In a rare intra-industry public squabble, two steel companies yesterday protested a federal loan guarantee to one of their competitors, claiming that the government is robbing Peter to pay Paul.

Top executives of Bethlehem Steel and Colorado Fuel & Iron told a Senate budget authorization subcommittee that is should cut off funding guarantees for a proposed new Wheeling-Pittsburgh Steel Corp. plant that would put that company in the business of producing railroad rails.

Bethlehem senior vice president D.S. Arnot and CF&L president Bob Slater said $63.5 of a proposed $100 million loan guarantee would merely give W-P an unfair competitive advantage in a segment of the industry that they have invested heavily in with their own money. The remaining $36.5 million is earmarked for environmental expenditures.

While both Bethlehem and CF&L said they have no objection to federal loan guarantees to help any steel company meet environmental standards, they opposed bitterly the $63.5 million earmarked to help wheeling construct a rail mill at Monessen, Pa., for the production of railroad rails, a business in which Wheeling is not currently engaged - but which is a business for Bethlehem and CF&I.

"Bethlehem is opposed to the use of taxpayer dollars to enable a private company to move into new product lines, particularly when existing, competitive facilities are sufficient to meet current and expected demands," Bethlehem's Arnot told a Senate appropriations subcommittee looking at EDA's funding request.

Slater said his company, which represents only slightly more than one percent of the nation's steel output, has spent $85 million over the past four years to modernize its railmaking facilities, which comprise 35 percent of that company's total business.

Both men told the subcommittee that they believe they are being penalized for efficient management.

"I look at this as a penalty because we took a risk, and invested a bundle of cash," Slater said. "We can't qualify for this money because we're profitable."

Slater said that if Wheeling-Pittsburgh did get the federally guaranteed loan to build a new plant, it is likely that CF&I would ultimately have to lay off people.

CF&I and Bethlehem claimed that the industry has the capacity today to meet all projected demands. But Wheeling-Pittsburgh Chairman Dennis J. Carney, disputed those projections. He said the railroads industry has told him that there is a need for more railmaking capacity - with enough business to make a new plant profitable.

CF&I now has the capacity to produce 550,000 tons of rail a year, while Bethlehem says it can produce 280,000 tons and U.S. Steel can make an additional 720,000 tons a year. Carney said his new plant would have a 432,000-ton capacity.