The CHAIRMAN. May I suggest you propound your question to Mr. Wolf.

Mr. KILDAY. I want to go a little further here and get somebody to go out on this limb with us.

From the information you have from all sources, the review that you have made and your consultations with ODM, are you willing to share the responsibility in that view?

Secretary ROBBINS. Sir, I think-the Federal Facilities Corporation does not have the responsibility for that security. It is our opinion that the national security

Mr. VAN ZANDT. But you are recommending the sale of the plant. Secretary ROBBINS. I beg your pardon, sir?

Mr. VAN ZANDT. You are recommending the sale of the plant? Secretary ROBBINS. We are recommending the sale of the plant. Mr. VAN ZANDT. You must have some convictions.

Secretary ROBBINS. We have. We not only have convictions but we have the written assurance of ODM, which has the responsibility. Mr. KILDAY. We are going to get that from ODM? Secretary ROBBINS. Yes, sir.

Mr. KILDAY. But you have convictions, and your conviction is that in the event of mobilization we would not require this plant in the production of alcohol butadiene?

Secretary ROBBINS. I have to depend upon the opinion of the Office of Defense Mobilization for that, and I am perfectly satisfied with that opinion.

Mr. KILDAY. You are satisfied with the opinion of ODM?

(Secretary Robbins nods.)

The CHAIRMAN. Now, Mr. Wolf.

Mr. KILDAY. Thank you, Mr. Chairman.

The CHAIRMAN. Answer Mr. Kilday's question. What answer have you to that question?

Mr. WOLF. We have already informed Mr. Robbins, of course-
The CHAIRMAN. Talk a little bit louder. I can't hear you.

Mr. WOLF. I say we have already informed Mr. Robbins, upon his request, by letter of December 10, over Mr. Flemming's signature, that our position was substantially the same as affirmed before this committee at its hearings in June. And if you wish, I will read into the record

The CHAIRMAN. I would like for that letter to be in the record.
Mr. WOLF. The ODM position is as follows:

Fulfillment of our mobilization needs for rubber is not dependent upon the continuing availability for butadiene production of the Government-owned rubber-producing facility at Louisville, Ky., known as Plancor 1207.

The CHAIRMAN. When did you address that communication to the Federal Facilities Corporation?

Mr. WOLF. On December 10, 1956.

The CHAIRMAN. And the Federal Facilities Corporation has just stated through Mr. Robbins, the Assistant Secretary of the Treasury, who is in charge of this property, relying upon that, you did not think the requirement should be in the contract to have alcohol butadiene produced?

Secretary ROBBINS. Yes, sir.

The CHAIRMAN. Now, I think that clears up(Chorus of "Mr. Chairman.")

The CHAIRMAN. Wait 1 minute, Mr. Gavin, please, sir.

I think that clears up as positive as we can, the question raised by Mr. Kilday.

Mr. VAN ZANDT. To my mind it doesn't, Mr. Chairman.

The CHAIRMAN. All right. I just said Mr. Kilday. I didn't say Mr. Van Zandt.

Mr. VAN ZANDT. To my mind it doesn't.

The CHAIRMAN. Now, we will see how Mr. Van Zandt's mind shapes up on that.

Go ahead.

Mr. VAN ZANDT. Mr. Wolf, when was this decision arrived at by the ODM?

Mr. WOLF. The initial decision or

Mr. VAN ZANDT. No; the decision that you read just a moment ago. Mr. WOLF. Approximately between the period of Thanksgiving of last year and December 10, when Dr. Flemming signed the letter. Mr. VAN ZANDT. Was the military taken into consideration? Mr. WOLF. If you wish, I would like to add to my previous statement and say that we have consulted with, and on the basis of informal advices from our delegate agencies-the Department of Commerce, the Department of Defense, the Department of Interiorwho have all concurred in the position taken, as noted in the previous statement.

Mr. VAN ZANDT. In your own mind, are you conviced that the Defense establishment and other agencies of Government that were concerned took into consideration the Middle Eastern problem as it affects petroleum?

Mr. WOLF. Yes, sir; we did take that into account.

Mr. VAN ZANDT. And this decision, therefore, was finally handed down, even though we have this acute situation in the Middle East that may affect our access or availability to petroleum in the future, in the event of an emergency?

Mr. WOLF. Well, Mr. Van Zandt, I don't quite follow the reasoning, because the butadiene that we get from our petroleum is the result of petroleum refining.

Mr. VAN ZANDT. Yes. I am thinking about the source of petroleum, in the event of an emergency. We have had experience in World War I and World War II, when the lines of communication were severed and we no longer had access to the petroleum in South America, and likewise in the Middle East.

Mr. WOLF. Well, but on the other hand we have a very substantial petroleum production here in this country, and as a result of the petroleum refining operations we obtain our butylenes and butadiene and the total amount required for the production of all the synthetic rubber that is required to satisfy mobilization needs is a very small percentage of total requirement. I think the figure that I used in my last testimony was something under 5 percent of the total going petroleum production here in this country. So

Mr. VAN ZANDT. Then do I understand that we have deposits of petroleum in this country to meet the needs of the Nation in the event of emergency, and no longer have to depend upon the petroleum deposits in South America as well as in the Middle East?

Mr. WOLF. I did not make that statement, Mr. Van Zandt. I was referring specifically to the raw material required for the production

of synthetic rubber in this country in the event of a mobilization period.

Mr. WINSTEAD. Mr. Chairman

Mr. GAVIN. Mr. Chairman-
The CHAIRMAN. Wait 1 minute.
Are you through, Mr. Van Zandt?
Mr. VAN ZANDT. That is right.

The CHAIRMAN. Mr. Winstead.

Mr. WINSTEAD. Of course, we have no way of knowing what the future holds for us. But if you knew of a certainty that we would reach all-out mobilization within 6, 12 months, or 2 years from now, would you still recommend this legislation?

Mr. WOLF. Yes, sir.

The CHAIRMAN. Mr. Gavin.

Mr. GAVIN. The information we are discussing here, now, is that incorporated in the report that you submitted to the chairman of the committee, Mr. Vinson?

Secretary ROBBINS. Yes, sir.

The CHAIRMAN. Yes.

Mr. GAVIN. That is why I think that report ought to go in as a matter of record.

The CHAIRMAN. All right, put it in the record.

(The matter referred to is as follows:)

FEDERAL FACILITIES CORPORATION STATEMENT REGARDING 1956 LEASE NEGOTIATIONS ON ALCOHOL BUTADIENE PLANT AT LOUISVILLE, KY.

(Public Law 433, 84th Cong.)

FEDERAL FACILITIES CORPORATION'S SUCCESSION TO FUNCTIONS OF RUBBER PRODUCING FACILITIES DISPOSAL COMMISSION: STATUTORY AUTHORITY FOR 1956 LOUISVILLE LEASE NEGOTIATIONS

The Rubber Producing Facilities Disposal Commission was created under authority of the Rubber Producing Facilities Disposal Act of 1953 to dispose of the 27 Government-owned facilities engaged in the manufacture of synthetic rubber and its component materials. The Commission formally organized on November 10, 1953 and expired by operation of law on September 23, 1956. During its existence the Commission sold 26 of the facilities and leased the 27th. Sale of the facilities and miscellaneous equipment returned $284,848,000 to the Treasury, which exceeded by $25,885,000 the Government's remaining net investment in the synthetic rubber program.

By Executive Order 10678, the President on September 20, 1956 designated Federal Facilities Corporation as successor to the Commission, effective September 24, 1956. This Presidential action was taken in accordance with section 20 of the Rubber Producing Facilities Disposal Act of 1953, as amended. As the Commission's successor, FFC was thus empowered to negotiate for a long-term lease of the Louisville plant pursuant to Public Law 433, 84th Congress, 2d session, approved March 21, 1956, which is set out in full as exhibit I attached hereto.

Public Law 433 in section 4 authorized extension of the existing lease (this lease with Publicker Industries Inc., Philadelphia, Pa., expires April 4, 1958) or the making of a new lease on the Louisville plant for a term of not less than 5 years nor more than 15 years from the date of termination of the existing lease, provided no sales proposal or contract for the purchase of the plant was then pending or in effect. Public Law 433 required that any lease which might be recommended should be submitted to the Attorney General for an opinion as to whether it would tend to create or maintain a situation inconsistent with the antitrust laws, and also provided for Congressional review in the same manner which had previously been employed with respect to sales. The time and manner in which lease proposals would be invited and negotiations conducted was left to the discretion of the executive agency.

86066-57-No. 3-3

BACKGROUND FOR TIMING OF 1956 LEASE NEGOTIATIONS, AND STEPS TAKEN TO ELICIT

PROPOSALS

As the Commission reported to the Congress in January 1955, no bids for the Louisville plant were received when it was first offered for sale by the Commission in November 1953. The existing lease with Publicker Industries, Inc., was entered into on March 25, 1955, and will expire on April 4, 1958. This lease was for the maximum term-3 years-permitted by the original Disposal Act. Publicker sponsored the legislation which became Public Law 433, stating that an assured occupancy as owner or as lessee under a long-term lease was necessary to permit more economical operations that would justify contemplated expenditures of a substantial nature.

Immediately following enactment of Public Law 433, the Commission advertised for bids and received 2 proposals to purchase the plant, 1 from Publicker Industries, Inc., and the other from Union Carbide & Carbon Corp., New York, N. Y. Following negotiations with the bidders, the Commission on May 16, 1956, entered into a contract of sale with Union Carbide & Carbon Corp. calling for a purchase price of $3,125,000, plus approximately $375,000 for the plant's inventory of materials and spare parts, or a total of $3,500,000. The proposed sale was referred to the Attorney General, and the Acting Attorney General advised the Commission on May 23, 1956, that the sale did not involve any violation of the antitrust laws, but could not be approved because the sale would not best foster a competitive synthetic rubber industry, as required by the terms of the Disposal Act of 1953, as amended. The Acting Attorney General further advised that despite this finding of disapproval, it was entirely appropriate for the Commission to report its recommended sale to the Congress for review. The Commission's report was filed with the Congress on May 26, 1956, and a resolution of disapproval, H. R. 524, was introduced in the House of Representatives on June 6, 1956. House Committee on Armed Services, to which H. R. 524 was referred, held a hearing thereon on June 13, 1956, and favorably reported H. R. 524 to the House on June 14, 1956. The House on June 19, 1956, approved H. R. 524 and thus, under the statutory review procedure, the sale was disapproved without necessity for any action on the part of the Senate.

The

The Commission's Chairman at the hearing on June 13, 1956, testified that the Louisville, Ky., alcohol butadiene plant could not compete economically under normal conditions with the petroleum butadiene plants, the productive capacity of which had been expanded considerably since private industry acquired them in April 1955. In response to questioning, Chairman Pettibone expressed the view that if the Louisville plant could be reoffered for sale free from some of the restrictive provisions of the Rubber Producing Facilities Disposal Act of 1953, such as the required statement from a purchaser of actual intent to operate the plant to produce a component material of synthetic rubber and the 10-year national security clause, there would likely be more bidders competing for the plant and a greater financial return to the Government than had been possible under existing law. He also said that he doubted if a satisfactory long-term lease could be obtained because any such lease properly should reflect a return to the Government comparable to that which would have accrued from the recommended sale.

Two bills were then introduced in the House of Representatives, the first, H. R. 11813, extending the Commission's official life and permitting a reoffering of the Louisville plant as a general chemical plant on terms different, in certain respects, from those which had obtained in the prior sales of synthetic rubber facilities, and the second, H. R. 11878, providing only for the extension of the Commission's existence until July 1, 1957. At its hearing on June 21, 1956, the committee decided to report favorably the extension measure, H. R. 11878, it being understood that the Commission would take up the question of leasing the plant for a long term prior to the convening of the incoming 85th Congress. If a satisfactory lease could be worked out, the recommended lease would, as required by law, be reported to the Congress for review. If the leasing efforts proved unsuccessful, the Commission would give the committee its recommendations with respect to further disposal legislation concerning this plant. No action on H. R. 11878 was taken by the Senate, and the Commission, as stated previously, ceased to exist on September 23, 1956.

Upon its takeover of the Commission's functions, Federal Facilities Corporation immediately proceeded to carry out the Commission's undertaking with the committee regarding the leasing of the plant. The official advertisement inviting proposals appeared in 9 newspapers published in 5 cities on September 25, 1956, and also appeared in the Federal Register on September 26, 1956 (the advertisement is set out as exhibit II attached hereto). A general press release was issued on September 25, 1956.

The Corporation mailed reprints of the advertisement to every party, totaling 450, who had ever shown any interest in the synthetic rubber plant disposal program since its inception in 1953, as a further step in a broad solicitation of bidders. The Corporation also prepared detailed instructions and information on bidding procedure, which were available to potential bidders, the press, and other interested parties. This information appears as exhibit III attached hereto.

The brochure on the plant was revised and made current. This contained a full description of the plant, its equipment and process; financial data, photographs, flow charts, and other information to assist interested parties in evaluating the plant and preparing proposals. Eighteen brochures were given on request to prospective lessees, and in each case a personal followup was made to ascertain if any further information or assistance from the Corporation would be helpful. Only one request to inspect the plant was received, and permission was immediately granted. The Corporation thus considers that it exerted every appropriate effort to stimulate bidding interest.

PROPOSALS RECEIVED

At the end of the bidding period on October 31, 1956, lease proposals had been received from Publicker Industries, Inc., Philadelphia, Pa., and Union Carbide & Carbon Corp., New York, N. Y. The original proposals, in copy form, are attached as exhibits IV and V, respectively. Thus the same two firms which had competed earlier in 1956 for the purchase of the plant were again the sole bidders for a long-term lease. On November 1, 1956, both bidders were notified that they were eligible to negotiate with the Corporation, and this information was immediately furnished to the Attorney General, who was given copies of the proposals, and to the appropriate congressional committees and to the press.

NEGOTIATIONS; DECISION TO REJECT BOTH BIDS AND RECOMMEND NEW SALE LEGISLATION

The negotiating period began on November 1, 1956, and was officially terminated by the Corporation on December 12, 1956. Several negotiating sessions were held with each bidder, and each of them also supplied the Corporation with additional written data requested by the Corporation to aid its study of the respective proposals. On November 29, 1956, the bidders were requested in writing to submit their final and last offers to the Corporation no later than 5 p. m. on December 10, 1956, and each bidder did so.

The decision to reject both bids was made December 12, 1956, and was communicated at once to each bidder and to the Attorney General. Immediately thereafter an announcement of such decision was made to the appropriate congressional committees and to the press.

The Publicker bid was not found acceptable for 2 principal reasons; namely, the low guaranteed rental of only $2,000 a month and Publicker's uncertainty of a supply of molasses for conversion into alcohol for the manufacture of alcohol butadiene at the plant. The Carbide bid was viewed unfavorably because the guaranteed annual rental of $150,000 amounted only to a return to the Government of interest on the $3,500,000 it would have realized from the recommended sale, 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. For the above reasons, it was the conclusion of the Corporation 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.

The Corporation's problem in attempting to negotiate a long-term lease was complex for various reasons. The governing law permitted alcohol butadiene plants to be leased for the manufacture of any product, subject to national security and recapture clauses to protect the Government in case of emergency. Under the existing lease, Publicker can use the plant for purposes other than the production of alcohol butadiene. During negotiations, Publicker stated that it had no plans for using the plant except to produce alcohol butadiene, while Carbide envisioned the possibility of various uses. A comparison of the bids in the usual sense was impossible because of the different rental terms offered, since Publicker conditioned any significant payments entirely upon an uncertain production of alcohol butadiene at the plant, whereas Carbide proposed to pay a flat fixed sum annually.

Publicker asked for a 10-year extension of its existing lease, under which it pays the Government $6 per ton of butadiene produced, the Government receiving