US tightens rules on coal royalties

OREANDA-NEWS. July 01, 2016. The US Interior Department today unveiled final changes to how coal mined from federal lands is valued, including an attempt to remove a loophole one government report said had cost the US millions of dollars.

The rule, scheduled to be published in the Federal Register tomorrow, will require companies that sell coal to a subsidiary to pay tax on the price of the first "arms-length" transaction the affiliate does with a third-party buyer. It also includes a provision allowing Interior's Office of Natural Resources Revenue to establish its own value on production if it decides a lessee's amount is not correct.

The changes to the coal royalty program are part of a package revising fossil fuel revenue collection from federal and tribal lands that will become effective 1 January. They also are part of a broader effort by Interior to examine coal leasing policies, including whether the fees charged for mining on federal lands should be raised.

The changes announced today "were long overdue and urgently needed to better align our regulatory framework with a 21st century energy marketplace," Interior secretary Sally Jewell said. The rule "ensures, in part, that our federal coal program is properly structured to obtain all revenue due to taxpayers."

The agency had been under attack since early this decade for potentially losing out on revenue from coal sales, particularly when exports were soaring. An investigation released by Interior's inspector general in 2013 identified \\$62mn in lost revenue.

Interior in January put a moratorium on most new coal leases while it reviews the program.

The National Mining Association assailed the new rule, claiming this and other measures will inhibit production from federal lands.

"Current royalties, bonus bids and fees amount to an effective 40 percent tax rate on federal coal, undermining the specious claim that somehow taxpayers are being cheated," NMA said.

Interior estimates changes in calculating coal royalties from non-arms-length transactions will cost the industry no more than \\$1.06mn/yr. The overall rule, including changes on oil and gas royalties, will increase collections by \\$72-85mn and cut the industry's administrative costs by \\$3.6mn.

The rule mostly adheres to what Interior proposed in December 2014, which the groups had said was an improvement on existing standards but lacked certain reforms.