Last week, the Office of the Inspector General (OIG) of the Department of the Interior (DOI) published a report highlighting apparent weaknesses in the coal sale process overseen by the DOI’s Bureau of Land Management (BLM), which allegedly have resulted in lost bonus revenues of $2 million in recent lease sales and $60 million in potentially undervalued lease modifications.  The report also raised concerns about BLM’s inspection and enforcement activities, and recommended changes to those activities and to other aspects of the coal leasing program.  BLM implementation of OIG’s recommendations is likely to increase the value of public and Indian lands leased for coal exploration, thereby increasing the cost of federal coal leases.  In addition, more comprehensive appraisals for lease modifications are likely to lengthen and potentially complicate that process. 

To enter into a coal lease with BLM, a company must first apply for a license to explore.  It then submits a lease request to BLM that contains detailed information about the project.  BLM is responsible for calculating the fair market value (FMV) of the lease, an amount that is kept secret, and for publicly announcing the sale.  BLM then awards the lease through a competitive sealed bid process.  The public has an opportunity to comment at several points during this process.  The winning “highest qualified company” with a bid of at least the FMV then pays the first installment of the bid “bonus” (the amount paid by the company to obtain the lease), with the remainder being paid over the next four years.  During the lease period, BLM inspects the mine to ensure compliance with the lease. In 2012, BLM collected $2.4 billion in royalties and bonus bids, the highest amount recorded in the past 10 years and nearly a 200 percent increase over BLM’s 2010 collections.

Several of OIG’s concerns are centered around BLM’s process for establishing FMVs for particular lands.  Among OIG’s concerns is BLM’s continued use of its own appraisers to make FMV decisions in apparent violation of a May 2010 Secretarial Order that placed responsibility for FMV determinations within DOI’s Offic company must first apply for a license to explore.  It then submits a lease request to BLM that contains detailed information about the project.  BLM is responsible for calculating the fair market value (FMV) of the lease, an amount that is kept secret, and for publicly announcing the sale.  BLM then awards the lea noncompetitive petitive sealed bid process.  The public has an opportunity to comment at several points during this process.  The winning “highest qualified company” with a bid of at least the FMV then pays the first installment of the bid “bonus” (the amount paid by the company to obtain the lease), with the remainder being paid over the next four years.  During the lease period, BLM inspects the mine to ensure compliance wich &llease. In 2012, BLM collected $2.4 billion in royalties and bonus bids, the highest amount recorded in the past 10 years and nearly a 200 percent increase over BLM’s 2010 collections.

Several of OIG’s concerns are centered around BLM’s process for establishing FMVs for particular lands.  Among OIG’s concerns is BLM&rsquo%ont-family: Symbol"> Work with OVS to determine FMVs for particular leases and for lease modification appraisals, and to take necessary action to account for export potential in determining FMVs;

• Design a coal lease sale process that ensures a consistent approach across all BLM state offices, reject bids below FMV, consider improving the lease reoffer process and strengthen BLM’s internal safeguards over FMV records;

•  Require state and field offices to conduct inspections of exploration operations, require coal companies to certify the accuracy of exploration data and verify such data through an independent laboratory; and

•  Revamp BLM’s inspection and enforcement program.

BLM concurred with 12 of the 13 recommendations and partially concurred with the remaining recommendation regarding inspection and enforcement on the grounds that existing law limits its enforcement authority with respect to unpaid royalties.   Strengthening of BLM’s inspection and enforcement capabilities is likely to increase the number of inspections and resulting enforcement actions and could slow down or reduce mining operations.