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U.S. loses millions on coal leases, inspector general report says

June 12, 2013|By Neela Banerjee | This post has been corrected. See the note at the bottom for details.

WASHINGTON -- The Interior Department is losing tens of millions of dollars in revenue annually because it leases public land for coal mining at rock-bottom prices, according to a report by the agency’s inspector general

The report focuses on coal leases for federal and tribal lands sold by the Bureau of Land Management to mining companies. Most coal on public lands is in the Powder River Basin in Wyoming and Montana, a region that produces about 40% of the coal that the United States burns in its power plants.

“BLM has a responsibility to obtain a fair return for coal on public lands. We found weaknesses in the current sale process that could put the government at risk of not receiving the full value for the leases. For instance, we identified lost bonuses of $2 million from recent lease sales and $60 million in potentially undervalued lease modifications,” the inspector general’s report concluded.

The inspector general’s investigation is the latest to raise questions about the BLM’s leasing program, and the conclusions feed long-standing criticism by watchdogs, which say the BLM’s industry-friendly practices in effect give federal subsidies to big corporations.

In June 2012, a report by a Boston-based think tank, the Institute for Energy Economic & Financial Analysis, estimated that leasing coal for prices below market value has cost taxpayers nearly $29 billion in revenue over the last 30 years.

The study found that since 1991, nearly all the lease sales had only one bidder, and that companies offered to buy the coal rights to public land at cut-rate prices.

That report and other independent inquiries have prompted a second Interior Department investigation into whether mining companies are short-changing the government by undervaluing coal extracted for export.

The Government Accountability Office, at the request of Rep. Edward J. Markey  (D-Mass.), is also looking into coal leasing, and the House will hold a hearing on the issue next week.

“Today’s report highlights the issue of whether the BLM properly appraises the value of federal coal when it sells leases and the inspector general clearly thinks the agency came up short on this point,” said Sen. Ron Wyden (D-Ore.), chairman of the Senate Energy and Natural Resources Committee. “Because these issues are so important to taxpayers and Western states, Congress ought to dust off the books and take another look to ensure taxpayers are collecting every dime they’re owed.”

The Interior Department said it had already begun to take some steps recommended in the report. 

“The BLM is committed to ensuring that the American people receive a fair return for the development of coal resources on federal lands,” said BLM spokeswoman Celia Boddington. “And the report highlights some of the same issues that the bureau has been working to address over the past year.”

The inspector general’s report pointed out that a key reason behind the low price of the lease sales is that the BLM does its own appraisal of the value of the coal, rather than have it done by the Interior Department’s Office of Valuation Services. The valuation services office has the expertise to provide “independent real property valuation,” the inspector general said, and the report recommended that from now on, the value of a lease sale be set by that office, not BLM.

The BLM declined to say definitively whether it would transfer the appraisal responsibility to the Office of Valuation Services. It has committed to implementing the inspector general’s recommendations by the end of 2014 and convening a task force to look at the crucial issue of valuation.

[For the record, 8:01 p.m., June 12: A previous version of this post referred to the Government Accountability Office as the General Accounting Office.] 

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