Tapping the Federal Till the Occidental Way
Gilroy, Tom
Tapping the Federal Till the Occidental Way by Tom Gilroy Six weeks ago Occidential Petroleum, a corpor&on with 1977 pre-tax profits of $217 million, asked the U.S. Maritime...
...Occidental’s agreement with the Soviets has real potential for undercutting an already depressed American ammonia industry and wiping out some small businessmen in the process...
...seamen...
...With the money generated by the sale of the ammonia, the USSR could pay Occidental for its acid and still have enough left to repay the Export-Import loan...
...Why would the U.S...
...In return Occidental will supply the Soviets with super phosphoric acid used in the production of phosphate fertilizer...
...dollars supplied by Occidental...
...At first it was thought that Hammer would have to take a loss when he sold his imported ammonia because it would be more expensive than the U.S...
...The real job, though, is the one being done on the taxpayer...
...shipyards will be out of work by 1980 unless there is a dramatic increase in new orders...
...The Maritime Administration, Ex-Im Bank, and Occidental would all answer that the $100 million will help our balance of trade and create new jobs...
...In essence,then, a U.S...
...There are several interesting things about the loan to the Soviets...
...First, although the Supreme Court ruled recently that the terms of the loan may remain secret, reliable sources say that repayment extends over 20 years, with several years’ grace period, at a fixed interest rate of six per cent...
...registration requires a U.S...
...They also fear that that would leave U.S...
...product...
...government allocate so much public money for the lopsided benefit of one corporation...
...The shipping subsidies also will have no significant effect on the troubled U.S...
...For one thing, the U.S...
...government finances ventures like Occidental’s is because the agencies responsible for reviewing corporate applications for money are predisposed to grant the requests...
...Initially, many U.S...
...To insure that, Occidental accepted two provisions to the trade...
...interest rate...
...And, the conventional line goes, if the U.S...
...government, at a minimum, $100 million...
...The Maritime Administration considers construction subsidies a means of creating new business for the shipbuilding industry...
...goods overseas, while the Maritime Administration is expected to look out for the interests of the co u n t r y ’s shipping industry . Nowhere in either of those mandates is there a mention of the welfare of the source of all that public money: the American taxpayer...
...For the Soviets, the deal has a dual purpose...
...crew, which means jobs for U.S...
...In signing the trade agreement, Hammer argued that importing from the Soviet Union would help conserve dwindling U.S...
...The only thing the subsidies will do is guarantee healthy profits to what otherwise would have been a very shaky deal for Occidental...
...get for its subs id y to 0 ccid e n t al...
...First, they hope it will provide them with phosphate fertilizer they badly need for their agricultural program...
...What that argument neglects, however, is that the disproportionate winners in any government sponsorship of U.S...
...All three applications are expected to be approved quickly and quietly, say U.S...
...Not surprisingly, the companies that benefit from the money argue that the government has no choice...
...and second, they are counting on the trade to generati enough surplus funds to pay off a $360-million loan from the Export-Import Bank that the Soviet Union used to build the ammonia facility in the first place...
...instead of hiding them under a “flag of convenience...
...Finally, the other subsidy-to operate the three vessels-would actually be compensation to Occidental for registering its ships in the U.S...
...A close look at Occidental’s trade with Russia shows clearly that none of the conventional arguments can possibly justify a government subsidy...
...industry sources felt that at 75, Hammer, who has made a career out of trading with the Russians, was more interested in prestige than profits, since the deal seemed to favor the Soviet Union heavily...
...Occidental’s raid on the Treasury can be justified on the basis of the government simply doing its job...
...Given these facts, many fertilizer experts are now convinced that the Soviet imports will force small U.S...
...Armand Hammer, chairman of Occidental Petroleum...
...In fact, it shouldn’t...
...V i r t ual 1 y nothing but trouble, it appears...
...ammonia industry is already severely depressed because of over-supply and is expected to stay that way at least through 1982...
...Cheaper Than Domestic When natural gas prices go up after energy legislation finally passes Congress, Occidental’s ammonia imports will become even more attractive to American buyers...
...ammonia producers out of business...
...businessmen, gives foreign companies an unfair advantage over American exporters in the international market...
...Occidental’s order for three 4 1,600 deadweight ton vessels is not likely to reverse that trend, even in the short run...
...But the sad fact is that the money will create more jobs in the Soviet Union than it does in the U.S...
...It agreed to buy a great deal more ammonia than it would sell of its phosphoric acid, and it also agreed to market most of the Soviet product in the U.S.-thereby keeping Occidental from competing with Soviet ammonia exports to other countries...
...Among other things, U.S...
...By most of the best estimates, a third of the 180,000 workers employed by U.S...
...In fact the officials of those public agencies feel a stronger affinity for, and responsibility to, the corporations they serve so well than they do to the people who pay their salaries...
...They said it was impossible to estimate precisely since the construction costs, and later, the operating subsidy and private leasing rates could change during the 20-year life of the trade...
...exports are neither the economy nor the taxpayers, but the corporations that take advantage of the easy public money...
...The shipping industry now views anything under 120,000 tons as “small,” and tankers of 300,000 tons are not uncommon...
...Except for government credits to less-developed countries, it would be hard to find a more concessionary loan...
...But there is also a simpler explanation for why government agencies are so inclined to hand over public money to large companies: it’s their job...
...Two other shipping firms were checked to get estimates of how much the Maritime Administration subsidies would eventually mean to Occidental...
...Occidental’s dealings with the government provides a remarkable and enlightening case in point...
...Maritime Administration to pay 50 per cent of the cost of building three ships the company needs to carry out a trade agreement with the Soviet Union...
...natural gas supplies...
...production capacity...
...If the requests are approved, the two subsidies will cost the U.S...
...Partly that is due to the intimacy between big business and big government...
...by theend of the century...
...Tapping the Federal Till the Occidental Way by Tom Gilroy Six weeks ago Occidential Petroleum, a corpor&on with 1977 pre-tax profits of $217 million, asked the U.S...
...shipbuilding industry...
...That assistance, say U.S...
...Now, however, with the American government about to insure his profits, Hammer looks not only to be the “ardent capitalist” he always claimed, but a very clever one as well...
...shipyards to compete against the yards of other countries...
...In addition, the federal guarantee Occidental wants, while not requiring any government spending, will allow the company to borrow millions of dollars at bargain rates-probably two-and-ahalf to three per cent below the prime Tom Gilroy is a reporter for McGraw-Hill, Inc...
...At the same time, Occidental requested a government subsidy to operate the vessels once they are built and a federal guarantee for its portion of the cost of building the ships...
...fails to match that assistance, the losers will be the U.S...
...Through a host of spigots, primarily the ExportImport Bank, but also obscurer agencies like the Maritime Administration (a small division of the Commerce Department) billions of dollars pour out of Washington to the nation’s large corporations every year...
...Their reasoning is that a large part of our enormous trade deficit (a record $27 billion last year) stems directly from the insurance programs, loan guarantees, and outright subsidies that foreign governments extend to their exporters...
...A Dual Purpose In 1974, Occidental signed a 20-year, $20-billion fertilizer trade agreement with the Soviet Union...
...Promises of a healthier economy and more jobs-even when true-are the argument that big business uses every time it wants more money from the government...
...in fact, just the opposite is true...
...A Hard Time Finding Benefit Even the shipbuilding industry-for whose relief the Maritime Administration ostensibly grants subsidies-will have a hard time finding any benefit in the subsidy to Occidental...
...Secondly, the man who lobbied in Congress for the loan, and who many fertilizer officials say was instrumental in having it approved, was Dr...
...What’s more, government subsidies won’t do anything to solve the longerterm problem: the inability of U.S...
...loan that played a key part in building up the Russian fertilizer industry would be paid off with U.S...
...In fact, it is quite likely that by 1982 imported ammonia will be considerably cheaper than the domestic product...
...Again, though, Occidental’s employment impact will be minimal: each phosphoric acid carrier will use an eleven-man crew, for a total employment of 33 men over 20 years...
...Substantial Savings By paying for a large part of the cost of constructing and operating the three ships that will carry the phosphoric acid to Russia, the Maritime Administration will relieve Occidental of having to bear the extremely high expense of leasing phosphoric acid carriers-which are scarce-from a private shipping firm...
...economy and American workers...
...That a single wealthy corporation can receive that kind of public money and assistance so easily may startle most taxpayers...
...farmers dependent on the Soviet Union for an important fertilizer ingredient vital to the production of wheat and corn...
...Now, as a result of the USSR-Occidental contract, Soviet ammonia imports, just starting to trickle into this country, will reach 2. I-million metric tons a year by 1980, an amount equal to ten per cent of all U.S...
...The real reason the U.S...
...Nevertheless, both said they expected the savings to be substantial...
...But the Maritime subsidies will erase that potential loss by cutting down his cost...
...Ironically, the only obstacle to the Maritime Administration subsidies is a competing bid from a Japanese shipyard, which an Occidental source warned could be even lower than the subsidized price of building the ships in the U.S...
...officials and Occidental sources...
...Because ammonia is produced from natural gas, any rise in the price of gas means a rise in the price of ammonia...
...The Ex-Im Bank, for example, is charged with “facilitating” the sale of U.S...
...What does the U.S...
...However, any natural gas savings will be offset by the export of phosphate, a non-renewable resource expected to be in short supply in the U.S...
...The agreement, which is extremely complex, calls for the USSR to sell Occidental large quantities of ammonia, the building block for all nitrogen fertilizers...
Vol. 10 • June 1978 • No. 4
