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A haul truck works a coal seam at a mine in the Powder River Basin in Wyoming in this undated photo. U.S. taxpayers are set to miss out on billions of dollars in royalty payments in coming years as a larger share of the black rock pulled from the coal-rich Powder River Basin in Wyoming and Montana is shipped to Asia.
By valuing coal at low domestic prices rather than the much higher price fetched overseas, coal producers can dodge the larger royalty payout when mining federal land.
The practice stands to pad the bottom line for the mining sector if Asian exports surge in coming years as the industry hopes, a Reuters investigation has found.
Current and former regulators say their supervisory work has lagged the mining industry as it eyed markets across the Pacific. They say they will now give the royalty question a close look.
"We are committed to collecting every dollar due," said Patrick Etchart, spokesman for the Office of Natural Resources Revenue, which collects federal royalties.
At issue is the black rock pulled from the coal-rich Powder River Basin in Wyoming and Montana. Miners there say they abide by the letter of royalty rules that call for the government to get a 12.5 percent cut on coal sold under federal lease.
The question is: At what point is that coal valued?
Most Powder River Basin coal is sold domestically, where prices have been depressed by a glut of natural gas and regulations meant to curb pollution.
But Asian economies rely on coal to sustain growth, so the ton worth about $13 near the Powder River Basin mines last year fetched roughly 10 times that in China.
After deducting costs like shipping by sea and rail, that ton of Powder River Basin coal sold in China last year would have returned about $30 to the miners, several industry analysts estimate.
Coal is loaded onto rail cars leaving a coal mine in the Powder River Basin.
Luther Lu, director at China-based Fenwei Energy Consulting, said the figure was closer to half that, with miners up against other costs that would have cut into their margin.
Whatever the take-home for miners, several royalty experts said, the taxpayer is due a share of the final sale price overseas.
Powder River Basin mining companies disagree and say that they are right to pay out royalties at the low domestic prices.
"If you look at the regulations, we are not required to do a net-back," said Karla Kimrey, a spokeswoman for Cloud Peak Energy, referring to the return on Asian sales. The taxpayers' bite would be based on that number.
The rules that govern Powder River Basin sales to Asia deserve a more rigorous review, and short royalty payments will not be tolerated, Etchart said.
The royalties question will remain an important one as Asian coal exports look set to expand and the United States faces a fiscal crisis.
"How do you justify paying royalties at anything less than the true value, particularly in these times of tight budgets?" said Autumn Hanna of the nonpartisan Taxpayers for Common Sense.
$100 million short?
Mining companies 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, indicate that taxpayers stand to lose out.
Paying royalties calculated on the net-back formula for Asian exports 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 forgone royalties. The sum could balloon into billions of dollars if mining giants are allowed to ship 150 million tons of coal a year or more through the Pacific Northwest, as the industry wants.
Of course, if the companies are more profitable because of lower royalty payments, they may well be paying more in corporate taxes, though some experts dispute the point.
"A certain $1 collected on royalties is worth more than the unsure tax take," said Tom Sanzillo, a former deputy comptroller for New York state who has studied the economics of coal exports with the Institute for Energy Economics and Financial Analysis.
For now, the debate over exports from the Powder River Basin is of limited scope: Less than 4 percent of the roughly 476 million tons of coal produced in Wyoming and Montana was exported last year, according to the EIA. Three-quarters of U.S. coal exports are bound for Europe or other non-Asian ports, much of that from private, not federal lands, in the Appalachian region.
But Asian economies such as India and China cannot grow without abundant electricity, and that demand has opened a window for a U.S. coal sector long focused on delivering domestic power.
'Exports were not on the radar’
Several large coal companies mine the Powder River Basin - a high, grassy plain in eastern Montana and Wyoming. Cloud Peak exclusively works that terrain, which is chiefly on federal land. The company was in a position to save tens of millions of dollars in recent years by their reading of royalty rules.
Less than 5 percent of Cloud Peak coal was shipped to Asia last year, but that accounted for nearly 19 percent of total revenue, or about $290 million. A year earlier, Asian sales were only 3.4 percent of the total volume but 12 percent of revenue.
Cloud Peak, Peabody Energy and Arch Coal all declined to explain how they book their Asia business, but a large share of Powder River Basin sales passes through traders.
Sales to brokers and traders are allowed, but royalty rules assume that those buyers' economic interest is opposite to miners'. Sales to in-house or affiliated traders are due more scrutiny under the law.
"We are familiar with the rules around both arms-length and non-arms-length transaction and fully comply with both," said Vic Svec, a Peabody Energy spokesman, referring to the principle that is supposed to guide such sales.
Arch Coal declined to comment on their trading business, and Cloud Peak said it faces frequent audits from state and federal officials to make sure they follow the rules.
"In my neighborhood, I don't stop at every block. I could. But that's not where the stop signs are," said Cloud Peak spokeswoman Karla Kimrey. "You can say you don't like the regulations, but we play by the rules."
Former and current officials said the government has been slow to understand the power of foreign markets or protect the taxpayer's stake in those lucrative sales.
"Exports were simply not on the radar," said Bob Abbey, who in May stepped down as head of the Bureau of Land Management, the agency that grants federal coal leases.
A precedent in gas
While the industry says it is acting above-board, outside lawyers point to a natural gas precedent that they say further indicates the issue is far from settled.
In the late 1970s, Marathon Oil Corp. used a similar accounting system to settle royalties on natural gas that was produced in Alaska but sold to Japan.
A federal court eventually told Marathon to pay out royalties based on the overseas value. Officials leveled a $10 million fine against Marathon.
Peter Appel, a former Justice Department attorney, said the case shows that officials expect taxpayers to get a taste of the true gains on exported fuel.
"This ruling should give officials confidence to give a hard look at coal sales," said Appel, who prosecuted cases for the DOJ's Environment and Natural Resources Division and teaches at the University of Georgia School of Law.
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Seems to be a new pattern where companies that have been paying according to the letter of law are now expected to pay according to the "spirit" of the law. The UK is now going through this "evolution" too.
The "letter of the law" based rules were written by Congressmen and Senators paid for by the lobbyists. So, go figure why the royalty payment to the federal government for oil, gas, and minerals mined in federal land is so low in this country, That is one of the reasons that the oil companies are awash with profits.
I thought that these coal operators were a victim of Obama's "War On Coal" and they were taking a beating leading to layoffs etc.? More lies from the 1%.
Everyone is "supposed" to pay to the spirit of the law - that's why the law exists. In actuality, everyone will end up paying to the letter of the law, because they want to make a profit - that's why the company exists.
Badly written laws don't match the letter to the spirit and should be replaced with ones that do. You can't blame the company for looking out for itself if it's not actually illegal. All you can do is change the law.
So let me see if I've got this right, the coal companies are shipping coal overseas, Big Oil is exporting more oil from the US than we're importing so in our efforts to 'Make America Energy Independent' by producing more of our own energy here at home all the 'Drill Baby Drill' and 'Go Ahead And Level That Mountain' crowd are really doing is getting more and more of our "home grown energy" shipped overseas to the benefit and profit of a small handful while more rapidly depleting these finite resources that future generations might need to rely on.
Have I summed that up just about right??
What a load of crap. More tax revenue from coal miners wouldn't benefit the taxpayers, it would benefit the government and its bureaucrats. Do you really think government is going to cut taxes just because its making a little more revenue? Dream on.
Good luck changing the law on extraction industries with the Grand Ole Plutocrat party running the House. They are ALL bought and paid for by these industries... hence the reason that the Tea Party is basically an outreach program for the Koch brothers, coal and oil industries.
Here we (USA) are having stricter rules for using coal because of the green house effect..but two thirds of the world are burning coal like crazy. If the rules for a cleaner earth goes to us, it should also go to every other country!
Screw the tax payers, screw the worker miners, it seems that the coal industry needs a major revamp and looking at.
These companies are supposed to be paying royalties based on what they actually sell the coal for, not some theoretical price they would have received had they sold the coal here in the US. They are gaming the system and need to be taken to account for skimming from the government. They should be forced to pay the royalties they owe based on the actual sale price plus triple that amount in fines for their fraud. Maybe that will teach them to play it straight the next time around.
Burning coal is attacking the planet. It should be phased out and completely illegal to burn or export it in a few years.
People have been made afraid of "Protectionism" when that is what it will take to get what we deserve. All coal and oil shipped out of the country should pay an export tax and all stuff made overseas even if by American based corporations should have a stiff enough tarrif so as to make our products actaually made here have a market HERE.
This will keep more money circulating in America for Americans. This policy will also help foriegn workers who can then make more money than slave wages as their tarrifs will be based on a cost to us minus their cost.
This basically was what was planned after WW2 until Japan and other countries got going again with our investments but soon there was no getting any reciprical deal for what dollars went to them as investments that took work from us.
The shoe industry, the garment industry and many others all left and now it is the high tech industry, all of which were doing fine for us until the anti regulation army of lobbyists took over. Guys like Grover Norquist are not real Americans, they are agents for firms overseas. Why don't we just kick their asses out of here.
Our unions were a good idea but are so corrupted that people are tired of them. Unions should begin again without the gangster element in charge and their duty reduced to collective barganing. Unions as well as Corporations should not be allowed to take money from their members or stock holders to spend on elections. One man one vote needs to be the rule as we have a right to expect. Each individual can give money to any political party without the bos or the union knowing anything about it.
All that would make a good beginning to putting us back on our feet.
We are already the only major industrialized nation that gives away the value of its domestic energy resources to private for-profit companies.
Norway has fueled a $534 million budget surplus along with free healthcare, college educations and retirement plans for every one of its citizens through its oil profits.
Venezuela has done the same.
America? We pad the pockets of a few well-connected oil and coal men who rape our public lands for their own benefit.
Now they won't even pay the pittance we get for royalties. Scum.
The "letter of the law" based laws were written by Congressmen and Senators paid for by the lobbyists. So, go figure why the royalty payment to the federal government for oil, gas, and minerals mined in federal land is so low in this country, That is one of the reasons that the oil companies are awash with profits.
Many are sad that the taxes are low maybe "liberals" and myself a conservative I am happy the miners have jobs.
And yet they still demand tax subsidies from the rest of us taxpayers, on top of ripping us off in royalty payments.
They're getting it coming and going, looks like.
Phil - are you happy about fixing the roads for the coal guys to drive their trucks on?
Are you happy about providing them with fire service? Ports? Bridges?
I'm glad you're so generous with your hard-earned money, but I'd like to keep a little more of mine, thanks. I think the energy companies can afford it - I can't.
Another example of the US Taxpayer being ripped by legislation written and passed by prior generations of the GOP.
They're doing what's legally afforded them.
Let's put it this way: Suppose you bought a home, and your mortgage is based off a higher value prior to the bubble bursting. You're still paying for that higher mortgage value, and you get 100% of your deduction from mortgage interest. Is it fair to only allow you to deduct less, because the value of the home is less now, and thus the tax credit assessed is based off of current value?
It's a screwed up situation either way, but simplification of the tax code is needed. Just saying, "Those fatcats need to pay more" isn't a solution. "Robin Hood" is not a valid economic policy.
" "Those fatcats need to pay more" isn't a solution. " < it is the exact solution
Your mortgage interest and associated deduction aren't tied to the market value of your home - they simply reflect the amount you borrowed. Property taxes would be a better analogy - they are supposed to be tied to an approximate market rate. If your home is suddenly worth 100K when it used to be 500K, I bet you would want it re-appraised. Of course these guys want to pay Royalties off of an artificially low number but it still doesn't make it right. Market value is what they are selling it for regardless of domestic vs international.
Yeah, it's funny how they want to pay low wages in America because "it's now a global economy".
But when it comes to paying taxes, it's all local.
Right.
reminds one of how much of our forest lands were cut down to send to Japan for a pittance
It's great that we're cutting back on the burning of coal only to send the coal to Asia for them to burn? What's the difference except it makes our energy costs higher.
Oh, but now it's polluting their air instead of ours. It's not like air moves around from one side of the world to the other! (sarc)
""We are committed to collecting every dollar due," said Patrick Etchart, spokesman for the Office of Natural Resources Revenue, which collects federal royalties."
Congressmen helping their coal and oil buddies milk citizen-owned coal and oil will BLOCK any chance of the government getting proper royalties. For example, royalties for oil pumped from federal land were based on old $35/barrel prices and the the citizens got $6 for each $35 barrel. But, for price above $35, the federal gov't gets 1 cent per dollar. So for $70/barrel oil, instead of 2x$6= $12, America gets $6.35. When oil is $100/barrel, America gets $6.65. It costs about $2.75 to drill, pump, and transport each barrel.
They're raping the land, ripping off the tax payer, and shipping the resource that was mined from publicly owned land overseas for profit. Once again, there's nothing good to say about the coal mining industry. There isn't anything good to say about the oil industry either for the same reasons.
Says the guy using a computer powered by a coal-generated plant...on a plastic keyboard made from oil...great point Beaner.
Well said, Tim.
Maybe we could tax and add hypocricy royalty fees for news vine commenters?
And that has what to do with the unethical behavior of the coal and oil companies? Please do tell. You completely missed the point I was trying to make....
Not everyone lives where they use coal for electricity. If you do, it's probably because your citizens haven't wised up to how dirty they are and what you're breathing.
Me? I'm using wind power. Get with the 21st century, boys.
The Coal that they are mining on Federal Land belongs to the people of this country NOT to the Coal companies. Same thing with OIL. The people of this country should get Royalties from the Mining of Coal and OIL. Instead some @#$%$#@$ are getting Filthy Rich off of OUR Resources.
A British company owns the largest gold mine in America.
Americas laws are written by Dems & Repubs.
And the GOP is bought by the Koch brothers. Who make their money off that public land oil & gas.
Don't give the tax money to the US Government, give it back to the Chinese to pay off all those Treasuries they are holding, i.e., reduce the debt!!!
Erm, you do realize none of the coal companies' money is going to pay off the debt, right?
The only way it could be used for that is if its paid in taxes and used by the Fed to pay the bills.
What you're advocating is like saying you're going to go shopping at WalMart to reduce your credit card debt.
"But Asian economies rely on coal to sustain growth, so the ton worth about $13 near the Powder River Basin mines last year fetched roughly 10 times that in China."
This is apples and oranges comparison. I do not own coal stock and am not employed by a coal company
'Premium Grade' coal fetches $130/metric tonne in a Chinese port.
Average grade coal is 5500 kcal/kg. The current price in a Chinese port is around $95/metric ton. A US ton is 10% smaller. So take off 10% for US Ton which brings us down to $85.50.
Powder River Basin Coal has a below average heat content. About 85% of average. So it's a lower quality coal. So $85.50 * .85 = $72 ton.
Overland rail in the US costs 2 to 3 cents/ton mile. The nearest Seaport from Gillette,Wyoming is Vancouver British Columbia over 1000 miles away. So we have between $20 and $30 for overland rail. Let's subtract $25. We are now down to $47/ton.
The Port Fees at the Coal Terminal in Vancouver,BC are $8/ton. So now we are down to $39/ton.
We still have a 5,000 mile ocean voyage. Let's estimate 1/2 cent/mile for the Ocean Voyage. So take off $25/ton a ton again.
We are now down to $14/ton.
It's possible the coal companies got an 'uber good rate' on the rail and ocean freight charges. So it might be $24/ton.
It's always interesting when someone neglects to consider 'all the costs' and starts talking about how badly someone is getting ripped off.
HARRY: You must be a politician or CEO to know such fine details. m Youcould also be a state bond holder or receiving compensation some how.
I have a degree in Math, one CS ,one in Industrial Engineering and one other. I know how easy it is to manipulate numbers and data. My college teachers demonstrated how to make 1+1 = 0; just a trick of logic!
Sorry Ed.
Simple curiosity.
I looked into all the details a few years ago trying to understand why the 'delivered' price of coal in the Southeast US(Florida) was about $4/MMBtu and the delivered price in Washington State was only around $2/MMBtu.
Florida is twice as far from Gillette,Wyoming ended up being the answer. The price of extracting coal in Wyoming is no different then extracting dirt. Warren Buffets Railroad makes more off of Wyoming coal then the coal companies.
Then I had questions on the international coal market...like why would someone pay $100/ton for Australian coal when cheaper Indonesian coal was available for $80/ton. Difference in quality.
The bulk of US coal exports go to Europe and come out of Appalachia. The Appalachian coal mines are close to waterways and seaports and the boat ride across the Atlantic is not that far. Wyoming coal would require a long expensive train ride to reach a boat headed to Europe.
"The Government crawled to the mine owners' call
And the Judge was appointed by the state."
from Phill Ochs, long ago.
Nothing new here. It is the way of the American Economic Power System. Fix it, or Shut up.
What do you know??? Chinese learned how steal from the American people and their teaches were ---(DRUM ROLL) Our political representatives and CEO's!!!!
So how ao we really feel about this spin? The EPA has closed 200 + coal powered plants in the US putting thousands of miners out of work not to mention the jobs running those plants and the jobs that those plants generated in the local economies . Those local economies are not in the richest part of this country by the way. Those plant closing were not replaced with alternative fueled plants . Electricity is set to quadruple over the coming years for citizens and industry alike driving cost up at home and for everything we the people buy. That is a tax increase on everyone of us.
The plants are changing to natural gas because it is cheaper.
Obama has done everything he could to close down coal in this country, so now the "entitled" government press here wants us to believe that the coal companies are screwing the "poor" government, when they are abiding by the rules of trade the government itself wrote. Bull! If this article was about the indictment of a coal company for breaking the law, it might have some merit, but it is not that. It is pure conjecture and unproven malarkey. Perhaps the coal companies should decide to ship none of the coal from government lands overseas, and keep all of it going to domestic sales, while shipping coal from private (non-government) lands overseas. Then they will pay NO government royalty at all - and the government will get less. The article's liberal "socialistic" method of accounting is absurd. A rule is a rule as it is written, not as some socialist thinks it ought to be. If the coal companies are adhering to the rules - and there is no proof they are not - then this article is useless accusation. It might better be targeted at why the government invested and lost billions in failed so-called green ventures (such as Solyndra) - wasting at least ten times more that the alleged $40 million is suspect lost coal royalties last year. No, this is one more dust cloud thrown up to mask and divert the fact that the Obama administration's energy policy is a total and complete failure - nothing more.
You're delusional. Give it up.
We need the world to convert 100% to pollution-free Oil-from-Algae, and stop the insanity of digging CO2, spewing it into the air, and having that come back to bite us in the form of severe weather.
OFA has ZERO DOWNSIDE, and is the ONLY green fuel source that requires little change in infrastructure, yet through localized, even home-based production, can potentially eliminate the 40% loss experienced through long transmission lines of electricity - total wasted energy.
They have applied at six different west coast terminals for permits to export this crap hoping one will cave in and okay it. Dirty business.
Typical Progressive/Socialist crap again. Make it impossible to use coal in the US and waste Billions on wind and solar pipe dreams. Then get pissed because coal companies are making profits by selling to China and others. CO2 is not the problem. The EPA and Progressive environmentalists who hate America and are so selfish will bankrupt Americans to gain their ludicrous ideological ends. Never has a minority group lied so much and been such a danger to the well being and security of the US. Since their agenda is so flawed and their science such a joke, they have bankrupted our energy industry, cost average Americans trillions in over priced energy, and now complain we should tax them more because obama is broke. You are just a bunch of stupid, over educated marxists who have not truly worked a day in your lives. This will one day come back at you in spades.
Paul,
I was riding along until you began the childish name calling which diminished your creditability.
Bull. I started with naming them Marxists. So, calling them "stupid" marxists is bad? I guess it is redundant.
This is what happens when big government gets involved. Big regulations. Laws that we "have to pass" so we know what is in it.........
How are we to reduce climate warming and Ozone depletion by supporting more coal burning facilities in Asia ?
Who cares. Burn it here.
Name them a power source other then nuclear that can handle the power needs of the population.
Obama has 'suckered' his supporters once again. You know, the Obama that has the middle class' backs. The same Obama that had his crony's at the EPA regulate the living snot out of coal here because it's so dirty. Yet apparently it's not dirty enough to prevent from being exported to other countries where it's burned without a fraction of the pollution control we have here in the U.S.. Net result is much higher energy costs domestically along with enjoying the pollution created by countries like China and India. Thanks Obama for having our backs.
Thanks Republicans for giving away our resources for payments from lobbyists. They steal hundreds of millions while complaining about poor people 'taking' foodstamps. Republicans have been 'taking' for the last 30 years and consider it their right.
We should be using the coal here
So I should be able to by the new Batman Blue Ray for a buck, because that is what I would pay in Beijing? 12.5% of gross seems like quite a deal, since all of it belongs to the american taxpayers. If they don't like it, let someone else mine it and pay for it. Governments in other countries make enormous profits from their energy resources. Why should we let lobbyists steal it all here? If we produce more oil than Saudi Arabia, why do the tax payers get nothing while oil companies show record profits and get subsidies ... this is insane and the lobbyists and their pals in Congress should all be shot.
I am surprised a country suffering from a debt crisis would not of taken advantage of the energy sector earlier.
Coal can be used as raw material to make plastics. It took a long time and lots of solar then geological energy to make coal and oil from plants and algae underground. These long chain hydrocarbons are much more valuable to us as the chemicals that they are. Thus it makes no sense to burn them up, then liberate all the CO2 into our atmosphere. I have seen the Alaskan glaciers remnants as the Arctic ice is disappearing extremely rapidly, which is in the process of raising the world's oceans.
Which of you people who can read and write but cannot or will not understand global warming/climate change? It is as plain as the nose upon your physiognomy.
Hey stupid, inept, corrupt morons in congress, are any of you idiots paying attention to this?
If the corrupt congress didn't have to pay off so many people for their political position in washington, our miners wouldn't have to sell their valuable coal to friggin china, who is the number one enemy of the usa, then we would be better off.
Congressional moronic members of congress are so bought and paid for by foreign governments that they no longer represent us and haven't represented us for the past 30 years.
They make more money from china.