Republicans have been critical of the Carter administration's ambitious plans to develop synthetic fuels as a substitute for oil. Now, with the dramatically increased clout they won on Election Day, the Republicans will have an opportunity to get specific.
A good place to start would be the government's first and biggest synfuel demonstration project, the showpiece of Jimmy Carter's development program known as Solvent Refined Coal.
It can only be described as a disaster. Since the program began with great fanfare in 1978, it has become a boondoggle of astronomical cost overruns, gross mismanagement and questionable multimillion-dollar expenditures. My associate Indy Badhwar has seen classified documents circulating within the Department of Energy, which show what a sorry situation the Carter administration has created by throwing money willy-nilly into the quest for synthetic fuel.
SRC-II, as the project is known among bureaucrats, is supposed to develop the technology for producing liquid fuel from coal. To further this laudable goal, a plant was to be built in West Virginia. DOE chose a Gulf Oil subsidiary, the Pittsburgh and Midway Coal Mining Co., to design that plant.
Here's what internal government documents reveal:
The project has already fallen 15 months behind schedule.
Even though the plant is still only in the design stage, its projected cost has risen from $700 million to nearly $2 billion. One insider estimates that the price tag will $3 billion within a year.
DOE has failed to provide proper supervision or monitor the costs, and the contractor has little if anything to show for the millions of federal dollars already invested. "Gulf employees earning $52,000 to $129,000 are just sitting around with their hands in the energy cookie jar," is the way one source put it, adding: "No one quite knows what the actual costs are or what the ultimate design will be."
Expenditures, meanwhile, have not been verified by DOE auditors. With blithe abandon, the agency issues letters of credit -- that is, blank checks on the U.S. Treasury -- which are routinely cashed by contractors and subcontractors without supporting vouchers.
The project is supposed to be jointly financed by Uncle Sam and Gulf Oil. But Gulf if claiming as its contribution $25 million it claims to have spent during the 1960s on solvent coal research. DOE has accepted this arrangement, without bothering to check the details of the $25 million Gulf says it spent years ago.
Even though the SRC-II program is being heavily financed by the U.S. government, DOE has given Gulf the foreign patent rights to the technology that will be developed. And Gulf, in turn, has sold its patent rights -- with DOE approval -- to Japanese and West German industrialists for a whopping $60 million. Gulf is claiming this $60 million as part of its cost sharing.
The Japanese and West German firms have agreed to invest and participate in the SRC-II project. With the patent rights they bought from Gulf, the foreign companies will be able to build and operate commercial solvent coal refineries overseas without paying royalty fees. If the plants are built in the United States, DOE will allow the Japanese and West German "partners" to supply construction equipment.
Federal investigators are concerned that the foreign firms' participation will prove to be a bad bargain for the United States. Not only would the Japanese and West Germans be allowed to cut American suppliers out of construction contracts and acquire technology largely paid for by U.S. taxpayers, but DOE will assume responsibility for any cost overruns incurred by the foreign collaborators in the SRC-II project.
Gulf has been busily farming out the design work to subcontractors, with the government footing the bill. But a recent high-level audit of Gulf's contracting practices showed the company had purchased large amounts of equipment without cost comparisons and awarded sweetheart contracts without competition.
One contract -- for $6.6 million -- was given to Badger Energy Inc. without first specifying what the company would be expected to do for the project. An internal memo says Badger was selected "to perform" undefined process design services."
These examples are bad enough in themselves. What makes the situation worse is what they reveal about the Energy Department's attitude: don't ask questions, just spend money.
"The bottom line," one insider said, "is that DOE is rushing in with a multibillion-dollar gravy train to support a project over which it has no control and whose completion is in serious doubt. The only gainers will be Gulf Oil, the subcontractors and foreign companies."
A spokesman for Gulf acknowledged that there had been cost overruns, but said the target date for completion -- 1984 -- will be met. "We do have a design," he insisted, "and we're spending 7 percent of our engineering budget for the design. But we're working toward a more acceptable design."
Meanwhile, DOE's inspector general, Ken Mansfield, said his office is now planning to "take a look" at the SRC-II project. It's about time someone did.