Fair Market Value
All leasing of federal coal is done through the lease by application process (LBA). The LBA process begins with BLM review of an application to lease a coal tract to ensure that it conforms to existing land-use plans and contains sufficient geologic data to determine the "fair market value" of the coal. Upon review of the application and consideration of public comments, the BLM will reject, modify, or continue to process the application.
Once the BLM accepts an application, the agency begins either an Environmental Analysis (EA) or Environmental Impact Statement (EIS). When an EA or a draft version of an EIS has been prepared, the BLM seeks public comment on the proposed lease sale. At the same time, the BLM will also consult with other appropriate federal, state, and tribal government agencies.
If a decision to offer the coal for lease is reached, preparations for the actual lease sale begin with the BLM formulating an estimate of the "fair market value" (FMV) of the coal. BLM experts (geologists, mining engineers, and economists) work closely with appraisers in the Office of Valuation Services, Division of Mineral Evaluation, to develop an estimate of the coal’s FMV. The FMV is kept confidential and is only used to evaluate the bids received during the sale.
Sealed bids are accepted prior to the date of the sale and are publicly announced during the sale. The winning bid is the highest bid that meets or exceeds the coal tract's presale estimated FMV, assuming that all eligibility requirements are met and fees paid.
How Fair Market Value is Determined
The BLM is required by statute to receive fair market value (FMV) for use of the public's resources. The estimate of FMV is prepared in accordance with standard valuation methods and is strictly confidential. This value is specifically defined as the amount of cash, or on terms reasonably equivalent to cash, for which in all probability the property would be sold by a knowledgeable owner who is willing but not obligated to sell to a knowledgeable purchaser who desires but is not obligated to buy.
The FMV is the sum of future royalties, rent, and a bonus paid at the time of lease issuance. Because royalty rates are fixed in the terms of the lease, success in a competitive lease sale is contingent on the bonus bid. The BLM will accept as the winning bid the highest bid submitted at a competitive lease sale that meets or exceeds the BLM's estimate of FMV.