By JEREMY FUGLEBERG Casper Star-Tribune |

CASPER, Wyo. — A Houston-based company is seeking a state loan of up to $300 million to help pay for the construction of a plant in Wyoming that would convert coal to gasoline.

DKRW Advanced Fuels took the first step toward asking for the loan on Dec. 1, according to an email sent to state legislators and obtained by the Casper Star-Tribune.

After the proposed $2.7 billion project near Medicine Bow is vetted by the Wyoming Business Council and state officials, DKRW must receive the loan approval from Gov. Matt Mead and the state Legislature.

The company’s request was issued through a wholly owned subsidiary. It dwarfs all other similar applications for state-provided financing and is the latest development in a project that has run into financing trouble in the past.

Funding conundrum

DKRW first proposed the project in 2004 but canceled its construction start date in 2009 after company representatives said the recession dried up potential financing.

The company applied for a federal loan guarantee and performed some initial dirt work at the project site, where DKRW hopes to convert coal from a nearby mine into 445,200 gallons of gasoline each day.

But while the company recently lined up a buyer for the gasoline it would produce, its loan guarantee request fell into uncertainty in October as the Department of Energy decided to review many of the applications under consideration.

The loan guarantee is “still in the works,” DKRW executive chairman Bob Kelly said.

His company intends to begin construction on the plant by mid-2012 and is seeking financing from both public and private sources, although he declined to get more specific.

“We are going to make sure we’ve got all the funding sources to get it done, regardless of the outcome of any single activity,” he said.

State participation

The company is now asking the state to participate in the project, as it never has before.

Kelly said the governor and the Legislature, which must sign off on this type of loan if it totals more than $100 million, could decide the company should settle for a smaller request.

“It’s really going to depend on the Legislature and the governor, what they’re comfortable with, and those discussions are ongoing,” he said.

The state would pay the money out of the Permanent Mineral Trust Fund by purchasing industrial development bonds issued by Carbon County.

The state would then loan the money to DKRW at a yet-to-be-determined interest rate.

The state has only approved two such projects since the funding program started in 1999, and those projects only totaled $5 million each.

Earlier this year the Legislature renewed the program, which was set to expire, and boosted the cap for such requests from $100 million to $600 million. But it required that any project costing more than $100 million receive the approval of the Legislature.

Supporters of the higher cap argued it would give Wyoming more flexibility in encouraging economic development in the state.

But other legislators and State Treasurer Joe Meyer said they were uneasy about a move to raise the cap, arguing such an amount was needlessly high and could jeopardize the state’s rainy-day fund.

In comments to the Star-Tribune in February when the Legislature was considering the bill, Meyer pointed to the failure of the most recent industrial bond investment, a 2004 purchase totaling $4.6 million for aviation firm Hawkins & Powers in Big Horn County.

“That didn’t work out well,” Meyer recalled Monday. “The company went belly-up.”

Hawkins & Powers defaulted and ended up selling its property to cover its loan payments, but didn’t pay $150,000 in interest.

The DRKW project is the first to take advantage of the Legislative decision to exceed the old $100 million cap, said Mike Martin, business finance manager for the Wyoming Business Council.

The Business Council is currently reviewing the company’s application, has requested some additional information, and hopes to complete its review and produce a recommendation for policymakers by the next legislative session in February.

“This one is big,” Martin said. “It’s big because of the tech; it’s big because of the size of it.”

DKRW originally wanted to ask for the full $600 million available per year through the industrial bond program, Meyer said.

“That would use every bit,” he said.

The future of DKRW’s request could also hinge on what it’s willing to offer the state as a guarantee it will pay back the loan.

The company already has secured a contract to sell carbon dioxide produced in the conversion process, and told state legislators it expects to generate about $500,000 a year in revenue selling gasoline to Vitol Inc., the United States subsidiary of Geneva, Switzerland-based Vitol SA.

“It would all depend on what they may offer to put up for collateral,” Meyer said.

Meyer said he will carefully review the Business Council’s report and recommendations, and look at possible loan interest rates that will match the riskiness of the project before discussing the next step with Gov. Matt Mead.

In a statement issued Monday, Mead spokesman Renny MacKay said the governor is interested in projects that add value to the state’s natural resources.

“Governor Mead recognizes that this proposal for bonding from DKRW is in the early stages and looks forward to a review of the proposal from the Business Council,” MacKay said.

DKRW also intends to apply for tax-exempt bonds issued by the county for solid waste disposal, said Kelly, the company’s executive chairman.

But he wasn’t sure how much DKRW would request because company engineers are still examining the plant and its process to determine how they would qualify.

Kelly said the project holds great promise for thousands of construction jobs in Carbon County, hundreds of jobs at the plant when it goes into operation, and a new future for Wyoming coal.

“We think it’s an area where we can create a key market for coal, and we’re happy to do that,” he said. “And of course Wyoming, which is one of the biggest coal-producing states, this is an important part of future revenue.”

Kelly said he’s aware that Mead and the Legislature will need to reach consensus on a decision with which they’re comfortable.

“Nobody is going to do anything they don’t feel is prudent,” he said. “I’m going to leave that in their good hands.”