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percent to the Reclamation Act and 10 percent to administrative costs, I think, that 62.5 percentage would simply go into the general fund under our present proposal.

Now, for many years indeed, the Reclamation Act or the projects funded for reclamation have not been dependent on the funds collected from this source. Everything has had to be appropriated anyway out of the reclamation fund.

So, I don't believe that this proposal will have any effect on the money received by the States. I agree that it doesn't further the revenue sharing but it doesn't hurt it any, either. Senator HANSEN. What you are saying, if I understand you, is that

, there is no intention on the part of the President nor contained within his revenue-sharing proposal, to diminish the present mineral revenues being returned to the States one penny, is that right?

Mr. Loesch. That is absolutely correct. Senator Haxsex. I appreciate your response. Mr. LOESCH. I might say one thing further in this regard. That is, if you believe that revenues would be decreased by an all competitive leasing system, then the States would benefit. Because they would receive a share from the bid amount.

Senator Hansex. If I were to debate that point with you, and I don't propose to, I think it can be argued that the present leasing system, probably inures to a greater benefit statewide than would be true under the other system.

Mr. LOESCH. Senator Hansen, as a personal matter, we would be on the same side of that question. Senator Hansen. I like to be on the same side with you, when you

HANSEN are right. [Laughter.]

In your statement you indicated that the issue of the legality of a deferred bonus bid system for the Outer Continental Shelf of leasing under present law was under study by the Department's Office of the Solicitor.

I am under the impression that your office and Secretary Dole's office have been requesting an opinion from the Solicitor on that issue for nearly a year now. I am certainly anxious to learn the answer. Do you think it would expedite the research effort in the Solicitor's office if I were to personally request an opinion, say, within the next 30 days?

Mr. LOESCH. Senator, in the first place, I checked with Secretary Dole this noon. My statement, incidentally, does not say that we requested an opinion. It stated it was under study, I believe, unless I am mistaken on that.

I checked with Secretary Dole this noon and he says that he has not, and I know I have not, formally requested such an opinion. We have informally asked for such guidance, but I think that we probably won't get it until we formally do ask for such an opinion.

I wouldn't be surprised if your own request would help us get it.

Senator Hansex. Nr. Chairman, I have no further questions that I pmpose to submit now.

I would like, though, if I may, to submit in writing to the Secretary, he has been very patient, he has been on the stand for a long time, some questions that deal with the mechanics of producing coal, going into leasing arrangements and all that sort of thing and, if I may, with your permission, I would like to write to the Secretary and ask unanimous consent that he might respond to my inquiries and the whole exchange be included in the hearing.

Senator Moss. That would be granted, Senator.

In the beginning I pointed out that since we had not had an opportunity to look at the written statement closely before the Secretary testified, that we might want to send some written questions down and. if so, they in response to the questions would be included in the record.

Mr. LOESCH. We would be delighted to respond to that.

Senator Moss. We do thank you. I have maybe just two very short things to clear up.

In your statement you say that you believe the system of all competitive leasing with appropriate requirements for exploration and development, instead of the present noncompetitive leasing system. would be more responsive to supply and demand and would lead to less holding of leases primarily for speculation.

Now, as I recall, when I was asking you about competitive leasing, you gave it as your belief that competitive leasing increases the costs and therefore is a disincentive to exploration and development. Are these two positions inconsistent?

Mr. LOESCII. Well, I think I was talking really about the OCS maybe at that point, but likely enough it is applicable to everything

You see, our experience has been, Mr. Chairman, that the permit and preferential lease system has not resulted in a great increase in productivity. It has been an incentive for an individual or a small company to obtain a preferential right lease and then sit on it if there was no overriding reason for production.

Remember in the years of Federal coal leasing after 1945, and until perhaps 3 years ago or less, coal was on a declining basis and there

3 wasn't a great deal of demand.

In consequence there was no push on the Department or elsewhere in the administration to require production. I guess it was the idea that the low level of rental and all was better than nothing and it didn't matter whether production was obtained or not because the demand was not there and I think that probably all administrations concerned in this just kind of slid along on this idea.

Now, the demand is there, particularly for low sulfur coal with suitable air protection requirements and we, of course, have consequently become concerned with the idea that production is what we are after.

We could fix our permit system so that it would require production as well. But I think in the present state of things competitive leasing is not going to significantly hamper development.

Senator Moss. I wonder if the OMB was the pressing factor in that, to put everything under the competitive leasing?

Mr. Loescu. Well, Mr. Chairman, you people have been putting me pretty well on the spot. OMB is liable to skin me for my testimony today, but I think it is fair to say that certainly in my experience OMB has been pressing for competitive leasing in all resource areas.

Senator Moss. Earlier when I was asking you questions I said I understood that leases were for an indefinite period and I since have been furnished by the staff with title 30 of the Federal Code and it

does read, "Leases shall be for indeterminate periods upon condition of diligent development."

My question then was whether or not if you could actually terminate a lease or would you have a court action to terminate the lease?

Mr. LOESCH. Well, this is another thing that historically grows out of the fact that there wasn't any great push for development for a long number of years and consequently the Department has never tested the diligent development phrase in the law. Court action would be necessary.

We are of the opinion, generally, that we would get into a litigation action if we tried to, but maybe that would be a good thing.

I don't suppose we would duck that particnlarly. I am not sure. It must be by our own regulations, and I am sorry I am not prepared on this, but it must be by our own regulations that we have the 20-year period and 20-year renewal and so on.

Senator Moss. It is mentioned later, on the further condition at the end of each 20-year period such readjustment of terms and conditions mav be made.

Mr. LOESCI. One of the things we are considering, but never got off the ground, Mr. Chairman, in the Department, though Secretary Dole and I see very much eye to eye on this, is some method or manner of convincing the industry that they are not going to get automatic 20year renewals on leases which they haven't done anything on.

We have been thinking between ourselves, Secretary Dole and I, as to how we might best accomplish that. We believe, though, this is pretty much unformulated, it is certainly not clear yet, that it might be a productive thing if we notified all of the holders of leases which

a are going to expire within some period, let's say, within the next 5 years, that if there were not development by the end of the first 20year period, or the filing of a plan for development that satisfied the Secretary, that the renewals wouldn't happen.

Now, any kind of format like this is going to require careful consideration. We don't want to discourage the idea of holding proper reserves for proper purposes, where there is development and plan.

But, on the other hand, we are faced, as you know, with the fact that a number of companies and individuals have leased large coal reserves on the hope that somebody is going to come up with a good gasification program or technology, having not themselves contributed to the research toward that technology and generally just sat on the reserve. We don't believe that is to the best interest of the country in the long run.

So some way we have to get a handle, it seems to us, not only on the future leases, but on the presently outstanding leases.

Senator Moss. Well, I appreciate your response and of course that is true, you do have to get a handle on it so that you can control it and large blocks of land can't be indefiintely held for nominal rentals purely for speculation.

We appreciate your testimony and certainly this is a very excellent and complete paper.

I think this answers all the questions in appendix A.

When can we count on, do you think, on your answers to the B section?

Mr. LOESCH. Our B section is in preparation. We are planning on having it within 30 days from now. (The Department's response appears in appendix I.).

I am going to have for you the Indian paper very shortly, within the next week, I think.

Senator Moss. Well, that is just fine. As I indicated, when those papers are in, we may want further hearings, at which point we can direct our attention there.

We do appreciate very much your coming here and testifying for us and bringing your assistants here who have been here to respond if the matters came up that affect their particular area.

This will complete the hearing for today, and we stand adjourned.

(Whereupon, at 3 p.m., Monday, June 19, 1972, the hearings stood adjourned, subject to the call of the Chair.)

APPENDICES

APPENDIX I

Response by the Department of the Interior to questions in

attachment B for public lands.

(See p. 651 for Indian lands.)

85-197473-8

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