cies, unnecessary sole-source contracting, inadequate procedures to protect the Government from doing business with irresponsible contractors, the management of the social security disability program, the use of computer matching to detect fraud, and the effectiveness of the Ethics in Government Act of 1978. From these hearings came many positive improvements in the management of a host of government programs and procedures. And it is my hope that these hearings will produce recommendations that will highlight any weaknesses in the Energy Security Act and will strengthen the effectiveness of the Board of Directors so that it may fulfill its responsibilities under the law.

Before calling on our witnesses, I would yield to my colleague from New Hampshire, Senator Rudman.

Senator RUDMAN. Thank you, Senator Cohen. I do not have an opening statement.

Senator COHEN. Our first witnesses today are Edward E. Noble, Chairman of the Synthetic Fuels Corporation, and Victor A. Schroeder, Vice Chairman and President of the Corporation. They are accompanied by Jimmie R. Bowden, the Corporation's Executive Vice President.

All witnesses testifying before the subcommittee, both today and Friday, will be sworn. So gentlemen, will you please stand and raise your right hand?

[Witnesses sworn.]

Senator COHEN. Mr. Noble, would you please begin.

TESTIMONY OF EDWARD E. NOBLE, CHAIRMAN, U.S. SYNTHETIC FUELS CORPORATION; VICTOR A. SCHROEDER, VICE CHAIRMAN AND PRESIDENT, ACCOMPANIED BY JIMMIE R. BOWDEN, EXECUTIVE VICE PRESIDENT

Mr. NOBLE. Thank you, Senator.

Mr. Chairman, members of the subcommittee, I am here this morning to participate in what I hope will be an informative and constructive discussion on the operations and administrative practices of the U.S. Synthetic Fuels Corporation. You have my written testimony, and I will do my best to provide further clarification on the matters it addresses or any others concerning the Corporation, as you wish.

When I took this job as the Chairman, it was because I believed in the new administration and wanted to support President Reagan in any way that he thought I could. In working during the past 2 years to direct activities at the Corporation, we have faced a number of unique problems, some associated with the anticipated difficulties inherent in any new operation, some stemming from the rapid shift in the energy supply and demand and price equation, and some growing out of the sheer complexity of initiating a whole new industry.

I know we have made some mistakes in some instances, and I will personally welcome constructive suggestions for improvement in any weak area. I also know that we have done a great deal that is right, in terms of encouraging responsible development of a synthetic fuels industry, and in terms of adhering scrupulously to the directives of the Energy Security Act. I admit the learning curve

had been very steep, and while the climb may at times have seemed slow to those on the outside, I can assure you that it has always been steadily upward and with full consideration of the needs of the Nation and our responsibility to the people who pay the bills, the taxpayers of the country.

Senator, in this regard, I am proud of the fact that our total administrative expenses for the years 1981, 1982 and estimates through the end of fiscal 1983, will average only 24 percent of the budget authorized by Congress. Sir, I challenge any entity in Government to match half of that record. I'm also proud of the very real progress we have made at the Corporation.

Tomorrow the Board is expecting to finalize our first award of financial assistance. We have executed an agreement for 131(u) moneys with another project. Final award documentation work is proceeding for two more projects. We are negotiating term sheets with seven major projects, and we are considering an agreement in principle with one of them at tomorrow's meeting.

We do hope to have agreements in principle with at least some of the others by September 15, the deadline under the third solicitation.

I'll be glad to have your questions now, sir.

Senator COHEN. Thank you very much, Mr. Noble. First let me say for the record that the Corporation has been most responsive to the subcommittee's requests for information. There has been absolutely total cooperation in supplying information we requested, so I thank you for that.

Mr. Noble, because some of the questions that have surrounded the Synthetic Fuels Corporation have dealt with a lack of commitment, a perceived lack of commitment, on the part of management to the ultimate goal that Congress established for the SFC, I'd like to go back, principally, initially, at least, and talk about the Heritage Foundation. My understanding is that you are a substantial contributor to the Heritage Foundation.

Mr. NOBLE. The foundation of which I am a trustee, has been, yes, sir.

Senator COHEN. As a matter of fact, the foundation, I'm told, has just moved from a building that was known as the Noble Building. Is that correct?

Mr. NOBLE. Yes, sir.

Senator COHEN. You are associated as being almost synonymous with the Heritage Foundation.

Mr. NOBLE. That is correct, I guess, in some ways, but we don't always agree, and I respect their independence, and they, mine. Senator COHEN. Tell me, Mr. Noble, what is the position of the Heritage Foundation with respect to the Synthetic Fuels Corporation?

Mr. NOELE. I think they were interested in seeing it shut down immediately.

Senator ČOHEN. And that was their position prior to the Reagan administration taking over?

Mr. NOBLE. Yes, sir, and I believe it is still their position.

Senator COHEN. After President Reagan won the election, you came to Washington to take over as head of the transition team?

Mr. NOBLE. Yes, sir, that's correct.

Senator COHEN. Who was on that transition team for Synthetic Fuels?

Mr. NOBLE. There were a number of people on the transition team. Mr. Schroeder was on it with me. A gentleman by the name of Mr. Stievers. Milton Copulos of the Heritage Foundation was not on the team, but he was helpful. A gentleman by the name of Helmut Merklein. There was also an advisory committee made up of at least one member of our Board of Directors.

Vic, did I leave somebody off that?

Mr. SCHROEDER. I think Charles Cowan was on it and Dr. George Parks was on it. That's all I remember. I don't have a list of the

names.

Senator COHEN. Was Charles Cowan on the transition team?
Mr. NOBLE. Yes, sir.

Senator COHEN. Was Kathryne Schroeder on the transition team?

Mr. SCHROEDER. Yes.

Senator COHEN. Kathryne Schroeder is your wife?

Mr. SCHROEDER. Yes, sir.

Mr. NOBLE. She was also my secretary for 26 years before she married Mr. Schroeder, so it's not exactly nepotism, sir.

Senator COHEN. No, I understand that. But, in other words, you came to Washington, you brought your secretary, Kathryne Schroeder, and Mr. Schroeder with you?

Mr. NOBLE. Let me say that I had about 2 days to put together a team and, of course, I basically put together the team of people that I knew and had confidence in, and then we didn't have the opinion of the advisory committee which drew a separate report. I consulted with a number of other people, both at Heritage, at the Center for Strategic and International Studies. I called on anyone that I knew that I felt could give me some accurate and up-to-date information, as well as what was furnished to me by the Corporation at that time.

Senator COHEN. Mr. Schroeder, what was Mr. Cowan's background in synthetic fuels?

Mr. SCHROEDER. What's Mr. Cowan's background in synthetic fuels? Possibly a year of investigation that I had him conduct regarding medium Btu gas production from coal. His background generally is in the real estate development business.

Senator COHEN. He was a construction supervisor for one of your real estate developments?

Mr. SCHROEDER. No, he was never a construction supervisor. He was a project manager for a real estate development. I had two of them in Atlanta, Ga.

Senator COHEN. That was the extent of his association with the fuel industry, the oil industry, or the synthetic fuels industry? Mr. SCHROEDER. That's correct.

Senator COHEN. Now, you mentioned there was an advisory committee. What was the advisory committee's recommendation with respect to synthetic fuels?

Mr. NOBLE. The advisory committee recommended that we move ahead with synthetic fuels. That was the bottom line. It had a lot more in it than that.

Mr. SCHROEDER. I believe the correct name for that committee was Industry Advisory Committee, and it has many people on it from the energy industry.

Senator COHEN. The Energy Industry Advisory Committee?

Mr. NOBLE. That is correct; yes, sir. Many of those members actually had projects that were involved, but I still felt they were objective, at least as much as they could be. I gave that a lot of consideration.

Senator COHEN. Who put that advisory committee together?

Mr. NOBLE. That committee was put together-and I'm not really sure. It was kind of handed to me, sir.

Senator COHEN. In any event that committee recommended the continuation of the Synthetic Fuels Corporation?

Mr. NOBLE. That is correct.

Senator COHEN. What was your recommendation?

Mr. NOBLE. As you know, the recommendation of the committee report is a private document of the President, but I can tell you that personally, I came to the Synthetic Fuels Corporation, and I have been very open and up front about it, with the feeling that the Corporation had the potential for having a lot of mischief, for possibly being another giant bureaucracy, and I questioned the need for synthetic fuels very strongly and have admitted that and, frankly, right after, you know, when you get a job, if you look at facts different than what you had believed and can't change your mind, I feel you're either dumb or dishonest, frankly. And when I looked at the way the energy was dispersed in this country, and that was that we were producing about 10 million barrels a day, importing about 5 million barrels, a third of our needs-that's still correct today. Actually, we were importing more then, than we are today. When I looked at the actual distribution of our energy in this country and saw that conventional liquids represented only 2 percent of our reserves and 91 percent, and that includes nuclear and geothermal, were in solid fossil energies, about six times the amount of reserves in the entire Middle East, then it became apparent to me, that while we had an ample supply in the world today, and that we were still short, and we had this tremendous reserve, but without the capability of converting it to liquids, then I felt that even though maybe the timing wasn't immediate, but with the leadtimes involved, that we certainly should go ahead and develop that capability.

I've been very up front, the change in my opinions, and some of my friends are still disagreeing with me, but I think we're right. Senator COHEN. Let me go back just to clarify that. My understanding is that at the time you represented your transition team with Mr. Schroeder

Mr. NOBLE. As an individual, yes, sir, I did.

Senator COHEN. Let me finish.

Mr. Schroeder, Mrs. Schroeder, Mr. Cowan, and others-that was the core of the transition team. That team, headed by you, did in fact recommend that the Synthetic Fuels Corporation be discontinued?

Mr. NOBLE. Let me say this, there was a difference on the team itself. Mr. Schroeder was of the opposite opinion.

Senator COHEN. He wanted to go forward?

Mr. NOBLE. That is correct.

Senator COHEN. I assume you took a vote. Within the transition team or did you make that decision?

Mr. NOBLE. I won't say what is in the report, but I wrote the report. So I will take all the credit for the change of opinion and admit it.

Senator COHEN. So it is fair to say, then, that you wrote a report for the President, saying in your judgment, because of your background and feeling about the use of quasi-government entities to intervene in the commercial production of synthetic fuels, that you recommended against the continuation of SFC?

Mr. NOBLE. I have been very straightforward about that, yes, sir. Senator COHEN. I understand. I just want to establish that for the record.

That was approximately in December of 1980 or January of 1981, I assume, during that transition period?

Mr. NOBLE. That is correct.

Senator COHEN. What was the date of your nomination to become Chairman of the Synthetic Fuels Corporation?

Mr. NOBLE. I believe I was nominated in April and confirmed in May. I believe that is correct.

Senator COHEN. What occurred between January 1981 and April of 1981 to change your mind? Looking at the world situation, looking at the apparent surplus that we had, knowing how fragile that was, what was it that occurred that changed your mind?

In other words, between that 2- or 3-month period, what was it specifically that caused you to change your mind about the viability or desirability of having a Synthetic Fuels Corporation?

Mr. NOBLE. Let me say this, when I took the oath to administer the Energy Security Act as the Chairman, I took it knowing exactly what the law required us to do, and I didn't have any hidden agenda to try to do something different than what the law said that we should do. But I, admittedly, did change my mind about at least developing a capability in this first phase, and then I think it would be up to the Board of Directors what they recommend as far as the so-called second phase which Congress authorized.

Senator COHEN. Didn't it strike you as being a bit unusual for the President to put in charge the very person who recommended the abolition of a corporation and name you as the head of a corporation to carry out its congressional mandate? Didn't that strike you as being a bit unusual?

Mr. NOBLE. No. I have always been very straightforward about my decisions and thoughts. In fact, when I was asked to do this, and then when I later changed my mind, I didn't talk to the President.

But I did tell people very candidly that I did feel differently, and having looked at facts that were different than what were in front of me at the time

Senator COHEN. What was different? What were the different facts that you had available to you in April that you didn't have? Mr. NOBLE. Excuse me, sir, I didn't change my mind about eventually wanting-