The Atlantic Richfield Co. yesterday gave $86.5 million in federal subsidies back to the U.S. government -- a controversial move that is expected to allow two of its large tankers to carry Alaskan oil to the lower 48 states.
Arco President Lodwrick Cook hand-delivered two checks to Secretary of Transportation Elizabeth Dole in an afternoon meeting, making Arco the first company to return federal ship construction subsidies under a new rule allowing such paybacks in exchange for the right to enter the lucrative Alaska trade.
The rule has sharply divided the maritime industry, provoking a heated congressional lobbying battle and a federal lawsuit aimed at overturning it. In issuing the rule last May 3, Dole said it would inject a new dose of competition into the Alaska oil trade, save consumers hundreds of millions of dollars in shipping costs and help pare down the federal debt.
But opponents have charged it would displace smaller oil tankers already in the Alaska trade, cost jobs and result in another serious blow to the already ailing U.S. maritime industry.
The rule represented a fundamental shift in longstanding federal policy towards the industry. Until 1981, the Maritime Administration tried to spur domestic shipbuilding by offering construction subsidies to help U.S. shipyards compete against lower cost foreign yards.
But ships built with such subsidies were barred from competing in the domestic shipping trade, although some exceptions have been granted on a case-by-case basis. After the Reagan administration pulled the plug on the construction subsidy program four years ago, some U.S. operators with big oil tankers built with subsidies began trying to pay them back so they could compete against the smaller tankers that carry Alaskan crude.
The $86.5 million that Arco officials handed over to Dole yesterday represents the total amount of federal subsidies plus compounded interest on two 262,400 deadweight ton tankers that were originally built by Bethlehem Steel Corp. in 1977 for Gulf Oil. The ships were purchased by Arco three years later and renamed the Arco Spirit and Arco Independent.
Tom Mills, a Washington lawyer who represents Arco, said yesterday that the two ships are currently under charter with Sohio, which owns half the Alaska oil pipeline. The ships probably will carry must of their oil to Panama, where it will be transported by pipeline to other oil tankers that will then carry the oil to the Gulf Coast and eastern states.
Five other very large crude carriers and six smaller tankers are still eligible for subsidy payback, but their owners have been waiting for the outcome of a congressional battle and lawsuit over the DOT rule.
Rep. Barbara Mikulski (D-Md.) had attached a rider blocking the rule to a supplemental appropriations bill, but that has since been dropped by a House-Senate conference committee. However, a Mikulski aide pointed out yesterday that the conferees have agreed to include language in their report recommending that Dole not enforce the rule until there is some decision in the lawsuit.
There is also a 10-day period of review in which opponents can challenge Arco's payback. But Mills, who accompanied Cook in the meeting with Dole yesterday, said he saw no reason that the secretary would return the checks since it was her decision to issue the rule. "She was delighted to have the money," he said.