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Abolished Agency Opens Door for $900 Million Aid Package

January 21, 1986

WASHINGTON (AP) _ The dying Synthetic Fuels Corp. fulfilled on Tuesday a promise by White House Chief of Staff Donald Regan and approved $327 million in new government subsidies for a Union Oil Co. shale oil project in Colorado.

At what Synfuels Chairman Edward E. Noble labeled their last meeting, the five directors of the quasi-government lending bank authorized the federal loan guarantees for Union’s Parachute Creek shale oil project.

While the loan guarantees are limited to $327 million, they effectively enable Union to collect up to $900 million in federal price supports approved previously for the project, but unspent so far.

Congressional opponents of the synfuels program expressed anger at the agency’s action but acknowledged there was little they could do immediately to stop it.

Sen. Howard Metzenbaum, D-Ohio, asked the congressional General Accounting Office to look at the legality of the loan guarantees. The senator made his request in the wake of a decision by Congress last month to abolish the agency, effective in April, and to prevent it from making any new awards in the meantime.

Metzenbaum accused the Reagan administration of ″elevating hypocrisy to new heights″ in view of the $11.7 billion Gramm-Rudman budget cuts to take effect in March.

Rep. John Dingell, D-Mich., called the award a ″bizarre brand of corporate socialism ... coming from an administration which claims to want to reduce federal spending.″

″There will be a billion dollars cut from health program on March 1, and yet this administration has committed almost that amount to Union Oil for its uneconomic shale oil plant,″ Dingell said.

While Congress voted to shut down the corporation and prevent it from handing out more money, the legislation included a provision - ″not withstanding previous commitments″ - that both supporters and critics acknowledge may be a legal basis for last-ditch agency’s action.

Synfuels Vice Chairman Tom Corcoran said the loan guarantee was part of a $500 million package of price supports the agency approved for the project in October.

However, specific approval of the loan portion was postponed in October, partly because of objections voiced by the administration through Treasury Secretary James A. Baker III and partly because Union had not completed its own financial arrangements for the debt financing.

″This is not new money or a new contract,″ Corcoran said Tuesday. ″We made a commitment to it (in October). It’s much like when you sign a contract to buy a house contingent on the financing coming through. It’s still a contract.″

The earlier price supports - $400 million in 1981 in addition to the $500 million last October - guarantee the Los Angeles-based oil company a price of $67.87 per barrel for any oil that Parachute Creek plant produces from Colorado’s vast shale deposits. The current market price of oil is between $24 and $25 per 42 gallon barrel.

However, Union has been unable to collect a penny of that money because its plant, completed in 1983 at a cost of about $900 million, has never worked for more than 36 consecutive hours .

″Our judgment is that without the availability of the SFC loan guarantees, the liklihood of Union proceeding ... is very small,″ James Groelinger, the Synfuels Corp.’s vice president for finance, said Tuesday.

Groelinger said the loan guarantees will enable Union to obtain financing through Manufacturers Hanover Trust Co. of New York for buying and installing fluidized bed combustors aimed at overcoming the plant’s technical problems.

Citing the Gramm-Rudman deficit-reduction law and falling oil prices, the administration in December sent word to Congress opposing ″any efforts″ by the the Synfuels Corp. to commit the government to any new subsidies.

However, on Dec. 17, Regan promised Armstrong that the Colorado project would be funded as the corporation’s last act. That effectively reversed the administration’s opposition to what Energy Secretary John Herrington had called the ″wrongheaded″ Union project.

The administration then launched a behind-the-scenes effort to get the Synfuels directors to hold an emergency meeting before Congress voted on Dec. 19 to formally abolish the agency.

When that effort failed, Amstrong accused Energy Department and White House budget officials of attempting to ″undermine″ the promise he had gotten from Regan.

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