Bionol ethanol plant hits snag

By Holly Jessen | June 10, 2010
Posted June 29, 2010

Bionol Clearfield LLC, a 100 MMgy ethanol plant that started producing ethanol early this year, is headed to arbitration to straighten out the details of a contract with Getty Petroleum Marketing Inc. Just over two months into a 5-year contract, Bionol said Getty breached that contract.

The Clearfield, Penn., plant is continuing to produce ethanol and Getty is still picking up and paying for it, said Samuel McConnell, vice president of Bionol. However, Getty isn't paying the agreed-upon contract price, claiming for a variety of reasons that the contract price is not valid. "Conversely, we're 100 percent confident in the validity of the contract and the contract formula price," McConnell told EPM.

Getty officially filed a Demand for Arbitration before the American Arbitration Association against Bionol on June 29. The company said it is continuing to pay Bionol millions of dollars monthly and is only withholding the amounts in dispute. "Getty's desire remains to work with Bionol to reach agreement with respect to the disputed amounts and in the absence of such agreement, to resolve those claims through the pending arbitration, all of which is contemplated under the ethanol agreement," said Vadim Gluzman, Getty CEO.

Although it's hard to pin down just how long arbitration will take, McConnall estimated less than a year. In the meantime, Bionol is keeping track of what Getty is paying for its ethanol, and how that differs from the contract price. The price Getty is paying Bionol varies and McConnell isn't sure on what the company is basing its rates. "It's truly a unilaterally imposed price and it's not transparent to us," he said.

Getty has more than 2 billion gallons of gasoline sales annually and more than 1,000 retail sites in Northeastern United States. The company, which is headquartered in East Meadow, New York, is a subsidiary of Lukoil Oil Company, the largest oil company in Russia.

Bionol, the first commercial-scale ethanol plant built in Pennsylvania, is a $270 million facility that produces 300,000 gallons of ethanol daily. The company purchases more than 100,000 bushels of corn, much of it locally grown, and has generated 65 direct jobs and significant economic development. "We expect Getty to honor its contractual commitments and we will zealously enforce our rights under the contract," said Stephen J. Gatto, Bionol's chairman and CEO.

Pennsylvania's Gov. Edward G. Rendell spoke up in a press release about the situation, calling Getty's demand for arbitration ill-conceived and inappropriate. "We believe that they would be better served by reaching an amicable resolution to this problem, which will pay Bionol in accordance with the Take or Pay Agreement," he said. "If they are unwilling to do so, I am prepared to take all the steps that are necessary to protect the interests of the Commonwealth in this matter."

UPDATED: Information added from Getty press release on official filing.