & Colantonio Inc. has sued for $159,831. Neither suit has yet been settled.

Lease cancellation celebrated

BIA's decision comes in the wake of nearly five years of litigation and efforts by Nulankeyutmonen Nkihtaqmikon (NN), a group of tribal members who have been fighting the LNG proposal since BIA originally approved the ground lease in 2005. They maintain that the project threatens the ecological health of Passamaquoddy Bay and would destroy an area important to the tribe's cultural, spiritual and economic lives.

In a lawsuit filed in 2005 in U.S. District Court in Bangor, NN contended that BIA approved the lease authorizing the construction of the LNG terminal without complying with the National Environmental Policy Act and other federal environmental and historic protection laws. Since then, the Vermont Law School's Environmental and Natural Resources Law Clinic, which filed the suit on behalf of NN, has been attempting to overcome a series of procedural arguments raised by the U.S. Department of Justice in order to reach the merits of the case.

The ENRLC also prevailed in a companion lawsuit involving NN's Freedom of Information Act requests for records from BIA. A federal judge in Maine recently ruled that the BIA had violated FOIA by failing to promptly release the requested documents.

"The health of the bay's unique ecosystems depends upon sound decision‑making," Vera Francis, an organizer of NN, said in a release. "Quite unlike many other cultures, ours is a history enlivened by a bay rich in marine life, tides and beauty. We are the original occupants of this land, and it is our responsibility to keep it that way. We are celebrating the defeat of Quoddy Bay LNG and the lease cancellation."


© 2010 The Quoddy Tides
Eastport, Maine
Article republished on Save Passamaquoddy Bay website with permission.