S. 2053, The Deep Sea Minerals Resources Act

Published by the Government Accountability Office on 1977-10-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                              DCCUMENT RESUME
  03713 - [B2q34066]

  IS. 2053, The Deep Sea Minerals Resources
  10 pp.                                    Act]. October 4, 1977.

   Testimony before the Senate Committee
   Resources: Public Lands and Resources on Energy and Natural
                                              Subcommittee; by Monte
   Canfield, Jr., Director, Energy and
                                            Minerals Div.
  Issue Area: Environmental Protecticn
        Administration and Coordination ofPrograms (2200); Materials:
                                                Materials Policy (1812).
  Contact: Energy and Minerals Div.
  Budget Function: Natural Resources,
       Other Natural Resources (306}. Environment, and Energy:
  Organization Concerned: Department
                                          of the Interior; Department
       of Commerce; National Oceanic and
       Ad ministration.
  Congressional Relevance: Senate Coimittee
       Resources: Public Lands and Resources on Energy and Natural
  Authority: Deep Sea Minerals Resources           Subccmmittee.
                                               Act; S. 2053 (95th
       Cong.) . H.R. 335C (95th Cong.) .
             Resolutiop cf the appropriate governmental
 ocean mining would be authorized by                          role in deep
                                           S. 2053, the Deep Sea
 Minerals Resources Act. Questions
 coordinate deep ocean mining with involving the need to
 objectives and what share of the revenues foreign policy
 mining should accrue to the public                from the deep ocean
                                         remain unresolved. The bill
 would establish a system of issuing
 first-serve basis, enabling firms        licenses on a first-come
                                      to retain all financial
 benefits from resource recovery. This
the public to receive a fair market          provision would not allow
its resources. GAO supports a system      value   return fro' the use of
to ocean mining firms similar to tte        for  the  granting of leases
information sharing program employed       bidding,    royalty, and
the Outer Continental Shelf. The Secretary for   oil  and gas leasing on
provide funding to assess the environmental of Commerce should
prototype mining operation tests.                    impact of key
developed for the operation of a revenue            provisions need to be
into which the receipts from the leasing sharing escrow account
perding their distribution. Congress             progres would be placed
                                           should no: enact the bill
until the various problems outlined
                                         are resolved. (SW)
                         WASHINGTO'I, D.C.

                                        FOR RELEASE ON DELIVERY
                                        Expected before 12 noon
                                        Tuesday, October 4, 1977

                   STATEMENT FOR THE RECORD OF
                  MONTE CANFIELD, JR., DIRECTOR
                           TO THE

Mr.   Chairman:

      We appreciate the opportunity to present our views on

S. 2053, the "Deep Sea Minerals Resources Act."     The Comptroller

General gave the Subcommittee his assessment of the proposed

legislation on September 15.    This statement is to amplify

the rationale supporting GAO's official position.

       The purposes of S. 2053 are to (1) establish an iterim

licensing program to encourage and regulate the recovery and
processing of hard mineral resources of the deep sea bed,
pending the adoption of a superseding international agreement

relating to such activities as it may be ratified by and be-

come binding upon the United States; (2) make available Fed-

eral insurance to safeguard investments in deep ocean mining

technology, should the aforementioned international agreement

adversely affect them; and (3) insure that the development of

hard mineral resources on the deep sea bed is carried out in

an environmentally safe manner which will protect the quality
of the marine environment in any area affected by


     We believe these investment and environmental questions
                                                    deep sea
should be considered in the framework of a coherent

mining development program which establishes the appropriate
Federal role and clearly assigns responsibility for carrying

it out.   Similarly, we believe that the provisions of any

legislation that would authorize mining of deep sea mineral
resources should be closely coordinated with and be part
both U.S. objectives under the Conference on the Law of

Sea and other essential foreign policy objectives.      Third,

we believe it vitally important that the basic equity issue
be very carefully addressed and that the public, whether
of the United States or the larger international community,
                                                   for the
be assured of receiving a fair market value return

alienation of resources which would be developed through

deep ocean mining.

     The Comptroller General has provided the Subcommittee a

draft GAO report on deep ocean mining issues which is rele-

 vant to the first two of the preceding points.      Even though
 the report is still with the agencies for comment, and

 ject to change before final release, it is not expected

 that any substantial revisions will be re4 uired.
      The report confirms, first, that the basic framework
 for guiding U.S. deep ocean mining activities has not yet

                              -   -
established.     For eramppe, basic differences of opinion still
persist as to who should have program responsibilities.       This
is demonstrated not only in the report, but pending legislation

as well.     S. 2053 would assign general authority to the Secre-
tary of Interior, while the House version of the bill, H.R. 3350,

assigns it to the Secretary of Commerce.      The lack of rational
administrative structure is indication of the absence of well-

defined program goals.     It obviously causes severe interagency
coordination problems as well.      Our report illustrates, for ex-
ample, that just on the matter of oceanic research 21 Federal

agencies in 6 Departments and 5 independent agencies are in-

volved.     The basic finding of our report is that there should
be a primary authority responsible for determining the Federal

role.     That authority should develop, foz Congressional approval,

a comprehensive program to implement Federal responsibilities

in accordance with national objectives.     Particularly in the
absence of any demonstrated near-term domestic need for develop-

ment of new sources of materials likely to be supplied through

deep ocean mining, we believe sufficient time is available to

develop a rational structure for governing U.S. deep ocean

mining activities prior to their actual authorization.

    Another organizational and policy problem reinforced by
the report is the clear need to coordinate deep ocean mining

with overall foreign policy objectives.     The report illustrates
the potentially adverse effect development of deep ocean supply

sources could have or existing mineral supply systems and the

revenues earned by some countries through established systems.

This issue could have important ramifications for future U.S.

relations with at least certain developing countries, and

for that reason care must be taken to insure that any Federal

deep ocean activities are consistent with overall U.S. foreign

policy objectives.

     The question of what share of the revenues from deep
ocean mining should accrue to the public also remains unre-

solved.    Section 103 of S. 2053 would establish a system of
issuing licenses on a first-come first-serve basis.        These
exclusive licenses would be to developmental firms, or con-

sortiums of firms, covering broad, as yet undefined, geographic

areas.    The firms would then retain all financial benefits
from resource recovery.     We believe there is a strorn   public
interest 1/ in deep seabed mineral resources and that a

licensing system which would provide for only private fi-

nancial benefit is inappropriate.     Rather, we think the public
should be assured of receiving a fair market value return from

the use of its resources.

     It is very difficult for us to see how this can be ac-

complished in the absence of any competition for the develop-

ment rights, particularly when there is such a dearth of

1/We do not know what "public' will ultimately own this re-
  source, but it is clearly not a "free good."  If the public
  turns out to be an international public, the same logic
  should apply as if U.S. public resources were involved.

                              - 4-
public information on she eventual economic worth of the rights
as exist in this case.     The Assistant Secretary of Interior
for Energy aid Mineralr,   k.,-   testified that the resources
available from ocean mining are very large by any standard,
but that the public data now available are insufficient to
determine hcw large for purposes of licensing specific areas
of economic concentration.
     A similar situation harb existed in oil and gas leasing
on the Outer Continental Shelf.       There protection of the
public's interest has been aided by a system of competitive
bidding.   Geological information financed by the Government
is made available to the public.       Information obtained by
private parties under exploration permits is also made avail-
able to the Government, but not to the detriment of the
leasee's cqmpetitlve interests.
     We support a similar bidding, royalty, and information
sharing system for the granting of leases to ocean mining firms.
Such a system'would provide that:
    -- Exploration and actual commercial development are
      explicitly distinguished.
    -- Permits to explore the deep ocean area be issued.
      These permits should be issued to any potential bona
      fide bidder who wants to explore.        In order to avoid
      unnecessary duplication of exploration,       any bona fide
      potential bidder should be able to "buy in" on the
      exploration information by paying a pro-rata share of

      the cost of exploration.

    -- Information obtained under exploration permits must

      be shared with the Government.      Such information should

      help the Federal Government estimate the value of the
      resource to be leased.

    -- Following the exploration phase there be a call for

      nominations of areas to be leased.      In addition, the

      Government should have the option of offering tracts

      that it feels are potentially valuable even if no

      nominations are received on those tracts.

    -- Leases be issued for commercial development activity
       in these areas in an open, competitive bid basis in

      a manner similar to Outer Continental Shelf oil and

      gas leases.

    -- Payments stemming from lease arrangements be put in

      an escrow account pend'.      fillal international agree-

      ment as to how financial benefits from deep sea minezal

      development should be distributed.

     -- Exploration or commercial developmental action must

       take place within a specified time period or suffer
       forfeiture of lease rights.

     The system would entail government determination of a

minimum economic worth of resources susceptible to development

within given tracts.   This valuation would serve, as in the

case of offshore oil and gas leases. as the baseline for corn-

                             - --
petitive developmental bids.        Payment; received could
then be held in the escrow account now provided for
in Section 204 of the bill.
     We note that Section 204 does provide for the reservation
of a portion of the revenues derived from ocean mining for
future contribution to suchi international authority as may
be established over deep seabed resources.        However, actual
implementation of such an escrow account is       left to the
passage of further, additional legislation.        We believe that
in the absence of any demonstrated, near-term domestic need
for development of new sources of materials likely to be
su'plied through deep ocean mining; and given the importance
of the revenue sharing principle; legislation should not be
enacted which leaves the issue of escrow account payments
open to later, indefinite resolution.
     The government must have at its disposal far more date
than is prestently available to make that tract valuation
process viable.   In lieu of expensive and time consuming
government-financed surveys, we recommend a system of in-
formation-sharing on ocean mineral resources similar to that
for oil and gas resources.     It    is very important to stress that
proprietary information submitted by private firms would not
be publicly disseminated or otherwise made available to
competing bidders until after the lease sale.        The information
sharing system we propose should not, as a consequence, have
discernible adverse effects on capital formation in invest-

                              -     7 -
ment potential.   Neither should competitive leasing have detri-
mental effects on the investment potential of ocean mining.

     On a related point, we agree with the Treasury Department's

earlier testimony that the investment decisions will, as they

should, depend largely on whether the economic incentive of

the venture justifys the risks.       Accordingly, we concur with
Treasury's position that special Government guarantees against

losses from prospective international agreements are unnecessary.

     We recognize that for purposes of deep ocean mineral de-
velopment, unlike the oil and gas leases, the Government does

not exercise sovereignty in international waters, nor does it

wish to imply that it does.    We do not think, hcwever, that

whether the Government issues "licenses" or "leases" to its

citizens should influence that question as long as the

receipts from the leasing process were held in escrow pending

a decision as to how they should be distributed to the resource

owning public.

     With regard to environmental protecticn, our draft
report explains that for lack of adequate and timely funding,

the planned environmental (DOMES) test by the National Oceanic

and Atmospheric Administration of the early commercial proto-

type mining operations might not be possible.      This would
have delayed the preparation of requirei environmental

impact statements and Federal assurances that planned mining

operations were ervironmentally sound.      We recommended that

the Secretary of Commerce evaluate the status of the program

                              - 8 -
 and provide funding to assess the environmental impact of
 the key prototype tests.
      Since 'he time our report was drafted, the prototype
 tests, then scheduled for May 1977, have been delayed until
 November. Further, $1.1 million were made available in
 1977 with an additional $900,000 appropritated for 1978. It
 is planned to monitor the euphotic (ocean surface) impact of
 the first prototype operation in November and the benthic
 (ocean bottom) effect during the second operations scheduled
for February 1978.   The Department of Commerce has requested
$1.985 million in 1979 to monitor both surface and subsurface
effects simultaneously during tests scheduled for that year.
Assuming the funds are forthcoming, this schedule should
allow the Government to carry out the environmental safe-
guards of S. 2053 prior to full scale recovery operations in
the early 1980's.
     We think S. 2053 generally provides security of tenure
to the mining companies and proper environmental safeguards--
two principal requirements for nodule mining recognized in
our draft report. We think, however, that it is equally
important that the public's interest in the resources be re-
cognized and that the Government's role in ocean mining be
better defined before full scale operations are authorized.
Accordingly. we recommend that the Congress not enact
S. 2053 or H.R. 3350 without

-- resolution of the appropriate governmental role in the

  deep ocean mining and other institutional problems

  identified in the draft GAO report;

-- careful alignment between deep ocean mining and general
  foreign policy objectives;

-- adequate provision for public recovery of a fair market
  value return on ocean mineral resources through a

  competitive leasing system; and

--development of specific provisions for operation of

  a revenue-sharing escrow account into which the receipts
  from the leasing program would be placed, pending

  their distribution.

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