Analysis of the Powder River Basin Federal Coal Lease Sale

In response to a congressional request, GAO evaluated many sensitive and controversial issues surrounding the April 28, 1982, sale of coal leases in the Powder River Basin Federal Coal Region and its implications for the overall success of the Federal Coal Management Program.

GAO found that the Department of the Interior did not investigate the possibility of the disclosure of proprietary data or its potential impact on the sale. However, GAO could not verify the details related to this alleged disclosure. Interior did make two major changes in its coal lease sale bidding systems to permit the determination of fair market value after the sale rather than before. GAO found that Interior's new entry-level system and minimum bidding concept resulted in the receipt of low bids because of minimal bidder participation. The combined accepted bids on two sales were $3.5 million less than Interior's original minimum acceptable bid estimates. GAO believed that the approach used by the evaluation team, although imperfect and in need of some adjustment, was reasonable under the circumstances and provided a technically sound basis for estimating the fair market value of the tracts. However, GAO found that the lease value estimates undervalued the tracts by $95 million. GAO also noted weaknesses in the fair market value determination procedures, since the procedures were overly dependent on data derived from the sale itself. GAO found that Powder River coal sold at roughly $100 million less than the GAO estimates of fair market value at the April and October sales. A GAO analysis of maintenance leases showed that none of the tracts sold at fair market value.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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