* Report says valuable coal tracts were sold too cheaply
* Taxpayers stood to lose tens of millions of dollars
* Officials wrongly cleared coal sales in side deals -study
By Patrick Rucker
WASHINGTON, Feb 7 (Reuters) - U.S. officials wrongly aided coal companies seeking federal land leases and accepted below-value bids in a flawed program costing taxpayers tens of millions of dollars, according to an independent review of the U.S. Interior Department.
The department's Bureau of Land Management is responsible for protecting taxpayers when it doles out leases and collects royalties on coal sales.
Lease auctions are supposed to be blind, with officials seeking a fair price for taxpayers. But those auctions have been tainted by information-sharing with mining companies, the Interior Department's independent Inspector General Mary Kendall concluded.
"Some BLM state and field offices have conferred with the mining company during the sales process to expedite the completion of a coal lease sale," Kendall said in a letter to Senator Ron Wyden that was released on Friday.
"In our view, this is a form of negotiation currently prohibited by law and regulation."
The Interior Department is investigating whether miners who have tapped federal land are wrongly using affiliated brokers and traders to skirt royalty payments on lucrative coal sales to Asia.
Officials found cases of lax oversight and complacency in some of the biggest coal-exporting states of the West.
In Colorado, where 3 million tons of exported coal were sold through brokers in 2012, officials wrongly offered coal tracts at a discount and did not account for the export market, Kendall wrote.
"State offices generally did not factor in export prices," she wrote.
All of the 9 million tons of coal exported from Montana that year was sold through a trading desk, according to the Energy Information Administration.
Taxpayers are due a 12.5 percent royalty on coal sales. But by valuing coal at low domestic prices rather than the higher price fetched overseas, coal producers can dodge the larger royalty payout when mining federal land, a Reuters investigation found.
The Interior Department is serious about protecting taxpayers' interests, an official said, but its review of royalties is not due for completion before the end of 2015.
MINERS FACE MORE OVERSIGHT
Wyden, a Democrat, is due to step down soon as chairman of the Energy and Natural Resources Committee to become chairman of the Senate Finance Committee.
In a letter to Interior Secretary Sally Jewell, Wyden said that he had "deep concerns" about the federal coal lease program.
Wyden wrote that he is particularly concerned about weak oversight in coal-rich regions such as the Powder River Basin in eastern Montana and Wyoming, where the black rock can be found in 10-story seams.
Arch Coal Inc, Peabody Energy and Cloud Peak Energy all hope to soon reach Asian markets by moving Powder River Basin coal through Wyden's home state of Oregon.
Wyden said this week that he will "dig deeper" into how miners book royalty payments. Congressional observers said he might have more power to do that in his new senate role.
"The Finance Committee looks after the government's money and, in that light, Wyden could certainly continue to be a watchdog here," said Steve Ellis of the nonprofit Taxpayer for Common Sense.
Arch Coal, Peabody Energy and Cloud Peak Energy did not immediately respond to a call for comment.