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Senator DOUGLAS. I wonder if the clerk of the committee, in order that this may be formalized, will call Mr. Welsh and say we hope very much that he will either attend or send up a communication !
Thank you very much, Senator Curtis. I appreciate your statement.
We will now call first, I think, on Mr. Laurence B. Robbins, who is the head of the Federal Facilities Corporation of the Treasury Department; and I believe you are also Assistant Secretary of the Treasury, Mr. Robbins ?
Mr. ROBBINS. Yes, sir.
Senator DOUGLAS. Mr. Robbins is a distinguished fellow citizen of mine in Chicago, and we are very glad to have him here and very glad to have him testify.
Mr. Robbins, I wonder if it would be satisfactory to you if we placed in the record at this point, prior to your formal testimony, the letter and memorandum which you addressed to Senator Fulbright, chairman of the full committee, on the 2d of March 1957, or whether you would prefer to have that letter withheld until a later time?
Unless there is objection, we will make that letter part of the record now. (The letter and memorandum referred to follow :)
Washington, March 1, 1957. Hon. J. W. FULBRIGHT, Chairman, Committee on Banking and Currency,
United States Senate, Washington, D. O. My DEAR MR. CHAIRMAN : Your letter of February 12, 1957, requested a report on H. R. 2528, a bill to authorize the sale of the Government-owned alcohol butadiene facility at Louisville, Ky, known as plancor 1207. The bill authorizes the sale of this plant to private industry for the most part on a basis similar to the pattern established by the Rubber Producing Facilities Disposal Act of 1953, as amended. It would, however, modify that pattern in two respects. Under the bill the purchaser could utilize the facility to make any chemical products important to the national security and the scope of the Attorney General's review is limited to a finding that any proposed sale would not tend to create or maintain a situation inconsistent with the antitrust laws.
This Department strongly urges prompt passage of the bill. In our opinion the bill provides a practical and workable approach to the disposal of this plant, the retention of which, it has been determined by the Office of Defense Mobilization, is not essential to national mobilization requirements for butadiene. That Office recently testified before the House Armed Services Committee that, because of a substantial expansion in butadiene capacity based largely on butane, this country has sufficient facilities to supply its rubber needs without the use of the Louisville plant. This Department also believes that the possibility of an attractive sale affording maximum assurance of the greatest possible return to the Government will be enhanced if prompt action is taken on the bill. The attached memorandum sets forth our views in greater detail.
The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. Very truly yours,
LAURENCE B. ROBBINS,
Acting Secretary of the Treasury. MEMORANDUM RE H. R. 2528, A BILL TO AUTHORIZE THE SALE OF THE GOVERNMENTOWNED ALCOHOL BUTADIENE FACILITY AT LOUISVILLE, Ky., KNOWN AS PLANCOR 1207
The bill has as its object the offering of this plant for sale to private industry, free from some of the restrictions applicable to the earlier sales of Governmentowned synthetic rubber facilities concluded by the Rubber Producing Facilities Disposal Commission in 1955–56. The sale would be subject to the existing lease with Publicker Industries Inc., Philadelphia, Pa., which expires April 4, 1958.
Use of the plant would not be limited to the manufacture of alcohol butadiene or any other component material of synthetic rubber, but the purchaser could utilize the facility to make any one or more chemical products important to the national security, including alcohol butadiene. The contract of sale would contain a national security clause assuring prompt availability of the plant, or facilities of equivalent capacity, for the production of such a chemical product or products for a 10-year period. The bill otherwise follows the pattern of the earlier disposals as established by the Rubber Producing Facilities Disposal Act of 1953, as amended, except that the scope of the Attorney General's review is limited to a finding that any proposed sale would not tend to create or maintain a situation inconsistent with the antitrust laws. This results from a suggestion made by the Assistant Attorney General for Antitrust before the House Armed Services Committee in June 1956, when that committee was considering new sales legislation for the Louisville plant, and was approved by the Department of Justice during the recent House Armed Services Committee hearing on H. R. 2528 on January 24, 1957.
We are aware of the reasons which induced Federal Facilities Corporation on December 12, 1956, to reject both bids for a long-term lease on the Louisville plant in favor of a recommendation that the plant be reoffered for sale as a general chemical facility as early as possible in 1957. We endorse fully the Corporation's view that such a disposal would best serve the Government's interests. The plant is not now in operation, having been shut down completely in October 1956, and Publicker has said that it will not operate in 1957. The Government is now paying and will continue to pay out some $342,000 per annum in standby costs, against a guaranteed rental return of only $12,000 per annum under the existing lease. A sale would complete the total withdrawal of the Government from the synthetic rubber field, the 26 other plants having been sold in 1955–56, and will eliminate not only the standby costs but also the considerable insurance risk now borne by the Government on this idle plant.
H. R. 2528 provides a practical and workable statutory approach to the disposal of this plan, the retention of which, according to a finding of the Office of Defense Mobilization most recently affirmed on January 24, 1957, is not essential to national mobilization requirements for butadiene. This finding, which the Office of Defense Mobilization said was formulated on the basis of advice from its delegate agencies—the Department of Commerce, the Department of Interior, and the Department of Defense would, according to ODM, still have been recommended if ODM knew of a certainty that the Nation would reach all-out mobilization within 6 months, 12 months, or 2 years from January 24, 1957. ODM explained to the House Armed Services Committee that because of a substantial expansion in butadiene capacity, based largely on butane, the Louisville plant, which is dependent upon a high cost raw material and which normally is not competitive, no longer serves the purpose for which it was needed during World War II, and that in a future war or future emergency the country has sufficient facilities to supply its rubber needs without the use of this plant. In the 26 previous sales of synthetic rubber plants approved by the Congress, the Rubber Producing Facilities Disposal Commission included a 10-year national security clause in the sales contracts. Under H. R. 2528 the same requirement will obtain; and the Louisville plant will have to be maintained for a period of 10 years to produce alcohol butadiene or another chemical important to the national security unless the purchaser, with the Government's consent, substitutes new, separate facilities of equivalent capacity for the production of alcohol butadiene or another chemical product important to the national security.
We are advised that Federal Facilitites Corporation is of the opinion that the possibility of an attractive sale, affording maximum assurance of the greatest possible return to the Government, will be enhance if prompt action is taken on the bill, since this will enable a successful bidder to complete engineering plans for utilization of the Louisville plant upon its takeover in April 1958 at the expiration of the existing lease, and because companies which desire to bid would know that they would not be delayed unduly in seeking other properties to fit their expansion plans if their bids on this facility proved unsuccessful. Unless the plant is to be sold now under new legislation, it will be turned over to General Services Administration in April 1958 as surplus property, and can thereafter be offered for sale under that agency's procedures. This would not provide for review by the Congress, as desired by the House Armed Services Committee, and means practically that any sale would be subject to considerable delay with he maintenance costs of about $342,000 per annum continuing until ultimate
disposal Federal Facilities Corporation has advised that a good market for the plant exists today, but that if sale of the plant is deferred until 1958, the interest presently manifested may very will diminish. Since the introduction of H. R, 2528, several companies, which heretofore have never shown any interest in the plant, have indicated that they will compete for the facility.
We believe that the Government will receive a greater financial return from a sale now than would be possible at some indefinite future date, and strongly urge prompt passage of the bill to enable all action thereunder, including congressional review, to be completed during the current session of the Congress. Since the time schedule provided in the bill calls for 130 days to elapse from the filing of the initial advertisement through the completion of congressional review, the necessity for quick action is apparent.
STATEMENT OF LAURENCE B. ROBBINS, ASSISTANT SECRETARY
OF THE TREASURY AND ADMINISTRATOR OF THE FEDERAL FACILITIES CORPORATION; ACCOMPANIED BY HAROLD W. SHEEHAN, SPECIAL ASSISTANT TO THE ADMINISTRATOR; EUGENE HOLLAND, CONSULTANT; AND G. J. IRWIN, CHIEF ENGINEER, FEDERAL FACILITIES CORPORATION Mr. Robbins. Mr. Chairman, may I bring to the witness table two of my associates!
Mr. Holland was Executive Director of the Rubber Disposal Commission, and Mr. Sheehan was General Counsel of that Commission.
Since the Commission went out of existence, both of them have assisted me, first in the disposal of the tin smelter and now in the efforts to dispose of the Louisville plant.
Mr. Chairman, I have a statement which I should like to read, with your permission.
Mr. Chairman, as I listened to Senator Morton's statement, I realized there are many of the points in my statement that touch on those that he made. I hope the committee will not object to the added emphasis.
On March 1, 1957, the Treasury Department informed the committee that it favored enactment into law of H. R. 2528, and strongly urged prompt passage of the measure. As you know, the Secretary of the Treasury has overall responsibility for the management and operation of Federal Facilities Corporation, which I serve as Administrator. Federal Facilities Corporation in 1954 took over the Reconstruction Finance Corporation's functions with respect to the Government-owned rubber plants. Federal Facilities Corporation holds title to the Louisville alcohol-butadiene plant covered in H. R. 2528, and is responsible for maintaining the plant in standby. As successor to the Rubber Disposal Commission under Executive Order 10678, it is also the lessor of the plant under the existing lease to Publicker Industries, Inc., which expires April 4, 1958.
As the Commission's successor, the Corporation on September 24, 1956, invited long-term lease proposals on the Louisville plant, as authorized by Public Law 433, 84th Congress, 2d session, and thereafter negotiated with the two bidders, Publicker and Union Carbide and Carbon Corp., respectively, negotiations being officially terminated on December 12, 1956.
On December 12, 1956, I advised this committee and the House Armed Services Committee that Federal Facilities Corporation had decided to reject both long-term lease proposals and to recommend
that the Congress consider the passage of new sales legislation for this plant.
Senator CAPEHART. Do you care to be interrupted now for a question, or do you want to finish your statement first ?
Mr. ROBBINS. As you like, Senator.
Senator CAPEHART. You say here you decided to reject both longterm lease proposals. Why did you reject them?
Mr. ROBBINS. The explanation follows in the paragraph I am starting to read. If that is not sufficient, I will be glad to supplement it.
Senator CAPEHART. Go right ahead.
Mr. ROBBINS. Publicker asked for a 10-year extension of its existing lease under which it pays the Government $6 per ton of butadiene produced, with a guaranteed monthly rental of only $1,000, the Government paying all costs of maintenance and taxes (about $342,000 per annum) except those applicable to the portions of the plant which are actually in operation. In its final negotiating session, Publicker agreed to increase the guaranteed monthly rental to $2,000 and to shorten the term to 5 years if the shorter term were more attractive to the Corporation. The Publicker bid was not found acceptable for 2 principal reasons, namely, the low guaranteed rental of only $2,000 per month, and Publicker's uncertainty of a supply of molasses for conversion into alcohol for the manufacture of alcohol butadiene at the plant, which was then, as it still is, completely shut down.
Carbide's final proposal offered a guaranteed annual rental of $150,000, with Carbide to assume the total expenses of maintenance and taxes. The Carbide bid was viewed unfavorably because the guaranteed annual rental of $150,00 amounted only to a return to the Government equivalent to interest on the $3,500,000 it would have realized from the recommended sale to that company which the Congress had disapproved in June 1956, without any allowance to cover depreciation, leaving the Government at the expiration of the lease with a plant 10 to 15 years older and of uncertain value.
We were convinced that the interests of the Government, including the financial return which could be realized, would be better served by a prompt sale of the plant under new legislation rather than through a long-term lease. Such a sale would complete the total withdrawal of the Government from the synthetic rubber field, return to the Treasury the substantial proceeds of sale, relieve the Government of maintenance costs and taxes (which for calendar 1957 are expected to aggregate about $342,000 exclusive of Washington administrative overhead), and undoubtedly result in the establishment at Louisville of a going business affording employment to a considerably larger group
than can be used in maintaining the plant in its current standby condition.
Senator CAPEHART. Would you yield there?
Who is it that will buy this plant and continue operating it and maintain this employment you are talking about?
Mr. ROBBINS. We have every reason to believe if this legislation is enacted that there will be quite a good deal of competition for the plant.
Senator CAPEHART. What will they make in the plant?
Senator CAPEHART. They will not make butadiene then?
Mr. ROBBINS. They can; but they are not restricted to the manufacture of butadiene.
Senator CAPEHART. What did this plant originally cost?
Mr. ROBBINS. The present book figure is about $6 million. The bid from Union Carbide, which was a result of the final negotiations, was $3,125,000 for the plant, and about $375,000 for the inventory, spare parts and supplies, or an overall figure of $3,500,000.
We would hope that under this legislation we might get a better price.
Senator CAPEHART. Yes.
Senator DOUGLAS. You say the book value is approximately $6 million ?
Mr. ROBBINS. Yes, sir.
Senator DOUGLAS. May I ask how much it would cost to replace it, or, in other words, what is the reproduction value?
Mr. ROBBINS. I do not have that figure.
Senator Douglas. Would the reproduction cost not be very appreciably in excess of the $6 million?
Mr. ROBBINS. It might very well be.
Mr. ROBBINS. I think it is very likely to be if the plant were to be reproduced as it is. I think there is some question as to whether that would be a desirable thing to do.
Additionally, although the Government does not actually pay out the substantial premiums charged for certain types of insurance customarily carried on similar plants because of its role as a self-insurer, it should be noted that a sale will also eliminate the considerable insurance risk on this standby plant.
In accordance with an understanding between the Commission and the House Committee on Armed Services, Federal Facilities Corporation on January 8, 1957, reported in detail to that committee regarding the rejection of the lease proposals and its recommendation for new sales legislation.
I think a copy of that report is in the possession of the counsel for your committee, Mr. Chairman.
Senator Douglas. Yes. I have already made this part of the record. (See p. 107.)
Mr. ROBBINS. Very well.
H. R. 2528 was introduced in the House of Representatives on January 10, 1957, and on January 28, 1957, following a hearing before the full committee on January 24, 1957, was unanimously reported to the House with amendments.
The amendments, I might say, were rather minor.
On February 5, 1957, H. R. 2528, as amended in committee, was approved by the House and is the subject of today's hearing. H. R. 2528 does not restrict the use of the Louisville plant to the manufacture of alcohol butadiene; it requires a national security clause, however, applicable to any chemical important to the national security, and re"quires the Attorney General to advise whether a proposed sale would