Audit faults Energy’s oversight of uranium production program
Government failed to collect more than $700,000 in royalties.
The Energy Department is poised to significantly expand its program to lease public lands for uranium mining, yet a recent audit shows the department has not effectively managed the existing program.
An audit by Energy's inspector general found the department failed to collect 17 percent of royalties owed the government, totaling more than $700,000. The report found that the department had not collected some final uranium leasing payments for more than two years, despite a requirement that leaseholders make payments within 20 days after the end of the month in which the ore was assayed.
Moreover, the department had not re-evaluated its method for calculating royalty payments since 1982, when an oversupply of uranium in the market, coupled with a long-term decline in the domestic industry, informed the department's methodology. Since then, Energy has used spot market prices to determine market value, but the spot market represents only 10 percent of domestic uranium purchases-90 percent of purchases involve long-term prices.
"Further, there is no longer an oversupply, but rather a uranium supply shortage expected to continue for the foreseeable future," auditors reported. "Without a revised royalty payment calculation methodology, the department cannot assure that it is providing a fair return to both the government and the leaseholders."
The Energy Department's leasing program was established by the 1954 Atomic Energy Act to develop a supply of domestic uranium for military weapons programs. Under the program, the department's Office of Legacy Management leases land in southwestern Colorado to commercial operators to mine uranium ore. Companies holding the leases pay both an annual royalty, whether or not they produce uranium, as well as a production royalty, which is based on the value of the uranium ore actually mined.
Michael Owen, director of the Office of Legacy Management, agreed with the IG's assessment and recommendations for correction. He said the office had established a new royalty calculation methodology that reflects current market conditions. "Legacy Management will periodically review the calculation methodology to ensure it is up to date," he said.
In addition, he said the office had improved oversight of a contractor administering the leasing program to make sure royalty payments are made in a timely manner.
Last year, Energy announced it would expand the leasing program from 13 active tracts of land to potentially 38 tracts, all in Colorado. If production occurs on all 38 tracts, royalties could total $18 million per year.