A top executive of Gulf Oil Corp. conceded before a congressional inquiry yesterday what Gulf and other participants in an international uranium cartel have steadfastly denied before - that their secret price-fixing club for the world uranium market also raised prices for some U.S. consumers.
This admission has serious implications for Gulf, among others, undermining its persistent claim that the foreign cartel did not violate U.S. anti-trust law because it had no effect on U.S. domestic prices for the uranium that fuels nuclear power reactors.
Under questioning by the House Commerce Oversight Subcommittee, S.A. Zagnoli, president of Gulf Mineral Resources and its Canadian uranium subsidiary, first agreed that the cartel did raise overseas prices, then reluctantly he conceded:
"To the extent that U.S. utilities bought overseas, they probably paid higher prices."
Zagnoli quickly added that the effect "was insignificant."
"It may appear insignificant to you," snapped Rep. Albert Gore Jr. (D-Tenn.), "but it was not insignificant to those TVA customers whose price of electricity was going up."
Alongside the damaging testimony, the subcommittee chaired by Rep. John E. Moss (D-Calif.) made public a bundle of internal Gulf documents that also seemed to contradict Gulf's principal defense arguments. Gulf board chairman Jerry McAfee told the subcommittee that Gulf participated in the cartel only because it was "forced" to do so by the Canadian government.
But some of the corporate memorandums display an obvious exuberance for the cartel activities that seems to contradict that defense. Gore sarcastically suggested that Gulf was pleading like "a corporate Patty Hearst - you were forced to do this and only afterwards did not develop an enthusiasm for the task."
One legal memorandum written by corporate lawyer Roy D. Jackson in 1972 suggested that Gulf's role in the uranium cartel would have historic benefits for the energy company:
"It is at least as important for Gulf to become a sophisticated and substantial participant in worldwide uranium matters as it was for us to undertake similar efforts with respect of oil and gas 30 or 40 years ago. Having a representative on the governing board of the world marketing organization would be helpful in achieving this objective."
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Gulf chairman McAfee, who was [WORD ILLEGIBLE] Gulf subsidiary in Canada during the three-year life of the cartel, said he was aware of the Ottawa government's pressures on uranium mining companies to get together and arrange market quotas and prices. These pressures were partly in response to the U.S. embargo, which had closed the American market to foreign producers.
After Gulf originally refused to attend, McAfee said, "Greater pressures were then applied by the Canadian government and uranium producers were of the opinion that Gulf was overly sensitive to the cartel and U.S. antitrust implications. Indeed we were. At no time did Gulf Minerals Canada Limited voluntarily seek to become a part of any producers' arrangement. It was compelled to do so."
The confidential and "speially confidential" documents from Gulf files that the House subcommittee subpoenaed offer conflicting evidence on that point. Chairman Moss said he will direct a request to the Canadian government, asking if it "forced" Gulf to take part.
Other committee members suggested in their questioning that Gulf was eager to prticipate, but used the Canadian government as a legal shield, in effect, asking the Canadian energy officials to make them do it.
One internal memo from a Gulf executive warned that other mining companies might try to 'keep Gulf as 'the new boys on the block,' away from the pcker table."
Another document, describing a caucus of Canadian producers held in Johannesburg, South Africa, on the eve of the full cartel's board meeting, recounted this cdisclaimer from a Canadian minerals official, John Austin, in the summer of 1972:
"Mr. Austin went on to say that there was a second tenet, namely, that the government had had as its policy stance from the beginning that it would not force Canadian producers into an arrangement. This attitude has been clearly expressed in a message sent to each of the producers by the Minister of Energy, Mines and Resources."
While this question is left in dispute, the documents do make it clear that participation in the secret cartel became an important activity for Gulf. It stayed away from the first international meeting of the "club," as they called themselves, but sent four representatives to a 1974 session in South Africa.
Gulf executives from subsidiary headquarters in San Diego and Denver took part, so did legal advisers at corporate headquarters in Pittsburgh. L. T. Gregg, a marketing executive from Gulf Mineral Resources in Denver, was transferred to Canada where he became one of two Canadian representatives to the international meetings. At the 1974 summer session, he was drafting the complex operating rules - how the 30 or so companies rigged bids and divided up the world market.
Canadas share was one-third of world sales and Gulf's Saskatchewan uranium mine was assigned 30 per cent of that. McAfee conceded that "the whole Gulf system was reasonably well-informed of the Gulf Minerals activity."
Several key documents also appear to contradict the Gulf defense argument that the cartel, whether it was effective or not in escalating world prices, did not have any impact on U.S. uranium sales - and therefore could not have violated U.S. anti-trust law.
As the "club" members began raising their bid levels around the world, the cartel members, including Gulf, developed another objective - squeezing out "middlemen" uranium suppliers such as the Westinghouse Corp. Westinghouse bought uranium and sold it to electric utilities along with its nuclear reactors.
At an Ottawa meeting in the fall of 1972, the minutes of the Canadian cartel members provide this chilling language about Westinghuse and other competitors:
"The consensus finally reached was that if the club was to survive as a viable entity, it would be necessary to delineate where the competition was and the nature of its strength, as a prelude to eliminationg t once and for all."
Subsequent internal memos inside Gulf picked up that language - "climinating" the competition - and reported on how to block Westinghouse from possible uranium purchases in the world market. Westinghouse eventually defaulted on its supply contracts and is now being sued by 20 utilities. Westinghouse, in turn, is suing Gulf and the other cartel members, alleging antitrust damages.
Jackson, the Gulf lawyer who had earlier decided that cartel participation did not present legal problems, had some misgivings about how it would look if others saw "possible predatory action against American interests by the cartel or any of its members.
He urged Gulf representatives to speak up at every opportunity and remind their fellow cartel members that they were against this sort of thing and to repeat the point that the Canadian government compelled them to take part. In subsequent exchanges, these arguments were referred to as "the party line."
The most definitive statement on how the cartel affected U.S. prices was contained in a 1974 memorandum from W. D. Fowler, a marketing executive in Gulf's domestic uranium subsidiary in San Diego. Fowler said the "world price" set by the cartel was forcing up the price offers of U.S. uranium mining companies.
"The U.S. producers refuse to sell at any price that doesn't give them a substantial margin above the 'floor' being quoted by the non-U.S. producers," Fowler reported. "Thus, in essence, the international producers can stop any transactions by constantly nudging the floor upward. In the interim, the U.S. buyer becomes increasingly frustrated, offers a higher price in order to get some response and the cycle starts over again."
William Haddad, director of the New York Assembly's investigative arm and a participant in yesterday's hearing, got both Zagnoli and McAfee to agree that the cartel did have some success in raising world prices. Then Gore's question provided what he called "in Watergate parlance, the smoking gun," namely, Zagnoli's concession that some U.S. buyers were directly affected.
In 1974, Gore pointed out, at least three U.S. utilities, including TVA, bought uranium from foreign suppliers at prices exactly matching the secret price schedules set by the cartel. TVA's purchases also included a clause that ties its future delivery costs to any increases in the world price.
The committee explored another sensitive area for Gulf without finding the answer whether Gulf used its political leverage in Washington to assure itself that the Justice Department under John N. Mitchell in 1972 would not raise any antitrust objections.
Several memos suggest that the company planned to contract Justice and consult with its Washington lobbyist, Claude Wild. Wild was convicted later of masterminding Gulf's distribution of some $5 million in illegal corporate contributions to American politicians.
Gulf officials said yesterday that they never did approach the Justice Department or any other part of the Nixon administration on the matter. McAfee was incensed at the "innuendo" in some of the questions.
"A bit of a cheap shot," McAfee protested.
"I think Gulf has taken a number of cheap shots at the U.S. public," Gore replied.