U.S. to probe coal export royalties paid on public lands

Are U.S. taxpayers losing millions in royalty revenues on coal mined on federal lands because of alleged undervaluation of coal export sales?

Allegations raised by Thomson Reuters that U.S. taxpayers are missing out on millions of dollars in royalties from coal mined on federal and tribal lands–especially in the Powder River Basin of Wyoming and Montana–have prompted an investigation by both the Secretary of the Interior and the U.S. Senate Energy and Natural Resources Committee.

In the January Reuters story, it was reported, “By valuing coal at low domestic prices rather than the much higher price fetched overseas, coal producers can dodge the larger royalty payment when mining federal land.”

“The practice stands to pad the bottom line for the mining sector if Asian exports surge in the coming years as the industry hopes, A Reuters investigation has found.”

“Current and former regulators say their supervisory work has lagged the mining industry as it eyes markets across the Pacific. They say they will now give the royalty question a close look,” said the report.

More than 460.3 million tons of coal mined on federal lands was sold in Fiscal Year 2012 with a total sales value of US$8.1 billion, generating more than $875.8 million in royalty revenues.

In a letter last month to Interior Secretary Ken Salazar, U.S. Senate Energy and Resources Chairman Ron Wyden, D-Oregon, and Ranking Committee Member Sen. Lisa Murkowski, R-Alaska, suggested, “Because royalties from federal coal are shared with the states in which that coal is mined, affected states may also be losing millions of dollars in revenue.”

“As companies seek to ship more coal overseas, taxpayers must be confident that the Bureau of Land Management (BLM) and the ONRR [Office of Natural Resources Revenues] have stringent royalty collection and auditing controls in place as coal markets become increasingly oriented toward international buyers,” said Wyden and Murkowski.

In a letter to the Senate Energy and Natural Resources Committee, Salazar said the Department of Interior has developed an action plan and convened a task force—“with a focus on sales to overseas markets—to ensure that coal companies are properly reporting and paying royalties.”

“These actions demonstrate the benefits of conducting oversight,” Wyden and Murkowski said in a joint statement. “We are particularly pleased with the formation of a task force to ensure coal to ensure coal companies have paid their fair share when coal is mined on public lands and sold overseas.”

The task force will undertake a two-step review of sales summaries and contracts between 2009 and 2011. “This is faster than the agency’s typical audit cycle that reviews sales three years after they have taken place,” said the senators.

The second step of the review will include, on a risk-based approach, non-audited or reviewed mines and leases between 2001 and 2008. Both reviews will initially focus on the Powder River Basin in Wyoming and Montana, before expanding to other states such as Utah and Colorado.

The BLM reports that more than 94% of federal coal is mined in Wyoming, Montana, Colorado and Utah. Energy Information Administration data reveals exports from these states has more than tripled to 21.2 million tons between 2009 and 2011.

More than 374.8 million tons were mined from federal lands in the state of Wyoming in FY 2012. The sales value of this coal was $5.2 billion with royalty revenue of $637.4 million, according to ONRR.  Wyoming’s Economic Analysis Division projected last year that coal royalty receipts would total $631 million during the state’s two year budget.

Montana coal exports have increased almost six-fold from 2 million tons in 2009 to 13.2 million tons in 2011. The state is now the third largest coal exporter. More than 26.7 million tons of coal was mined from federal lands in Montana in FY2012. The reported sales value of this coal was $439.1 million, generating royalty revenue of $48.1 million.

Colorado export exports more than tripled between 2009 and 2001 to 3 million tons with more than 18.6 million tons of coal produced from federal lands. The reported sales value of this coal was $918.1 million, generating royalty revenue of $57.7 million.

More than 13 million tons of coal was mined from federal lands in Utah in FY2012 at a reported sales value of $521.3 million, generating royalty revenue of $36 million.

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