United States. Congress. House. Committee on Resou.

Leasing of sodium compounds : hearing before the Subcommittee on Energy and Mineral Resources of the Committee on Resources, House of Representatives, One Hundred Fourth Congress, first session ... May 9, 1995--Washington, DC online

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>XW4,R 31/3:104-34



LEASING OF SODIUM COMPOUNDS
HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY
AND MINERAL RESOURCES

OF THE

COMMITTEE ON

RESOURCES

HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION
ON

REVISION OF THE ROYALTY RATE ON THE LEASING OF TRONA IN
WYOMING AND FAIR RETURN TO THE UNITED STATES TREASURY
FOR THE USE OF PUBLIC LAND RESOURCES AS MANDATED BY
THE FEDERAL LAND POLICY AND MANAGEMENT ACT OF 1976



MAY 9, 1995— WASHINGTON, DC



Serial No. 104-34



Printed for the use of the Committee/on Resouti^JD' '



U.S. GOVERNMENT PRINTING OFFICE
91-986 CC WASHINGTON : 1995




For sale by the U.S. Government Printing Office
Supeiintendent of Documents. Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047778-6



A Y 4, R 31/3:104-34

J \ LEASING OF SODIUM COMPOUNDS

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY
AND MINERAL RESOURCES

OF THE

COMMITTEE ON

RESOURCES

HOUSE OP REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION
ON

REVISION OF THE ROYALTY RATE ON THE LEASING OF TRONA IN
WYOMING AND FAIR RETURN TO THE UNITED STATES TREASURY
FOR THE USE OF PUBLIC LAND RESOURCES AS MANDATED BY
THE FEDERAL LAND POLICY AND MANAGEMENT ACT OF 1976



MAY 9, 1995— WASHINGTON, DC



Serial No. 104-34



Printed for the use of the Committee




U.S. GOVERNMENT PRINTING OFFICE
91-986 CC WASHINGTON : 1995



^"^&«



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047778-6



/



COMMITTEE ON RESOURCES
DON YOUNG, Alaska, Chairman



JAMES V. HANSEN, Utah
JIM SAXTON, New Jersey
ELTON GALLEGLY, CaUfornia
JOHN J. DUNCAN, Jr., Tennessee
JOEL HEFLEY, Colorado
JOHN T. DOOLITTLE, California
WAYNE ALLARD, Colorado
WAYNE T. GILCHREST, Maryland
KEN CALVERT, California
RICHARD W. POMBO, CaUfornia
PETER G. TORKILDSEN, Massachusetts
J.D. HAYWORTH, Arizona
FRANK A. CREMEANS, Ohio
BARBARA CUBIN, Wyoming
WES COOLEY, Oregon
HELEN CHENOWETH, Idaho
LINDA SMITH, Washington
GEORGE P. RADANOVICH, California
WALTER B. JONES, Jr., North CaroUna
WILLIAM M. (MAC) THORNBERRY, Texas
RICHARD (DOC) HASTINGS, Washington
JACK METCALF, Washington
JAMES B. LONGLEY, Jr., Maine
JOHN B. SHADEGG, Arizona
JOHN E. ENSIGN, Nevada



GEORGE MILLER, California
NICK J. RAHALL II, West Virginia
BRUCE F. VENTO, Minnesota
DALE E. KILDEE, Michigan
PAT WILLIAMS, Montana
SAM GEJDENSON, Connecticut
BILL RICHARDSON, New Mexico
PETER A. DeFAZIO, Oregon
ENI F.H. FALEOMAVAEGA, American

Samoa
TIM JOHNSON, South Dakota
NEIL ABERCROMBIE, Hawaii
GERRY E. STUDDS, Massachusetts
W.J. (BILLY) TAUZIN, Louisiana
SOLOMON P. ORTIZ, Texas
CALVIN M. DOOLEY, CaUfomiq
CARLOS A. ROMERO-BARCELO, Puerto

Rico
MAURICE D. HINCHEY, New York
ROBERT A. UNDERWOOD, Guam
SAM FARR, California
OWEN B. PICKETT, Virginia
FRANK PALLONE, Jr., New Jersey



Daniel Val Kish, Chief of Staff

Christine Kennedy, Chief Clerk I Administrator

John Lawrence, Minority Staff Director

David Dye, Chief Counsel



SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

KEN CALVERT, CaUfornia, Chairman
JOHN J. DUNCAN, Jr., Tennessee NEIL ABERCROMBIE, Hawaii

JOEL HEFLEY, Colorado NICK J. RAHALL II, West Virginia

J.D. HAYWORTH, Arizona BILL RICHARDSON, New Mexico

FRANK A. CREMEANS, Ohio W.J. (BILLY) TAUZIN, Louisiana

BARBARA CUBIN, Wyoming SOLOMON P. ORTIZ, Texas

HELEN CHENOWETH, Idaho CALVIN M. DOOLEY, CaUfornia

WILLIAM M. (MAC) THORNBERRY, Texas

William Condit, Staff Director
Sharla Bickley, Professional Staff



(II)



CONTENTS



Page

Hearing held May 9, 1995 1

Statements of members:

Abercrombie, Hon. Neil, a U.S. Representative from Hawaii 14

Prepared statement 15

Calvert, Hon. Ken, a U.S. Representative from California, and Chairman,

Subcommittee on Energy and Mineral Resources 1

Chenoweth, Hon. Helen, a U.S. Representative from Idaho 17

Cubin, Hon. Barbara, a U.S. Representative from Wyoming 2

Simpson, Hon. Alan, a U.S. Senator from Wyoming 9

Prepared statement 10

Thomas, Hon. Craig, a U.S. Senator from Wyoming 12

Prepared statement 12

Statements of witnesses:

Andrews, John, President, American Natural Soda Ash Corporation 44

Prepared statement 78

Armstrong, Robert, Assistant Secretary, Department of Interior 19

Coverdale, Thomas, General Manager, FMC, Wyoming 36

Prepared statement 56

Geringer, Hon. James E., Governor of Wyoming 5

Prepared statement 51

Kalt, Joseph P., Ph.D., Harvard University and the Economics Resovirce

Group, Inc 40

Prepared statement 64

Pennell, William, Industrial Minerals Manager, U.S. Borax, Inc 42

Prepared statement 75

Rabinowitz, Roy, Director of Taxation, General Chemical Corporation 38

Prepared statement 60

Additional material supplied:

Abercrombie, Hon. NeU, a U.S. Representative from Hawaii: Article from
Casper, Wyoming, Star Tribune dated April 25, 1995, "FMC Retirement

Dispute Flares Into Wildcat Strike" 92

Andrews, Lewis D., Jr., President, Glass Packaging Institute 86

Coverdale, Thomas, Report from EOP Group, Inc.: Proposed Increased
Soda Ash Royalty Rate Conflicts With Administration Goals and Ad-
versely Affects Balance of Payments, Jobs, and Industry 121

Cubin, Hon. Barbara, a U.S. Representative from Wyoming:

Letter of December 21, 1994, from Robert C. Reiley of the U.S.
Department of Commerce containing report "Soda Ash Royalties:

Implications for U.S. Exports" 94

Sweetwater County Board of County Commissioners: Letter of April
4, 1995, from John E. Radosevich et al to Hon. Bruce Babbitt,

Secretary of the Interior 114

Chart describing distribution of Federal mineral royalties into the

State 115

Morrison, JUl, Powder River Basin Resovu"ce Council 85

Pennell, William, U.S. Borax:

Letter of January 30, 1995, from Ian White-Thomson, President and
CEO, U.S. Borax, to Alan Pierson, State Director, Biireau of Land

Management 116

Letter of March 1, 1995, from Alan Pierson in reply to letter of
Ian White-Thompson 119



(III)



LEASING OF SODIUM COMPOUNDS



TUESDAY, MAY 9, 1995

U.S. House of Representatives
Subcommittee on Energy and Mineral Resources

Committee on Resources

Washington, DC.
The subcommittee met at 2:00 p.m. in room 1324 of the Long-
worth House Office Building, the Honorable Ken Calvert presiding.

STATEMENT OF HON. KEN CALVERT, A U.S. REPRESENTATIVE
FROM CALIFORNIA AND CHAIRMAN, SUBCOMMITTEE ON EN-
ERGY AND MINERAL RESOURCES

Mr. Calvert. The Subcommittee on Energy and Mineral Re-
sources will please come to order. The Subcommittee meets today
in an oversight role to examine issues regarding the leasing of so-
dium compounds under the Mineral Leasing Act of 1920, as amend-
ed.

At first blush, the issue of whether or not fair market value is
being received by the Federal Government for the leasing of trona
deposits in the Green River basin of southwestern Wyoming seems
fairly mundane, except of course to our colleague on the Sub-
committee from Wyoming, Mrs. Barbara Cubin.

After all, who among us besides this gentle lady even knew what
trona was when we were scheduling this hearing? I knew it was
the name of a very small town nearby in California in Jerry Lewis'
district, about 200 miles from my home. Yet soda ash is produced
in California there at Searles Lake brines.

After today, I'm sure we'll all appreciate the place soda ash has
in our lives a little bit better.

And while the immediate issue before us is whether the Depart-
ment of Interior has given consideration to revising the royalty rate
on the leasing of trona in Wyoming, the larger issue here is the de-
bate over how to assess the means of fair market value of fair re-
turn to the United States Treasury for the use of public land re-
sources as is mandated by the Federal Land Policy and Manage-
ment Act of 1976.

I don't think any of us disagree with that notion. But as always,
the devil is in the details.

How broadly should the Department of Interior look in determin-
ing such value? Should the advice and counsel of other Executive
Branch departments be sought?

Are factors such as the penetration of export markets by domes-
tic producers and balance of trade considerations important? Where

(1)



a particular appraisal methodology fails, does the Department have
an obligation to assess fair market value differently?

We dedicate todajr's hearing to the exploration of this issue as it
affects sodium ash production in an area which I understand is the
Saudi Arabia of sodium carbonate. By the way, that's a piece of it
right on top of the desk.

However, throughout the Congress, the Subcommittee will be re-
viewing this same basic issue with respect to all the various min-
eral commodities on the public lands, and on the outer Continental
Shelf.

As I see it, the interests of all our citizens who own these public
land resources is served best when the minerals are mined in an
environmentally sound manner, processed into a product society
demands, and sold into a marketplace to meet that demand.

That is how minerals create wealth for the nation. And by the
way, a small fraction of which is a royalty stream to the United
States Treasury.

Recently, the Commerce Department reported another record
monthly trade deficit. Here we have an industry in this country sit-
ting on top of the cheapest source of soda ash in the world. And
we should be doing everything we can to ensure that the world's
users of soda ash — that we are meeting their needs.

If that isn't factored into the fair return to the taxpayers of this
country, somehow we've missed the boat.

Before I recognize Mr. Abercrombie, who isn't here — I hope he's
going to be here soon for any opening statement he may have — I'd
like to extend a welcome to all our witnesses.

Thank you for coming in from Wyoming, Governor Geringer, to
address this issue with us today. I know trona mining, along with
oil and gas and coal production, is very important to your state, im-
portant enough to have Senators Thomas and Simpson possibly
stopping by from their busy schedules later this afternoon.

Thank you. Assistant Secretary Armstrong, for providing the De-
partment of Interior's view on this subject because of the export
market involved in this issue.

Witnesses from the Commerce Department, the United States
Trade Representatives Office were invited, but both agencies de-
clined to testify today.

Last, welcome to our other witnesses from all over the country
here to tell us how the real world operates.

Since Mr. Abercrombie isn't here, I would like to recognize the
Congresswoman from Wyoming for her opening statement.

STATEMENT OF HON. BARBARA CUBIN, A U.S.
REPRESENTATIVE FROM WYOMING

Mrs. CUBIN. Thank you, Mr. Chairman. I would certainly like to
thank you for holding this hearing.

Representative Calvert has been most gracious in offering to
have this hearing for us. We realize it is a local issue, but it does
have international ramifications. And the Chairman has been a
great leader and a great help in putting this hearing together.

I also would like to thank our distinguished Governor Geringer
for coming.



This hearing is of such importance to us that I don't know how
many of you may know this, but it's quite unusual for Senators to
come over to the House to testify in hearings. But both of our Sen-
ators are doing all they can do to be with us.

In fact, speak of the devil, they appear.

Mrs. CUBIN. Welcome to Senator Thomas and Senator Simpson.

It is wonderful to have them, and it shows the support that the
Wyoming delegation, the State of Wyoming, has for this issue. I'm
looking forward to the testimony today.

And I would also thank you, Mr. Armstrong, for being here. I am
looking forward to the testimony today, especially that testimony
of Assistant Secretary Armstrong.

Ever since it was first proposed at the end of 1992, the Wyoming
delegation has been seeking a justification from the BLM for their
efforts to raise the royalty rate on trona by a whopping 60 percent.
Hopefully, they will shed some light on that for us today.

This issue is extremely important to my home State of Wyoming
and to the Nation in general, as we struggle during these times of
fiscal austerity to balance the budget and maintain a favorable bal-
ance of trade. The action of the Federal Government must be pru-
dent, reasonable, and fair.

Unfortunately, the proposal to raise the royalty rate to 8 percent
is none of these. It cannot be fair market value to look at the only
other rate in the area. Union Pacific is in a monopoly situation.

The Federal Grovemment granted checkerboard ownership of the
Wyoming trona mineral over 130 years ago during the Continental
Railroad expansion. Union Pacific resources has no competition to
establish a fair-market-value-based royalty.

I will be interested to see what analytical support will be offered
by BLM for the assertion that the UP rate is market value.

Is it the highest rate? How can that be fair market value? It is
not fair market value. In fact, the testimony today will show that,
if the government were truly interested in a fair market value, the
royalty would be decreased.

I know that a final decision on the rate has not yet been made.
But different alternatives have been discussed. For instance, the
BLM may raise the rate on new leases to 8 percent, while favoring
an incremental approach to existing leases, a sort of stairstep ap-
proach.

The Secretary presumes that that would be the cautious way to
approach the issue. That could be disastrous.

First of all, an increase on new leases would put a chill on any
competition. Those are potential investments worth hundreds of
millions of dollars to the State of Wyoming. The Federal Govern-
ment should not discourage companies from entering into the Wyo-
ming soda ash business.

As for the incremental approach, if it produces harm, then we
can't go back and fix it. We will simply lose our foreign markets,
and those markets will go to foreign competitors.

Since our domestic market has been flattened out for several
years, quite a few years, our opportunity for growth exists only in
exports. It would not be prudent for the Federal Government to
hamper our competitiveness.

The Department of Commerce shares my view.



In December 1994, they released a 19-page paper outlining their
"serious concerns regarding the effect an increase in royalties
would have on our industry's international competitive position."
The paper concluded that the U.S. industry is highlv dependent on
exports for its financial health, and that raising trie royalty rate
would likely result in the loss of this major market.

Commerce also determined that the Administration's own credi-
bility would be impaired if, in a time when current negotiations to
reduce tariffs and other taxes, we go ahead and raise taxes on our-
selves, thereby hurting ourselves.

The report is as hard-hitting as government ever, ever gets. This
is a quote. "An increase in costs due to a royalty rate increase can
only increase the likelihood that plants will close."

Think about that, that plants will actually close. In spite of this
strong message, the Department of Interior has not yet determined
to leave the royalty rate at 5 percent. In his testimony and in our
conversations, Assistant Secretary Armstrong mentions the foreign
ownership of these trona producers. And, yes, they are owned by
foreign interests.

I would point out, however, that there are over 3,000 people em-
ployed in southwest Wyoming in this industry. These are Ameri-
cans. These are taxpayers. These are citizens of Wyoming and the
United States.

They pay over $30 million in State and local taxes, and contrib-
ute over $14 million in royalties at the State level. These funds go
to our schools and our university to educate our children, and to
our cities and towns and counties for such basic services as police
and fire protection.

I am looking out for State and local and national interests. I am
not looking out for foreign investors.

Before we begin, I would like to mention a few other points, in
order that they may be addressed throughout this hearing.

First of all, comparing the royalty rate on Federal lands to high-
er rates on private land is not a valid comparison. Companies oper-
ating on private lands pay taxes on their royalty and production in-
come. The Federal Government does not.

So the money that the Federal Government gets from the Union
Pacific is in the form of taxes. And if you factor this tax in, plus
ad valorem and severance taxes on the UP's 8 percent royalty, the
company actually collects only 4.93 percent royalty. So the 4.93 and
the 5 percent are very close.

Second, the calculation of the royalty comes into question when
comparing the Federal rate on trona with the Federal rate on other
minerals, such as coal, oil, and gas. The trona rate is actually much
higher than the 5 percent because it is computed on the value of
the refined soda ash, not on the raw trona ore.

Use of the trona value instead of soda ash value would mean
that the royalty rate is actually almost 17 percent. That's at a 5
percent royalty rate. And the increase to 8 percent would translate
to an effective 27 percent on trona.

Finally, I am curious as to why this proposal to increase royalties
has not been extended to producers in other States.

California has a trona plant, and Colorado produces a product
which may compete with the Wyoming soda ash. Yet, only in the



Green River in Wyoming are we faced with a possible increase in
trona.

We had a meeting with Secretary Armstrong in the past, and
this question was asked. And he assured us at that time that the
royalty for all the trona was being considered to be raised. Appar-
ently, that's not so now.

The Wyoming Green River basin has enough reserves to meet
world demand for the next 900 years. Trona produces soda ash in
an environmentally clean process, a much cleaner process than
synthetically produced competition.

The testimony today will show that the proposal to increase the
Federal royalty will benefit only the monopolistic owner, the Union
Pacific resources. Their leases will automatically ratchet up to 8
percent and above because some of those leases, most of those
leases, are tied to the Federal rate. So the Union Pacific will get
more automatically.

But I think you'll find today that it's likely that the Federal Gov-
ernment could get even less money than the^re currently getting,
if the royalty rate is increased to 8 percent.

Thank you, Mr. Chairman. I'd love to hear the testimony.

Mr. Calvert. Thank you very much.

Our first witness today on Panel 1 is the Governor of Wyoming,
along with Senator Thomas and Senator Simpson.

I'd like to point out I served with now-Senator Thomas when he
was our ranking member on our Native American Subcommittee,
which has now been merged with Territories. I enjoyed that very
much, and enjoy seeing you here today representing the State of
Wyoming,

First, though, I'd like to recognize your Grovemor. Governor.

STATEMENT OF HON. JAMES E. GERINGER, GOVERNOR OF

WYOMING

Grovemor Geringer. Thank you, Chairman Calvert, Congress-
woman Cubin.

Considering that past association with Senator Thomas, should
you need an extra vote, I have two over here. I could loan you at
least one in the process of this deliberation.

Thank you again for rescheduling the hearing. I apologize for not
being able to attend the hearing as it was originally scheduled, and
I appreciate the invitation to return to discuss the mineral royalty
rates for soda ash that are produced in our State.

Wyoming is a State that's rich in natural resources. We have
world-class deposits of just about every type that we have in Wyo-
ming. We have the largest deposit, of course, of trona. We rank
third in the world. Simply as a State, we would rank third in the
world in coal reserves.

We produce one-third of the world's helium. We know what
world-class minerals are, but we also understand that there needs
to be incentives for the risk-takers who would develop such prod-
ucts in Wyoming.

We also know that, with those natural resources, that the
strength of the Wyoming economy depends in large part on Wyo-
ming's ability to encourage the addition of value to any product ex-
ported.



If you were to superimpose Wyoming's natural resource base on
a country such as Japan or Grermany, we would indeed be the
world's superpower, because Wyoming's natural base is the envy of
the world, not just of our country.

So, as Wyoming's governor, I look for ways to add value to any
opportunity in natural resource product in Wyoming.

Minerals are a key to Wyoming's economic vitality. We recognize
that Wyoming has significant dependence upon minerals. As gov-
ernor, I intend to diversify away from that, but I still acknowledge
the principal role that minerals play in Wyoming, They will con-
tinue, at least in the transition, to support what we can do to add
value and opportunity to the minerals, as well as the addition of
value and exports of that product.

I also believe that enhancement of the economy and growing the
economy is a better alternative to raising revenue than it is
through simply raising taxes. We control the budget, in addition to
enhancing revenues. We control the budget through reducing the
demand for government services. And I will continue to do that.

New production, though, is the focus of my testimony, and the
impact that market share would have on that. The raw material
that's extracted from the underground mines in southwestern Wyo-
ming is processed into soda ash, and used, as will be commented
upon several times, as the basis for a number of chemicals, includ-
ing the manufacture of glass and detergents.

The United States domestic market for soda ash is flat. Industry
growth is occurring. We are seeing new markets develop, but they
are not in the domestic market; they are in foreign trade.

Exports, then, become the key to the health of the industry. Ex-
ports currently make up one-third of the total United States soda
ash sales.

The key is market share. In any commodity, marketing strategy,
the cost of the product is the primary factor in maintaining market
share in the face of any competition. I'm here today to warn that
considerations by the BLM for increased mineral royalty rates on
soda ash is essentially tinkering with the marketplace.

In an industry where 53 percent of the total margin even avail-
able to the companies already goes to taxes — 53 percent is a pretty
sizable bite out of anyone's margin — any further increase would de-
crease the competitiveness of Wyoming's soda ash producers.

Mr. Chairman, in my past life as a farmer and a commodity pro-
ducer, I understand the elements of commodity marketing. If you
need to maintain profitability in the face of increasing competition,
and your costs are increasing, you have to go for increased market
share.

The presentation of the proposed royalty increase is contrary to
that. It in essence says, in order to maintain competition or market
share, the Department would raise the royalty rates. And I haven't
read an economic dissertation that would support that.

So marketing principles are essential to understand the prin-
ciples that we bring today.

The wealth of our State and the Nation is in its natural re-
sources. As elected officials, we need to balance our trust obliga-
tions with economic considerations. The proposal by the BLM to



raise the rate is based on what they consider to be fair market
value.

If all we were looking at is land appraisals and assessments, as
in the real estate industry, that may be a basis for comparison, say
to compare with Union Pacific. But we have essentially a public
monopoly working with a private monopoly, trying to decide, what
is the marketplace? And that is the incorrect way to view the mar-
ket in this particular instance.

In fact, the BLM approach has to consider market forces, such
as the competition and emerging production capability in China, as
well as the unfair imposition of dumping fees by the European
community. This indeed is not a free market in the traditional
sense of the word.

It's incumbent upon those of us who are in policymaking roles to
consider, not just the revenues that we in government would desire
to accumulate, but we also have to weigh the effect of those taxes
on the producer, and the resulting impact on the producer's com-
petitiveness.

I again noted that the BLM approach is focused exclusively on


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