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Arbitration and the Price Term in Long-Term Coal Supply Contracts: Law, Practice, and Getting the Right Answer

Michael J. Gallagher, Proceedings of 53rd Annual Rocky Mountain Mineral Law Institute (2007)

Most modern long-term coal supply contracts provide for resolution of disputes by arbitration. Among the most complex disputes resolved by arbitration under long-term coal contracts are disputes arising under provisions in these contracts that call for the adjustment of the coal price in the later years of the contractual relationship. These “price adjustment” or “price reopener” provisions take many forms. Generally, they provide for the adjustment of the price of coal to reflect changes in coal markets; changes in the cost of key commodities like fuel oil, steel, and explosives; changes in the overall cost of mining and transporting coal; changes in the cost of complying with environmental and other regulatory requirements; and other matters that can, over time, radically change the economics of a long-term coal supply contract. Arbitrations under price adjustment provisions often require the resolution of complex technical issues, involving expertise in diverse areas such as mine planning and engineering, coal mine budgeting, the development of capital budgets, cost accounting, and coal industry economics. Because of the importance of the price term to all parties and the complexity of the issues presented, these price term arbitrations are often both contentious and expensive.
This chapter discusses price term arbitrations and includes a number of practical suggestions