As his last official act, Commerce secretary Elliot L. Richardson yesterday approved a controversial $730 million loan guarantee for seven liquefied natural gas (LNG) tankers being built by General Dynamics Corp. for the Burmah Oil Co. of England.
The federal loan guarantee, the largest in history, has been the subject of a bitter struggle between multinational corporations over billions of dollars in contracts to transport LNG from Indonesia to Japan.
Burmah Oil, which holds the LNG transportation contract, earlier acknowledged paying a $3 million fee to South Korean businessman Tongsun Park, who allegedly spent hundreds of thousands of dollars to influence U.S. congressmen and other officials. Burmah Oil has stated that the $3 million is a fee for the negotiation of a $56 million settlement in an unrelated shipping dispute.
In a statement acompanying his announcement, Richardson said yesterday that "we have satisfied ourselves, by a thorough review of the information currently in the hands of the Securities and Exchange Commission (SEC), that the $3 million payment did not relate to the applications for Title XI financing for the LNG tankers in question."
The statement says elsewhere, however, that "Burmah has resisted disclosing certain materials to the SEC on the grounds of lawyer-client privilege . . ."
Burmah had assured the Commerce Department that the withheld materials did not contain any relevant facts.
Sources close to the inquiry conducted by Richardson's staff said that the SEC has not yet received copies of Park's bank records for the Bermudian corporation to which Burmah paid the $3 million. The records are in the possession of the Justice Department's staff investigating Park's lobbying activities on behalf of the South Korean government.
In approving the Iran guarantee, Richardson also dismissed allegations that the transaction is not structured appropriately to meet required criteria in the applicable statutes. His statement said the allegations had been thoroughly investigated by the Department of Justice, which had advised his office that no violations of law as involved.
Under Title XI of the Merchant Marine Act of 1936, the federal government can guarantee construction loans for ships to be owned and chartered by U.S. corporations.
In order to qualify for the loan guarantee to build the seven tankers that Burmah, a British company, needs to carry the LNG, General Dynamics will own the vessels and will charter them to another U.S. corporation that will in turn charter them to Burmah.
Without the loan guarantee, Burmah would have lost its LNG transportation agreement - which it needs desperately - which is expected to gross between $100 and $200 million annually with a profit in the range of $8 million annually.
The British government was expected to intervene with the U.S. government if Richardson had not approved the loan guarantee.
Richardson's approval also assures that the General Dynamics shipyard in Quincy, Mass., will continue to operate. It employs 5,000 workers.
Although over $4 billion in loans have been previously guaranteed under Title XI, yesterday's action represents the largest single loan guarantee to any corporation. In 1971, the federal government guaranteed a $250 million loan to the Lockheed Aircraft Co.