Federal Coal Lease Agreement

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Federal Coal Lease Agreement

What Is the Federal Coal Lease Agreement?

Federal Coal Lease Agreement is the legal document that specifies the duties and rights of the federal government and the company the contract is leased out to. The agreement is drafted when the federal government plans on leasing the public land to the company for coal mining. The mining company would pay in terms of the tonnage extracted. The amount quoted for the lease land depends on the estimated tonnage available in the mine.

When Do You Need a Federal Coal Lease Agreement?

The Federal Government is considered the owner of all the national resources in an economy. Usually, the government offers certain public lands on a lease to the deserving companies to ensure the optimum use of natural resources. Basically, the federal government finds the deserving company through a bidding procedure. The company that places the best bid is handed over the particular land for coal excavation purposes for a specific duration.

This agreement is required when a company is allotted a land for which to mine to extract the coal from. To ensure the rights of the company and the revenue that needs to be generated for the government, this agreement is created. In some cases, the government might not have the required resources to mine the field themselves, so they give it to the company

Inclusions of the Federal Coal Lease Agreement

The inclusions are

  • Details of the parties including the government
  • Details of the ministry that would act as the SPOC for all communication with regard to the mining
  • Final bid price that has been accepted as payment
  • Any securities or advances
  • Estimated average tonnage in the mining area
  • A clearance from the environment ministry and the forest ministry for mining
  • Responsibility of the equipment required for mining operations
  • The subsidies or equipment provided by the government for the mining activities
  • A drilling plan and drilling information
  • Change of control
  • Voluntary surrender of the mine
  • Lessee’s Rights, i.e., the right of mining and land usage
  • Term of contract
  • Minimum Royalties
  • Production Royalties
  • Compliance with State Laws
  • Environmental reconstruction after the drilling is completed
  • Indemnification and Insurance
  • Warranty and representations
  • Default and Forfeiture
  • Transfers, assignments and successors
  • Termination of the contract
  • Waivers of liability in case of shortfall of the expected tonnage
  • Revenue receipt in case of excess tonnage
  • Compliance with all the labor laws and regulations
  • Permission for subletting the mine

How to Draft a Federal Coal Lease Agreement?

While drafting the agreement,

  • Mention the name of the parties involved in the agreement
  • Mention the minimum royalties, i.e., the lease amount the company must pay to the federal government either monthly or in a lump sum.
  • Write the duration of the contract
  • Specify the mining clause under which the coal mining rights of the lessee should be stated
  • Add the Indemnification, insurance, Confidentiality, and other clauses
  • Clearances from the environment and the forest ministries
  • Expected tonnage from the mine
  • Limitation on liability in case of shortfall and the revenue in case of excess tonnage found
  • Plan for reconstruction of the environment after clearance
  • Compliance with labour laws

Benefits of a Federal Coal Lease Agreement

  • The government needs to ensure that the land they have leased out to the company is used appropriately.
  • Once the agreement is signed, the government can stay rest assured that all operations are carried out legally.
  • The contract protects the company’s interest by clarifying the rights of Mining and utilization of the government land.
  • It also specifies the duration until which the company has the right to excavate coal.
  • If a government does not have the necessary equipment for mining operations, this is a great way to extract natural resources
  • It attracts foriegn direct investment for the country
  • It helps in creating jobs for individuals in the host country
  • The host government need not investment in the risk of mining to check for coal
  • Providing subsidies and equipment attracts more competition thus increasing the revenue from the bidding process

Key Clauses in the Federal Coal Lease Agreement

Since it is a government contract, many clauses are to be mentioned in the agreement. Below mentioned are the important clauses that must be specified clearly.

  • Term
  • Royalties
  • Environmental Obligations
  • Taxes
  • Indemnification
  • Assignment and Subletting
  • Confidentiality
  • Default
  • Lessor-Lessee Relationship
  • Governing Law
  • Mining

What Happens in Case of Violation?

Should the company breach any term given in the contract, they will be subject to pay the compensation. Improper use of the public land, failure to pay royalties on time, and any other violation can result in contract termination. The company must read the contract thoroughly and sign it only if they agree to all the terms. In general, since the company is dealing with the federal government, any breach on its side could result in immediate termination or a notice for payment of compensatory damages to reconstruct the destroyed environment. This could be challenged in the court of law. However, before approaching the court, both parties agree on a course of action that is beneficial for both the partie.

The federal government has a legal obligation to ensure that it is not giving away federal coal at fire sale prices. We cannot go back and redo the last thirty years of the federal coal leasing programs, but neither should we accept the current broken system. We can do better with a Federal Coal Lease Agreement.

[Also Read: Mineral Lease and Coal Lease Agreement]

Sample for Federal Coal Lease Agreements

A sample of the agreement can be downloaded from below.

Federal Coal Lease Agreement

Federal Coal Lease Agreement

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