Pennsylvania Gov. Edward Rendell Friday sent a letter to Getty Petroleum Marketing Inc., urging it to work with ethanol producer Bionol Clearfield LLC to resolve differences over a purchase agreement as the oil company's demand for arbitration threatens the repayment of $65 million of tax-exempt revenue bonds.

The Pennsylvania Economic Development Financing Authority sold the $65 million of bonds in late January 2008 on behalf of Bionol to help finance a new ethanol plant in Clearfield County, located in the center of the state. Stern Brothers & Co. priced the revenue bonds via private placement. The terms bonds will mature in 2015 and were not rated.

Getty, the facility's main customer, made a demand for arbitration on June 1, as it seeks to end its five-year purchase contract. It also seeks monetary damages. Getty believes Bionol is overcharging it for ethanol and that Bionol did not fully disclose certain details about its revenue streams in its agreement with Getty.

As an alternative, Getty seeks damages and a revamped contract "to accurately reflect the intent of the parties by adjusting the pricing formula accordingly," according to the demand for arbitration.

The demand was part of an event notice filed June 22 on Municipal Securities Rulemaking Board's Electronic Municipal Market Access system, or EMMA.

Pennsylvania assisted the Bionol project with $25 million of loans and grants, in addition to access to tax-exempt debt sold through PEDFA. The bonds are not an obligation of the state. The Clearfield facility employs 65 people.

Rendell Friday wrote to Vadim Gluzman, chief executive officer at Lukoil Americas Corp., Getty's parent, to express his "outrage" at the arbitration demand.

"This take or pay agreement is Bionol's largest customer contract," Rendell wrote. "Bionol has informed me that it believes that this demand for arbitration is wholly without merit and as the result of the demand and other recent actions by Getty/Lukoil, Bionol faces difficulties with its lenders and may be required to cease operations and lay off its workforce."

The governor stressed that the state will not offer additional financial assistance for the project. He urged Getty to work with Bionol to resolve the issue. He added that the state will review to determine if "any legal actions are necessary to protect the interests of the commonwealth."

"I understand that the market price of ethanol is currently less than the price Getty/Lukoil has agreed to pay under the take or pay agreement and so an attempt by Getty/Lukoil to seek Bionol's voluntary agreement to price is, perhaps, understandable," Rendell's letter said. "What is improper, however, is for Getty/Lukoil to use arbitration merely to force Bionol to make concessions or in the hope that the commonwealth will make a further investment in this important facility."

According to the private placement memorandum, the bonds — and other Bionol debts, including state loans and grants — will be repaid from revenue generated from the facility. Getty serves as Bionol's main purchaser of ethanol. The facility began producing ethanol in January. Its ethanol capacity is 100 million gallons per year. Construction of the plant cost $266.2 million, according to the offering memo.

"It is anticipated that 100% of the expected production capacity of the project will be sold to Getty pursuant to the ethanol purchase agreement," according to an amendment in the offering memo.

Michael Lewis, Getty's general counsel, said in an e-mail that it continues to pay Bionol for ethanol and that Getty is open to finding a resolution.

"Getty's intention and desire remains to work with Bionol to reach agreement with regard to the disputed amounts," Lewis said. "Getty continues to purchase its contractual requirements of ethanol from Bionol and pay for all amounts not in dispute."

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