The report mainly focuses on the sale of coal from federal reserves in the Powder River Basin and said that the Bureau of Land Management, an arm of the DOI that has “a legal obligation to the American public to secure a fair market value for coal”, has severely undervalued the fuel.
“We found weakness in the current coal sale process that could put the government at risk of not receiving the full, fair market value for the leases,” the inspector general’s report said.
“For instance, we identified lost bonus revenues of $2 million in recent lease sales and $60 million in potentially undervalued lease modifications. In addition, flaws in the inspection and enforcement program could prevent BLM personal from detecting noncompliance with laws, regulations and lease terms.”
The report scolds the BLM for not using the appropriate government channels to determine a fair market value for a ton of coal and found that at the current rate of coal leasing, every penny-a-ton undervaluation cost taxpayers $3 million.
“BLM does not use the Department’s Office of Valuation Services (OVS) to prepare the FMV appraisals,” the report scolded.
“Instead, BLM has continued to prepare the appraisals using its own appraisers, which does not comply with Secretarial Order No. 3300, issued in May 2010. The order intended to foster independence by taking responsibility for the valuation process from the bureaus and placing it with OVS.”
The report goes on to note that mineral valuation is a “complex and unique field of appraisal, requiring special training” and for the billions of tons of taxpayer-owned coal “an accurate valuation of the mineral is essential for ensuring the Government receives the proper amount for each lease.”
Federal officials have been using a benchmark price that is lower than acceptable, particularly for coal exported to Asia, the report concluded.
It also found that the BLM has been remiss in abiding with rules adopted in the 1980s to ensure competition for the leases. The inspector general found that over 80% of BLM coal sales over the past 20 years had received only a single bid.
The inspector general’s review of coal leasing was prompted by the results of an independent study released last year that accused the BLM of failing to secure fair market value for coal over the past 30 years, costing taxpayers almost $30 billion. This figure was disputed by the DOI.
The report makes 13 recommendations for strengthening the program to make sure taxpayers are not getting shortchanged and encourages the BLM to act quickly to ensure that 4 billion tons of PRB coal approaching sale reaps an appropriate rate.
According to The New York Times, the BLM concurred with most of the findings and said it was carrying out most of the recommendations in the report. Neil Kornze, the bureau’s deputy director, said in a letter to the inspector-general that the agency was rewriting its procedures and creating a task force to review its process of evaluating coal lands.
Kornze disputed the report’s conclusion that the government lost as much as $60 million by undervaluing lease modifications, saying the figure was most likely considerably lower.
“The report highlights some of the same concerns that the B.L.M. has been working to address,” Mr. Kornze said in the letter.
“The B.L.M.’s ongoing efforts, combined with addressing the recommendations in the draft report, will help to improve the agency’s management of the coal program.”
The review is one of a number of investigations underway into coal leasing and royalties.
DOI’s Office of Natural Resources Revenue began an investigation into possible violations involving royalties on export-bound coal in February.
The Government Accountability Office is also investigating the BLM coal leasing program following a letter from congressman Ed Markey. The report is expected next month.
The House Subcommittee on Energy and Mineral Resources is holding a hearing next Thursday on coal-leasing practices where more information about the BLM’s program is expected to be unearthed.
