US coal sold too low, taxpayers lose millions -government watchdog

WASHINGTON, June 11 Tue Jun 11, 2013 2:03pm EDT

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WASHINGTON, June 11 (Reuters) - U.S. officials who administer a federal coal program have undervalued the fuel, costing taxpayers $62 million in some recent mining leases alone, said a government report released on Tuesday.

About 40 percent of the coal sold in the United States is drawn from federal land and the program is administered by the Interior Department's Bureau of Land Management, which is required to seek a fair price on behalf of taxpayers.

"We found weaknesses in the current coal sale process that could put the government at risk of not receiving the full, fair market value for the leases," Interior's Inspector General, the investigative arm of the department, said in an independent review.

Federal officials have often used a low benchmark price for determining the value of coal when a higher price was more fitting, the report concludes.

Such an error in finding a fair market value (FMV) can add up to large sums when such large blocks of coal are auctioned, the report finds.

Seven coal leases were conducted since 2011 in the coal-rich Powder River Basin of Wyoming and in those cases, the report concludes, and "even a 1-cent-per-ton undervaluation in the FMV calculation could result in a $3 million revenue loss."

The report also concludes that federal officials do not properly account for the value of Powder River Basin coal in export markets - particularly Asia.

In February, the Interior Department said that it will investigate whether coal companies wrongly cleared their sales through sister companies in order to skirt royalty payouts on those Asian sales.

Arch Coal Inc, Peabody Energy Corp and Cloud Peak Energy Inc. are among the leaders in Asian coal exports.

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