[Federal Register Volume 64, Number 58 (Friday, March 26, 1999)]
[Notices]
[Pages 14751-14753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7394]


-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Minerals Management Service


Royalty Computation of Phosphate Production on Western Public 
Lands

AGENCY: Minerals Management Service, Interior.

ACTION: Notice of adoption of method for determining value used to 
compute royalty payments on Federal phosphate ore mined on western 
public lands.

-----------------------------------------------------------------------

SUMMARY: This final notice provides a new method of determining the 
value of production used to compute royalties on phosphate ore produced 
from Federal leases on western public lands. The new method uses a 
weighted composite of two published indices and a price survey that are 
more closely related to the phosphate industry. This new method 
replaces the current method of valuation, which utilizes the Gross 
Domestic Product--Implicit Price Deflator (GDP-IPD) to annually adjust 
phosphate value.

DATES: Effective April 26, 1999.

ADDRESSES: Inquiries about this notice should be sent to: David S. 
Guzy, Chief, Rules and Publications Staff, Royalty Management Program, 
Minerals Management Service, P.O. Box 25165, MS 3021, Denver, Colorado 
80225-0165; or e-Mail RMP.[email protected].

FOR FURTHER INFORMATION CONTACT: Herbert B. Wincentsen, Chief, Solid 
Minerals Valuation and Reporting Branch, Minerals Management Service, 
P.O. Box 25165, MS 3153, Denver, Colorado 80225-0165, telephone (303) 
275-7210.

SUPPLEMENTARY INFORMATION: On October 16, 1997, the Secretary of the 
Interior approved an April 16, 1997, recommendation from the Royalty 
Policy Committee (RPC) to revise the current method of adjusting the 
value used to compute royalty payments on Federal phosphate production. 
RPC is a committee of the Minerals Management Service Advisory Board 
(Board). The Board was created under the authority of the Federal 
Advisory Committee Act. The Board's purpose includes, in relevant part, 
providing advice to the Secretary, the Director, MMS, and other 
Department of the Interior officials on royalty management of Federal 
and Indian leases. RPC includes representatives of States which share 
in mineral revenues from Federal lands, Indian tribes and allottees 
whose mineral revenues MMS collects in trust, oil and gas and solid 
minerals producing industries who pay royalties, and the public.
    The approved valuation changes based on the RPC recommendations 
were the following:
    1. Discontinue the current indexing procedure that utilizes the 
GDP-IPD to annually adjust the phosphate value for royalty calculation 
purposes.
    2. Determine phosphate value using a weighted composite index 
methodology with the following indices, published by the Bureau of 
Labor Statistics (BLS), and weights:
     The Chemical and Fertilizer Minerals Mining Index, 
Standard Industry Code (SIC) 147, weighted at 50 percent;
     The Phosphatic Fertilizers Index (SIC 2874), weighted at 
25 percent; and
     The Phosphate Rock Index (SIC 1475), weighted at 25 
percent.
    Lessees would recalculate the phosphate unit value annually, as 
under the existing indexing procedure.
    3. Continue using the weighted composite index methodology for 5 
years, at which time MMS will examine the methodology and the values 
determined to assure there is a continued relationship to the 
marketplace.
    4. Apply the composite index valuation methodology only to Federal 
phosphate production; there is no Indian phosphate production. State or 
fee phosphate leases are also unaffected unless the parties to a State 
or fee lease elect to use the Federal valuation methodology.

[[Page 14752]]

    5. The recommended composite index methodology will not be 
retroactive. The methodology will become effective April 26, 1999.

Comments on Proposed Methodology

    On March 24, 1998, MMS published a notice (63 FR 14131) proposing 
to revise the current method used to compute royalty on phosphate 
produced from western Federal lands. This notice requested comments on 
the revision with the comment period open to April 23, 1998. During the 
comment period, MMS received one comment from a phosphate producer who 
supported the proposed change in phosphate royalty valuation 
procedures. The commentor stated that although there was no perfect 
valuation method, the new western phosphate ore royalty valuation 
method proposed in the March 24, 1998, Federal Register notice will 
more reasonably correlate to general phosphate market changes. The 
commentor stated that the value received for their end product 
(phosphate based fertilizers) is no higher now than what they were 
receiving in 1979, yet the phosphate unit value generated by MMS's 
existing index-based method had almost doubled over that same period.

Discontinuance of Producer Price Index for Phosphate Rock

    During the proposed notice comment period, we became aware that the 
BLS had discontinued the Phosphate Rock Index, SIC 1475. The BLS set 
the Phosphate Rock Index based on sales information that included data 
of crude phosphate ore, processed phosphate rock, washed or 
concentrated phosphate rock, dried phosphate rock, and primary 
products. Because there were very limited sales data voluntarily 
reported, BLS decided to discontinue publishing the index. The last 
Phosphate Rock Index, published in June 1997, was generated from one 
sale of phosphate primary products. The BLS stated they will probably 
not resume the survey over the next 5 years. Accordingly, we decided to 
replace the BLS Phosphate Rock Index for royalty valuation purposes.
    We examined several alternatives to the discontinued BLS Phosphate 
Rock Index before concluding that the Phosphate Rock Price Index, as 
published by the United States Geological Survey (USGS) is a viable 
replacement. On August 21, 1998, we sent a letter to the RPC Phosphate 
Subcommittee members explaining our analysis. We requested review and 
comment on the proposed index replacement. We received one response 
from an Idaho phosphate company in favor of our proposal. No other 
comments were received.

Adoption of USGS Phosphate Rock Price Data

    The USGS annually publishes phosphate rock prices in its ``Minerals 
Yearbook.'' This publication was formerly released by the Bureau of 
Mines (BOM). However, USGS assumed responsibility for continued 
publication when BOM was abolished in 1996. We will use USGS when 
referring to published data (both pre- and post-1996) for the remainder 
of this notice.
    To determine whether USGS's price survey of phosphate rock prices 
is comparable to BLS' data collections for phosphate rock, we 
researched price data beginning with 1982, the year BLS reset the 
Phosphate Rock Index to 100. To test whether USGS price surveys 
reasonably track with BLS price data, we used the following 
methodology:
     We set USGS's published 1982 price for phosphate rock of 
$25.50 per ton to 100. Therefore, for 1982, both BLS and USGS began 
with a unitless index figure of 100.
     We converted the new USGS published price to an index 
change using a direct proportion for each year after 1982. For example, 
in 1983, USGS published a price of $23.97 per ton. This equates to a 
proportioned index of 94 (23.97/25.50).
     We statistically compared the year-to-year percent change 
of these two indices. The overall index price trends, expressed as a 
percentage change of the indices of the BLS Phosphate Rock Index and 
the USGS Phosphate Rock Price Index, are similar with a correlation 
factor of 0.7928. This suggests that BLS and USGS were receiving and 
collecting similar data from the phosphate industry.
    To determine how the old unit value (based on BLS' Phosphate Rock 
Index) correlates with the new unit value (based on USGS's Phosphate 
Rock Price Index), we performed a comparison of the two series of unit 
values using a percent difference plot. The unit values, as calculated 
by both the new indexed methodology and the existing GDP-IPD 
methodology, were equal at $0.5038/unit in 1987, thus 1987 was used as 
the base year for comparison.
    The percent unit value difference for each series follows the 
formula: 
[GRAPHIC] [TIFF OMITTED] TN26MR99.001

    A plot of the percent unit value differences for the period 1987 
through 1997 indicates the two series of unit values are closely 
related and comparable, with a statistical correlation coefficient of 
0.9837.
    Table 1 shows the comparison of the old indexed unit value and the 
new indexed unit value as a percent difference based on the formula 
described above.

                                 Table 1. Comparisons of Old and New Unit Value
----------------------------------------------------------------------------------------------------------------
                                                                      Percent                         Percent
                      Year                        New unit value    difference    Old unit value    difference
----------------------------------------------------------------------------------------------------------------
1987............................................         $0.5038  ..............         $0.5038  ..............
1988............................................          0.5350            6.20          0.5310            5.40
1989............................................          0.5583            4.35          0.5516            3.88
1990............................................          0.5574           -0.16          0.5507           -0.16
1991............................................          0.5644            1.25          0.5621            2.07
1992............................................          0.5474           -3.00          0.5572           -0.87
1993............................................          0.5174           -5.48          0.5254           -5.71
1994............................................          0.5384            4.04          0.5435            3.44
1995............................................          0.5743            6.68          0.5793            6.59
1996............................................          0.6096            6.14          0.6112            5.51

[[Page 14753]]

 
1997............................................          0.5965            -214          0.5949           -2.67
----------------------------------------------------------------------------------------------------------------

Application of USGS Data

    Based on the analysis above, Federal phosphate producers must use 
the same ``composite index'' methodology as originally proposed in the 
March 24, 1998 Federal Register Notice with the exception that the USGS 
Phosphate Rock Price Index replaces the now discontinued BLS Phosphate 
Rock Index (SIC 1475). As recommended by the RPC, we are adopting for 
valuation purposes the composite index from which each year's 
adjustment to the phosphate value would be derived and weighted as 
follows: 50-percent BLS Chemical and Fertilizer Minerals Mining Index; 
25-percent BLS Phosphate Fertilizer Index; and 25-percent USGS 
Phosphate Rock Price Index.

Implementation and Annual Revision of New Unit Value

    The unit value of phosphate ore using the composite index 
methodology is determined with reference to the prior year's composite 
index value compared to the base year's composite index value. Table 2 
shows the new weighted composite index methodology and the computation 
of the index unit value:
    For example:
    [GRAPHIC] [TIFF OMITTED] TN26MR99.002
    
    [GRAPHIC] [TIFF OMITTED] TN26MR99.003
    
The new methodology will not be applied retroactively owing to the 
revised computation method provided in this notice for phosphate 
valuation. Phosphate producers will continue using the existing 
methodology until the first day of the first full month following the 
effective date of this final notice.
    For clarification, we are providing an implementation strategy as 
follows:

For 1999 Phosphate Production

    1. You must use the 1998 Phosphate Unit Value of $0.6858/Unit, as 
computed by MMS and distributed to the phosphate industry in May 1998, 
as an estimated value for 1999 production. The phosphate producers must 
continue using this value until the updated GDP-IPD index data becomes 
available and the 1999 Unit Value, using the existing methodology is 
calculated, (March-April 1999).
    2. You must retroactively correct the estimated value for 1999 
production when MMS notifies you. We will calculate the Unit Value for 
1999, when the GDP-IPD index data becomes available, using the existing 
methodology and provide that value to phosphate producers. Producers 
must continue to use the 1999 Unit Value until the implementation date 
of the new methodology Unit Value. This implementation date will be the 
first full month following the effective date of this final notice.

Phosphate Unit Value From April 26, 1999

    Use the new methodology Unit Value ($0.5965/Unit) for production 
occurring on or after April 26, 1999 until August 1, 1999. No 
production month will have more than one Unit Value under this 
implementation strategy.

Phosphate Value After August 1, 1999

    You must use the revised Unit Value from August 1, 1999, through 
July 31, 2000. We will revise the phosphate Unit Value and distribute 
it by letter to the industry during July of each year with an effective 
date of August 1, of that same year. We will use this date because the 
annual BLS indices and the annual USGS phosphate rock prices that make 
up the composite index are published by June of each year. For example, 
MMS will calculate and distribute the 1999 Unit Value to the phosphate 
industry by July 1999. It becomes effective for production beginning 
August 1, 1999. You must calculate and pay royalties due for August 
production, using this 1999 Unit Value, no later than September 30, 
1999. The 1999 Unit Value will remain in effect until July 31, 2000, 
when MMS will calculate the next unit value revision.
    We will examine phosphate value computed under the new methodology 
through a market analysis every 5 years to ensure that the new 
valuation methodology is, in fact, reflecting changes in the western 
phosphate industry. Since the analysis that was part of the Phosphate 
Subcommittee's work occurred in 1996, MMS will examine and compare the 
values computed for phosphate ore to market data in 2001.

    Dated: March 19, 1999.
Lucy Querques Denett,
Associate Director for Royalty Management.
[FR Doc. 99-7394 Filed 3-25-99; 8:45 am]
BILLING CODE 4310-MR-P