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Putin and the Federal Coal Lease in Montana

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Will Russian President Vladimir Putin get richer thanks to a sweetheart government coal deal in Montana? Last month the Treasury Department informed Congress that Mr. Putin personally held an interest in an international oil and gas investment fund called the Gunvor Group, run out of Geneva, Switzerland. Team Putin adamantly denied his involvement, but the Treasury Department insisted it was right.

The Gunvor Group is a large and profitable enterprise, producing $91 billion in revenues in 2013, but unlike U.S. companies, it publicly reports very little detail about the source of its revenues and profits or how they are divided. In 2011 the Gunvor Group bought into the partnership that is working the Signal Peak coal mine in Montana.

Signal Peak is a productive coal operation that leases mines from the U.S. government and State of Montana. Signal Peak benefits from a robust base of export customers and is a source of coal for U.S. power plants. The partnership that operates Signal Peak has received approval from the U.S government to double the size of the mine. Environmental and landowner groups oppose the mine expansion as harmful to surface and spring water and the climate.

This planned expansion comes at the same time that two recent audits of the federal coal program show it to be a huge giveaway to industry. Although the law says coal on federal land must be sold at market prices, a study released by the Institute for Energy Economics and Financial Analysis showed it's being sold to the mining companies for more than 200 percent below market prices. So the Signal Peak partners and other government coal lease holders get the coal, owned by U.S. citizens, at a low price and then sell it at much higher market prices, pocketing the difference. Senators Lisa Murkowski (R-Alaska) and Ron Wyden (D-Oregon) have questioned why revenues from coal mined in the U.S. and exported out of the country are not subject to royalty collections for the benefit of U.S. taxpayers. Coal mined and used in the U.S. is subject to royalty payments.

In short, the lease program is a heavy, hidden subsidy for the coal industry and those who invest in it.

The State Department has said that with Russia's military takeover in the Crimea, Vladimir Putin has violated international agreements signed by Russia, the United States and others. The U.S. government has personally sanctioned several of Mr. Putin's inner circle, including Gennady Timchenko, until recently a principal owner of Gunvor. (Mr. Timchenko sold his interests in Gunvor to his partner, Torbjorn Tornqvist, specifically to protect Gunvor from the sanctions.) President Obama's sanctions presumably freeze all U.S.-held assets owned by the named individuals.

The United States has not sanctioned Vladimir Putin personally. But the Department of the Treasury insists that Mr. Putin has an interest in Gunvor. Thus any federal action that improves Gunvor's profits, such as the approval of the Signal Peak mine expansion, would enhance Mr. Putin's personal wealth. The U.S. government does not need to sanction Mr. Putin in order to call into question the wisdom of providing such an enhancement at the expense of United States taxpayers and the people of the State of Montana.