By Patrick Rucker
WASHINGTON Feb 8 The U.S. Interior Department
said on Friday it will investigate whether coal miners and
traders skirted royalty payments on lucrative exports to Asia.
The probe aims to determine whether miners on federal land
wrongly cleared their sales through sister companies in order to
dodge royalty payouts, Interior Department Secretary Ken Salazar
wrote in a letter to lawmakers outlining the investigation.
Salazar has ordered officials to look for criminal
wrongdoing and he said civil penalties would be sought for any
deliberate royalty shortfall.
Salazar's letter follows a Reuters investigation that found
taxpayers stand to lose out on hundreds of millions of dollars
if current royalty practices hold sway and Asian coal demand
"The Department shares your concern that this matter should
be taken seriously and be thoroughly investigated," Salazar
wrote in the letter to the Senate Energy and Natural Resources
Specifically, Salazar said a special task force would audit
coal export sales from 2009, a year when many western miners
ramped up exports.
Arch Coal Inc, Peabody Energy Corp and Cloud
Peak Energy Corp. are among the leaders in Asian coal
exports. The companies did not immediately respond to a request
At the heart of the investigation is mining in the Powder
River Basin, a coal-rich region of eastern Montana and Wyoming
that supplies about 40 percent of U.S. demand and is chiefly on
For decades, officials promoted mining in the Powder River
Basin as a way to meet domestic energy needs but Asian demand
has more miners eager to take their product across the Pacific.
U.S. taxpayers are due 12.5 percent of the value of coal
from the Powder River Basin but Salazar wrote that royalty rules
have not kept up with the market.
One clue of a royalty shortfall, Salazar wrote, would be if
miners gain more from a coal sale than what they claim the fuel
By pushing their sales through affiliated brokers, Reuters
found, coal companies could clear their royalties at a low
domestic price and actually pocket more than that value when
prices in Asia climbed.
Such trading tactics should be halted if they are found,
senators Ron Wyden and Lisa Murkowski, the leading Democrat and
Republican respectively of the energy committee, told Salazar in
a January letter calling for action.
Mining companies have declined to explain how they book
Asian coal sales, and their securities filings give only a
partial picture of how miners operate in volatile energy
markets. Industry and publicly available data, though, indicates
that taxpayers stand to lose out.
Paying royalties calculated on the true gains from exports
to Asia from Wyoming and Montana rather than on the benchmark
domestic price would have yielded around $40 million in
additional revenue for the government last year alone, according
to data from Goldman Sachs and other analysts, and figures from
the U.S. Energy Information Administration.
Extended to the last few years of increased Asian demand,
that total could exceed $100 million in lost royalties. The sum
could balloon into billions of dollars if mining giants are able
to ship 150 million tons of coal a year or more through the
Pacific Northwest, as the industry wants.
Wyoming and Montana state auditors have said they are
concerned about the coal companies' trades and federal officials
drafted rules in 2011 meant to modernize royalty payments but
they have not been ratified.