* U.S. coal miners aim to send more fuel abroad
* Federal land source of profitable, easy-to-reach coal
* Former officials say taxpayers must get fair share
By Patrick Rucker
WASHINGTON, Oct 18 Asian economies, hungry for
coal, stand to gain from a U.S. program meant to keep domestic
power cheap and abundant.
At issue is how much miners pay the government to tap the
coal-rich Powder River Basin in eastern Montana and Wyoming.
Much of the basin is on federal land.
Selling that coal cheap at a time of increasing exports
across the Pacific could amount to a U.S. taxpayer subsidy for
industrial rivals like China.
Government auditors have long faulted lax oversight of the
coal lease program, saying miners have too much sway. Officials
have defended the system, saying their approach is the right one
to help utilize a region that provides a large share of the
That argument has crumbled as more coal from federal land is
being sold overseas and Asian economies anticipate gains from
the program meant to keep lights on in American homes.
If U.S. miners can find ports to reach Asian markets easily
it could mean hundreds of millions of dollars in additional
profits and marginally lower coal prices for countries in those
U.S. coal exports have steadily climbed since 2009 and are
on track for a record high this year, as miners such as Peabody
Energy and Arch Coal scramble to ship surplus
coal overseas in deals that can double or triple their margins,
That dynamic raises questions about whether taxpayers are
essentially helping Asian economies save on energy costs,
according to six former officials who served both Democratic and
Republican presidents. The possibility of large-scale exports
was far from their minds when they managed federal land years
"A key question is whether the taxpayer is getting a fair
return on the use of those lands," said Lynn Scarlett, who
served as a deputy to two Secretaries of the Interior under
President George W. Bush between 2005 and 2009.
The investigative arm of Congress, the Government
Accountability Office, is examining whether miners are paying
fair market value for coal on federal land.
The Bureau of Land Management, which oversees coal leases
for the Department of the Interior, points out that the program
has generated more than $9 billion in revenue in the last
"It should be noted that the Bureau is obliged ... to obtain
fair market value, not maximize value, for federal coal," a
department spokeswoman said on Wednesday.
Questions about the coal lease program could frame an
intensifying debate about how the United States should manage
its abundance of fossil fuels and achieve energy independence.
The engine for future Asian coal profits is the Powder River
Basin - a high western plain where the black rock runs in rich
seams 10 stories deep. Eighty percent of the basin is on federal
Cloud Peak Energy of the Powder River Basin has seen
its Asian exports climb to nearly 5 million tons a year from
100,000 tons five years ago. While that is only about 5 percent
of sales, it accounted for nearly 19 percent of revenue last
year, according to securities filings.
Click here for a graphic on U.S. coal exports:
Miners need large coal ports on the West Coast to best tap
Asian markets. Opposition from environmentalists means
developing such ports is no sure bet in the near-term.
Without that coal export hub on the West Coast, shipments to
Asia would likely continue the costly and circuitous trip down
the Mississippi and through the Gulf of Mexico.
"We believe that Asia represents a promising source of sales
for the Powder River Basin, though (development) there is
acknowledged to be a number of years in the future," said
Peabody spokesman Vic Svec.
Powder River Basin prices have fallen by roughly a third in
the last 12 months owing in part to an abundance of cheap
natural gas, tougher pollution limits on power plants and
uncertain growth in China.
Still, analysts said, miners are eager to position
themselves to access Asian markets with big West Coast ports
when there is a rebound.
"It could be hugely lucrative, which is why they're all
trying to do it," said Goldman Sachs coal analyst Andre
Arch Coal, another mining giant with large reserves
on federal land, is partnering with an Australian company to
send coal through ports in the Pacific Northwest.
That partner, Ambre Energy, is already a big supplier of
coal to China and has said it wants to "take competitive
advantage of an undervalued US coal market," according to a
confidential prospectus seen by Reuters.
In the current market, benchmark Indonesian coal and its
equivalent in the Powder River Basin are valued roughly the same
at port, analysts said.
"But if the price of Indonesian coal went up, Powder River
Basin miners could try to take some of that market share," said
$30 BILLION SQUANDERED?
The easy-to-reach coal and sheer size of the Powder River
Basin explain the region's appeal, but the leasing program also
gives miners a boost, current and former officials said.
Rather than the government putting blocks of land up for
auction, miners select ideal plots at will and rarely face
rivals in the cash-bid process that awards new coal leases.
Officials tasked with seeking fair market value said exports
were not factored into a process that has frequently been
faulted by regulators as giving miners undue leverage.
In 1983 the GAO said the government lost $100 million in one
coal lease spree in the early 1980s.
A decade later the GAO noted that officials were still not
getting the most from coal leases, but "the department's defense
was that it was not seeking to maximize revenues but instead was
considering consumers who required electricity and jobs."
Former officials said the coal lease program was seen more
as an energy policy tool than a way to generate big revenues.
"Our guiding philosophy was: How do we serve the public
interest?" said John Leshy, the top attorney for the Department
of the Interior under President Bill Clinton, who said domestic
power plants counted on steady, low-cost coal supplies.
Now that coal giants are using the conventions of the
domestic coal economy to reach eager Asian markets, the
government should give the program a closer look, say former
officials who oversaw it.
"We are a nation of capitalists and reward enterprise," said
Bob Abbey, who in May stepped down as head of the Bureau of Land
Management. "But these are public resources, and there needs to
be a fair return for taxpayers."
Using the GAO report from 1983 as a benchmark, one analyst
concludes that the federal government missed out on nearly $30
billion in revenue over the last three decades through poor
management of the coal lease program.
"Without market competition for this coal, the government
has consistently left it undervalued," said Tom Sanzillo, a
former deputy comptroller for New York state who leads the
Institute for Energy Economics and Financial Analysis.
The Bureau of Land Management does not disclose its past
work to determine fair market value.
Sanzillo's report is partly what prompted lawmakers to
request that the GAO finish its report in about eight months.
Former officials who administered the coal lease program
said the next president could unilaterally retool standards for
leases if taxpayers are not getting their fair share.
"It goes back to the public interest," said Leshy. "Changing
the coal program is within the Secretary of the Interior's