science environment

Financial Facts About Exporting U.S. Coal To Asia

By Bonnie Stewart (OPB)
June 19, 2013 3:44 a.m.
A coal train moves through Wyoming where the coal is mined from the Powder River Basin.

A coal train moves through Wyoming where the coal is mined from the Powder River Basin.

Katie Campbell

Many people, including the public officials in Oregon and Washington, have been asking how coal companies can make a reasonable profit by mining coal in Wyoming and Montana, hauling it to the West Coast by train and then shipping it across the ocean to Asia.

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The answer, in part, can be found in how the federal government has been managing and mismanaging this publicly owned natural resource.

Coal Leases

The Bureau of Land Management (BLM) leases coal-rich lands to mining companies, but an investigation by the Inspector General for the U.S.Department of Interior found many shortcomings in the regulatory system that allow the public's coal to be sold for less than it's worth.

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  • Few coal companies have to compete with each other to win a coal lease. More than "80 percent of the sales for coal leases in the Powder River Basin received only one bid in the past 20 years."

  • Coal companies are supposed to pay the "fair market value" for the coal, but BLM has been undervaluing the coal in some cases by not fully accounting for the export potential of the coal or the fact that the "price of exported coal has more than doubled from 2007 through 2011."

  • The BLM relies on unverified information from coal companies to calculate the "fair market value." That information includes the quality and energy content of the coal in the leased land.

  • The BLM has accepted bids even though the bids fell below the agency's "fair market value" price.

  • The BLM has been allowing coal companies to expand their coal acreage, adding less desireable property without any competition. A sampling of those leases found that on average the lease prices were 80 percent lower than the prices of the original leases.

Coal Royalty Payments

Coal companies pay a royalty fee of 12.5 percent on their gross sales, but they can deduct a lot of expenses from this figure.

  • They may deduct the cost of washing their coal to prepare it for shipping.

  • They may deduct the cost of transporting the coal to buyers.

  • They may ask BLM officials to lower their royalty rates if they can show they are having financial difficulties. The BLM officials who must make the determination do not have accounting expertise to analyze the coal company's self-reported information.

Sources:

"Evaluation: Coal Management Program," Office of the Inspector General. U.S. Department of the Interior. Report No.: CR-EV-BLM-0001-2012. June 2013.

"Coal Operations," U.S. Department of Interior: Bureau of Land Management website.

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