The Energy Department recently paid $69.9 million to the creditors of a controversial, federally guaranteed alcohol fuels project in Louisiana owned by one of the bankrupt U.S. companies of Saudi arms dealer Adnan Khashoggi, department officials confirmed yesterday.

The department's payment, forced by the default of the Khashoggi-owned Agrifuels Refining Co., was made without public announcement two weeks ago. It came only a few days after a court-appointed examiner accused Khashoggi and his business partners of "gross mismanagement, dishonesty and/or fraud" in their running of Agrifuels' now bankrupt parent, Triad America Corp. of Lake City.

The collapse of the Agrifuels project is the latest in a series of jolts to the department's foundering alcohol-fuels program. The project, designed to produce fuel ethanol from Louisiana molasses, has long attracted particular attention -- as well as occasional congressional criticism -- because of the involvement of Khashoggi, a flamboyant businessman and financier who played a key role in financing last year's secret U.S. arms shipments to Iran.

Energy Department spokesman Will Callicott said yesterday that all work on the Agrifuels plant, located in New Iberia, La., has been shut down. Agrifuels' inability to pay off its federally guaranteed loan last month prompted the company's creditors, a consortium headed by the Bank of New England, to declare a default. Under the terms of the federal loan guarantee, this development required the Energy Department to pay off the outstanding principal and interest on the loan to bank consortium.

Callicott said that Agrifuels' default was caused in part by Triad's failure earlier this year to provide $6.5 million in so-called "working capital" for the project, a sum required under the terms of the 1985 federally guaranteed loan for Agrifuels. Triad filed for reorganization under federal bankruptcy laws last January, shortly before it was to transfer the $6.5 million to Agrifuels, and the Salt Lake City company's depleted assets have been frozen ever since.

Spokesman Callicott would not say whether the department will now join with lawyers for Triad creditors who are seeking to go after some of the Khashoggi's overseas assets to recover some of the more than $100 million owed their clients. A hearing has been scheduled today in federal bankruptcy court in Salt Lake City on a creditors' motion to block an upcoming $31 million payment by Northrop Corp. to the Swiss bank account of one of Khashoggi's overseas companies, Triad International Marketing S.A.

After more than a decade of litigation, a federal appeals court had ordered Northrop to pay the money this week as compensation for Khashoggi's help in winning arms contracts with the Saudi Arabian government in the early 1970s. But lawyers for Triad's creditors argue that Triad International Marketing is part of the same international network of Khashoggi companies as Triad America, thereby giving them legal claim to the Northrop payment.

"It's staggering -- the complexity of it all," said William G. Fowler, a lawyer for the Triad creditors' committee, about the network of Khashoggi companies. "But it's probably all one ball of wax... . He moves the money around them {the foreign and domestic companies} liberally."

Asked yesterday whether the Energy Department will enter the litigation in Salt Lake City in an effort to recover money for the government, Callicott said: "I can't comment on what our options might be there."

Michael Cohen, a lawyer representing Triad America, yesterday declined to comment on the Agrifuels default or the litigation in Salt Lake City. But an Agrifuels official, who asked not to be identified, said the department itself must share some responsibility because last April, fearing that the Agrifuels plant would never be economically viable, it refused to authorize any more payments to the plant's contractor.

Another factor, department and company officials agree, was a collapse of the alcohol fuels market in Louisiana. Two years ago, the Energy Department first approved a federally loan guarantee for the project, contending that it was among the soundest of such projects because of lucrative tax breaks provided for the sale of fuel ethanol in Louisiana. But the decline in oil prices last year severely hurt the prospects for alcohol fuels.

In addition, the Louisiana legislature has drastically reduced its tax subsidies, making it doubly difficult for ethanol manufacturers in the state to earn a profit.

The diminished market for alcohol fuels contributed to the default earlier this year of another federally guaranteed project in Indiana, forcing the Energy Department to pay $126 million to the project's creditors. That payment -- as well as the $69.9 million payment to the Bank of New England consortium -- was made from the department's Alcohol Fuels Loan Guarantee Reserve Fund, which was set up by Congress when it created the alcohol fuels program in 1980.

Critics have argued that the Louisiana plant's problems were exacerbated by Khashoggi's abuse of Triad. The recent report by Los Angeles lawyer Leonard Gumport, an examiner appointed by the bankruptcy court, concluded that Khashoggi stripped the company of more than $89 million in funds for overseas ventures and failed to provide some $150 million in promised capital.

Lawyers for Triad America have disputed the report, saying Gumport failed to "give proper weight and consideration to certain evidence which would have significantly changed his conclusions."