An eight-month investigation ordered by the House Appropriations Committee has concluded that Interior Secretary James G. Watt is leasing government coal reserves to industry at "fire sale" prices, allowing private interests to reap "windfall profits" at the expense of the federal treasury.
Based on Interior Department documents and interviews with agency officials, industry executives, environmentalists and economists, the 121-page report found that Watt's program of leasing billions of tons of coal in the present soft market is marked by mismanagement and is driving down the price the government can command for its resources.
The report, delivered last week to committee members, is the most extensive inquiry into Watt's controversial coal-leasing program and is expected to fuel congressional efforts to block him from holding future coal auctions. Interior officials declined to comment on the report.
The report, a copy of which was obtained by The Washington Post, also found that:
* Confidential Interior Department data was leaked to the coal industry more than a month before auction last April of about 1 billion tons of government coal in the Powder River Basin along the Montana-Wyoming border. It was the biggest auction of coal development rights in U.S. history.
* Senior department officials, quoted anonymously in the report, pushed to postpone the auction because of what they called the "scandalous" leak, but were overruled by then-Deputy Assistant Secretary David C. Russell. These officials are quoted as saying Russell was "hell bent" on holding the auction and pushed ahead with it "as if his career depended on it."
* The auction drew little competition, and the coal rights were sold to industry for $60 million less than House investigators concluded they were worth, based on findings of Interior Department appraisers and economists in the Powder River area. A senior economist who studied the coal values is quoted as saying that the government did not receive a fair price for its resources, as required by law.
"Such large-scale leasing under poor economic conditions distorts the market by flooding it with leased coal," the report concluded. "It temporarily reduces fair market value and allows the industry to acquire coal at fire-sale prices."
Interior officials have read the report but are "still analyzing it and so are not ready to respond substantively," spokesman Harmon Kallman said. It is expected to be the focus of an Appropriations Committee hearing Wednesday at which Assistant Interior Secretary Garrey Carruthers, who oversees the coal program, is to testify.
The committee report is the latest of several attacks on Watt's coal-leasing program, which is designed to lease about 6 billion tons of coal in western states in the next two years.
Watt has defended such accelerated leasing, despite the soft market, by saying coal development is crucial to meet long-range energy needs. Russell, who helped design the coal-leasing program, told House investigators "it was his responsibility to put as much coal as he could on the market," the report said.
The investigators' report said this approach allows "profiteering leaseholders" to acquire rights to government coal at low prices, then sell them to speculators. This "principally benefits leaseholders . . . and not the federal government," the report said.
In the Powder River leases, Russell "arbitrarily" halved the amount of money that a team of Interior Department appraisers and economists concluded that the coal industry should pay so the government could receive fair market value, the report said.
The reduction came after the team's findings were leaked to the coal industry, and department officials could supply no paperwork to support the changes, the report said.
The investigators found that Amax Coal Co. and Shell Oil Corp. "were the direct beneficiaries of unsupportable reductions of the estimated fair market value."
Amax acquired a tract for $7.4 million plus royalties that the team had evaluated at $12 million. For $25.9 million, compared to the team's evaluation of $52.2 million, Shell won a tract.
Spokesmen for both companies have denied that they had access to the leaked material or did anything to influence the fair market value set by the Interior Department for the coal.
The report indicated opposition in the department to the coal-leasing program.
"One high official remarked that the Powder River Basin sale was either dishonest or the height of stupidity and that both situations are unacceptable," it said.
Another is quoted as telling investigators, "If the government is dumb enough to offer coal at a low price, then the industry is definitely smart enough to buy."
The Appropriations Committee investigation was ordered last year amid congressional charges that the Powder River auction and Watt's overall leasing program amounted to a "giveaway" of government resources.