Past and present elements of reclamation bonding discussed

The first form of a surety bond was an honest handshake between two or more parties agreeing to a decision, and their personal guarantee of following through to completion. This has all changed. In 1895, the United States Treasury Department disclosed that $35 million worth of personal surety guarantees on file had become worthless. A law was then passed requiring all surety bonds, in favor of the United States, must be corporate surety bonds. Today, a surety bond is one of the nation's leading fi¬nancial instruments used to guarantee the completion of an obligation. One hundred-fifty years before cor¬porate surety bonds, outcrops near Richmond, VA, were being mined. These surface mines became under¬ground mines. Today, both are still being used to obtain a leading energy source, coal. Since that time, more than 5956 km2 (1.47 million acres) of coal mined lands have been reclaimed in the US (Coal News, August, 1987). More than 25,000 state and Federal mining permits cover¬ing 14,164 km2 (3.5 million acres) have been issued during the last 10 years. Coal production has exceeded 7.2 Gt (8 billion st). More than 5665 km2 (1.4 million acres) of mined land has been reclaimed by active coal mining opera¬tions and 267 km2 (66,000 acres) of abandoned mined lands have been re¬claimed by others. Reclamation bonds were freely writ¬ten in the 1970s. So why are they almost extinct today? Contract bond losses have been severe in the past several years, sureties reporting losses exceed¬ing 110%. But the same proof is not provided on coal reclamation bonds. A surety bond is generally required when one party has an agreement with another party, and that party wants a guarantee from a third party that a job will be completed according to the terms and conditions of a written contract. In the case of a reclamation bond, the surety company (surety) is the financial party. It extends the credit and a guarantee to the obligee (the State, Commonwealth, or Office of Surface Mining) that the principal (the coal operator/company) will complete the terms and conditions of the contract (the rules and regulations governing mining and reclamation). The Surety Association of America defines a surety bond as an agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. Webster's Dictionary defines surety in the following ways: "l: the state of being sure; 2a: a pledge or other formal engagement given for the fulfillment of an undertaking and; 3b: one who has become legally liable for the debt, de¬fault, or failure in duty of another." Banks never make accommodation loans. Either the loan is good or no loan is made. Surety companies feel the same way about surety bonds. In fact, the average person does not realize the dangers of becoming surety for another. How does a surety determine if a company is worthy of receiving surety credit? How is a coal account under¬written today for an obligation that may not be released for many years? When a surety company executes a reclama¬tion bond, it financially puts its name behind the coal company and its guaran¬tee that should the coal miner default on the obligation, the surety will fulfill the contract. How is the surety to determine if a coal company may still be in business five, 10, 20, or 40 years from today?