Interior Secretary James G. Watt sold coal development rights to industry last year for $100 million less than they were worth despite a federal law requiring the government to get a fair price for its resources, according to the General Accounting Office.

In an extensive investigation being made public today, the GAO recommended that Watt stop leasing coal reserves until Interior devises a system to ensure a fair return for the federal treasury.

GAO, the auditing arm of Congress, also said Watt "may wish to" cancel most leases issued to coal companies in the April 1982 auction of more than one billion tons of coal in the Powder River Basin along the Montana-Wyoming border. The GAO went further than did a House Appropriations Committee inquiry, which calculated that taxpayers lost $60 million from the auction.

Assistant Interior Secretary Garrey Carruthers took strong exception to the GAO findings, saying GAO's analysts had "supplied their own assumptions and come up with their own estimates." Coal prices were depressed at the time of the Powder River auction and, Carruthers said, the leases awarded by Interior "did represent fair market value . . . at the time."

Carruthers stressed that the auditors wrote in the report that "much of Interior's trouble stems more from" decades of problems in federal coal programs than from policies adopted by Watt.

Rep. Edward J. Markey (D-Mass.), who requested the GAO inquiry, yesterday asked Attorney General William French Smith to investigate possible wrongdoing in connection with the Powder River auction. Confidential Interior data on the value of the coal was leaked to industry sources several weeks before the bidding, and shortly afterward, Interior officials in Washington lowered the minimum bid requirements by more than $40 million.

Markey said he wants Smith to determine whether industry officials "lobbied" Interior to reduce the requirements, compromising the sale. Interior has denied this charge, but the GAO said in the report that the agency's internal probe of the leak was "inadequate." The auditors said they could not say whether the leak jeopardized the sale, in part because an agency official with knowledge of the leak would not reveal which companies were involved.

Based on detailed economic analyses, the GAO concluded that only one of 11 Powder River leases acquired by coal companies was sold for its true value.

Meadowlark Farms, a subsidiary of Amax Coal Co., paid $7.4 million plus royalties for a tract GAO evaluated at $23.2 million, and $3.6 million for a tract GAO put at $15.4 million. Also undervalued, GAO said, were tracts leased by Western Energy Inc., Wesco Resources Inc., Texas Energy Services and Neil Butte Co.

GAO blamed at least part of the problem on federal laws, which it said do not ensure a fair return on tracts that draw little competition. It called for legislation to change the leasing system.

But the GAO also accused Interior of adopting leasing policies that undervalue government resources and limit competition. Several tracts offered for leasing were "custom-fitted" to be attractive to only one company, GAO said.

The Powder River Basin auction was controversial from the outset because it was held during a glut in the coal market and drew little competition. All but two of the 11 tracts leased drew only one bidder.

The report is likely to intensify the debate over Watt's management of natural resources, adding fuel to efforts in Congress to ban Interior from leasing more coal reserves for the rest of 1983 and possibly through 1984.

"If Jim Watt was the head of any corporation, a report of losses such as these at the Powder River Basin would be the end of his career," Markey said. "The question is whether free enterprise standards that apply to major corporations also apply to the federal government."

The GAO findings also could jeopardize millions of GAO Investigation Watt Leased Coal at a Loss By Dale Russakoff Washington Post Staff Writer

Interior Secretary James G. Watt sold coal development rights to industry last year for $100 million less than they were worth despite a federal law requiring the government to get a fair price for its resources, according to the General Accounting Office.

In an extensive investigation being made public today, the GAO recommended that Watt stop leasing coal reserves until Interior devises a system to ensure a fair return for the federal treasury.

GAO, the auditing arm of Congress, also said Watt "may wish to" cancel most leases issued to coal companies in the April 1982 auction of more than one billion tons of coal in the Powder River Basin along the Montana-Wyoming border. The GAO went further than did a House Appropriations Committee inquiry, which calculated that taxpayers lost $60 million from the auction.

Assistant Interior Secretary Garrey Carruthers took strong exception to the GAO findings, saying GAO's analysts had "supplied their own assumptions and come up with their own estimates." Coal prices were depressed at the time of the Powder River auction and, Carruthers said, the leases awarded by Interior "did represent fair market value . . . at the time."

Carruthers stressed that the auditors wrote in the report that "much of Interior's trouble stems more from" decades of problems in federal coal programs than from policies adopted by Watt.

Rep. Edward J. Markey (D-Mass.), who requested the GAO inquiry, yesterday asked Attorney General William French Smith to investigate possible wrongdoing in connection with the Powder River auction. Confidential Interior data on the value of the coal was leaked to industry sources several weeks before the bidding, and shortly afterward, Interior officials in Washington lowered the minimum bid requirements by more than $40 million.

Markey said he wants Smith to determine whether industry officials "lobbied" Interior to reduce the requirements, compromising the sale. Interior has denied this charge, but the GAO said in the report that the agency's internal probe of the leak was "inadequate." The auditors said they could not say whether the leak jeopardized the sale, in part because an agency official with knowledge of the leak would not reveal which companies were involved.

Based on detailed economic analyses, the GAO concluded that only one of 11 Powder River leases acquired by coal companies was sold for its true value.

Meadowlark Farms, a subsidiary of Amax Coal Co., paid $7.4 million plus royalties for a tract GAO evaluated at $23.2 million, and $3.6 million for a tract GAO put at $15.4 million. Also undervalued, GAO said, were tracts leased by Western Energy Inc., Wesco Resources Inc., Texas Energy Services and Neil Butte Co.

GAO blamed at least part of the problem on federal laws, which it said do not ensure a fair return on tracts that draw little competition. It called for legislation to change the leasing system.

But the GAO also accused Interior of adopting leasing policies that undervalue government resources and limit competition. Several tracts offered for leasing were "custom-fitted" to be attractive to only one company, GAO said.

The Powder River Basin auction was controversial from the outset because it was held during a glut in the coal market and drew little competition. All but two of the 11 tracts leased drew only one bidder.

The report is likely to intensify the debate over Watt's management of natural resources, adding fuel to efforts in Congress to ban Interior from leasing more coal reserves for the rest of 1983 and possibly through 1984.

"If Jim Watt was the head of any corporation, a report of losses such as these at the Powder River Basin would be the end of his career," Markey said. "The question is whether free enterprise standards that apply to major corporations also apply to the federal government."

The GAO findings also could jeopardize millions of dollars of leases from the auction, which Watt at the time termed a "resounding success." Environmental groups have asked a federal judge to cancel the leases on grounds the government did not receive a fair price, and the GAO's findings may bolster the groups' case. dollars of leases from the auction, which Watt at the time termed a "resounding success." Environmental groups have asked a federal judge to cancel the leases on grounds the government did not receive a fair price, and the GAO's findings may bolster the groups' case.