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Now, has there been any provision made, or any discussion, by your agency, in terms of dealing with this very, very serious situation?

Mr. BLACKWELL. Yes. I am doing everything I can, and will continue to do everything I can, during my next remaining weeks to see that those ships are built in the United States, and the yard that is in your constituency has a very good opportunity for getting those ships, if that decision is in fact made.

Mr. DONNELLY. The fact of the matter is there is not one single cent requested subsidizing these ships on the Indo Pact Run.

Mr. BLACKWELL. That is correct. But I am also stating that that request was made. This committee, and the Congress, were generous enough in other years to give us money for the project, the one that you are mentioning. The project never reached fruition, and we used the money for other purposes.

Mr. DONNELLY. Well, it would just seem to me, Mr. Blackwell, that with the administration's stated position, with the-

The CHAIRMAN. We are going to have to recess. We have a roll call vote on.

Mr. DONNELLY. I have not finished, Mr. Chairman.

The CHAIRMAN. We are coming back.

We will recess for 1 hour.

[Whereupon, at 12 noon, the subcommittee recessed, to reconvene at 1 p.m., the same day.]

AFTERNOON SESSION

The CHAIRMAN. The subcommittee will come to order.

On page 5, Mr. Secretary, we had the question of the costs, and engineering costs are mentioned. You talk about a program level of $124 million. Engineering costs evidently amount to about $12 million of this figure; is that right?

Mr. BLACKWELL. Yes, basically they are the correction of design deficiencies, Mr. Chairman. That is, after a vessel is contracted for, the specs are written and the project proceeds into the building mode, they discover that there is a better way of doing it. Perhaps there is an advance in the state of the art, perhaps there has just been a goof, and those vessels have to be corrected. That money is set aside for those design deficiency situations.

The CHAIRMAN. It is 10 percent.

Mr. BLACKWELL. Yes.

The CHAIRMAN. Mr. Donnelly got into the question of liquid natural gas construction. What liaison is there between the Department of Energy and the Department of Commerce concerning maritime support, particularly in the areas of liquid natural gas transportation?

Mr. BLACKWELL. Not a great deal, Mr. Chairman. Before the organization of the Department of Energy, most of the energy policy and the decisions affecting natural gas imports to the United States were handled by the Federal Power Commission.

The Maritime Administration participated to some extent in those hearings, which were regulatory in nature, in terms of the cost of ships, what freight rates might be and that type of thing.

We have provided the Federal Energy Regulatory Commission with basically the same type of issue. When there have been issues within the executive branch relating to LNG we have taken a position. We assume, to that extent, the Department of Energy has been advised of our position. But there is basically very little coordination in that respect because most of the major decisions are, in fact, regulatory ones and there is an ex parte type problem that really precludes our participation behind the scenes.

I might say that at one time there was a LNG policy task force that was supposed to enunciate an LNG policy for the United States. About 4 or 5 months ago it was decided that there would be no such general policy, that the LNG import policy would be enunciated on a case-by-case basis.

The CHAIRMAN. When was this?

Mr. BLACKWELL. About 4 months ago. I was going to say, the Commerce Department was a member of that group and we have supplied considerable data to the Commerce Department.

The CHAIRMAN. When you talk about the regulatory function, when a U.S. company enters into an agreement, say, with Algeria for the movement of liquid natural gas, I would think there would be some very serious policy questions involved as to whether or not those movements would be on American flag vessels or whether American flag vessels would share part of the trade.

Mr. BLACKWELL. That is obviously a germane consideration. We have basically taken the position in those proceedings that with the financing available through the capital construction funds, title XI ship-financing guaranties, and ship construction subsidies, we could at least match the foreign cost-the cost of using foreign-flag ships-and that the American consumer would be no worse off, and perhaps better off, by using U.S.-flag ships.

The CHAIRMAN. On the question of research and development, I asked Secretary Woolsey when he was in here about coordination on nuclear propulsion. Would you address yourself to that same question?

Mr. BLACKWELL. Yes; the last direct coordination that I know on that subject with the Navy was with Admiral Rickover some years ago when he shot down the proposal of the Maritime Administration to build a new shipyard in the gulf which might have been used to build very large nuclear-propelled tankers.

We have not seen fit to cooperate or coordinate nuclear programs with the Navy because the market is so bad that it is the least likely of the propulsion techniques that would be adopted in the commercial mode with the current market.

We did a hell of a lot of work with the Savannah reactor in terms of advancing the state of the art and using applied engineering techniques to reduce by 50 percent the size of the engine and increase by fourfold the shaft horsepower of that ship. But the cost of nuclear propulsion and the uncertainties of the regulatory process, the hostility of the regulatory process-let me put it that way-was such that we just felt that it wasn't worth the resources any longer to pursue that as a reasonable goal, Mr. Chairman. The CHAIRMAN. What about the United States participating in bilateral trade agreements? You mention on page 6 the Russian

grain movement, that we are not expected to participate substantially in that for some reason. What about the Russian grain trade? We had, in the last year's authorization, some funding to underwrite some cost of the United States one-third participation. What will happen to that this year?

Mr. BLACKWELL. Most of that cargo will probably be carried by third-flag carriers. We simply don't have the tanker tonnage in this country to participate in that movement. The tanker tonnage, as I have indicated, particularly ships that could serve the Soviet grain trade, would be generally ships under 90,000 deadweight tons, and they are all usefully occupied at much higher rate levels in the carriage of oil from Alaska to Panama and through the Panama Canal to gulf coast ports.

Those that are not in that trade are reasonably heavily engaged in the carriage of strategic petroleum reserves from close-in sources, such as Mexico, to the gulf where, as you know, that oil is being placed into gigantic salt domes for emergency use in this country in case of another boycott of energy.

The CHAIRMAN. I thought the reserve program was on the back burner at this time.

Mr. BLACKWELL. No, there has been in this last budget round some desire to cut down the rather ambitious goals that President Carter has said that he would like to pursue. There are now, I think, 71 million barrels in the ground. There has been quite candid observation by the people in charge of that. They are way behind schedule but they are still pursuing it. That should be pursued, in our opinion, out into the 1985 time frame.

The CHAIRMAN. What are you doing about China bilaterals?

Mr. BLACKWELL. As you know, when Vice Premier Teng visited the country just a short while back, in his discussions with the President, in the joint communique that was released there was mention of the fact that the United States and the Peoples Republic of China should engage in discussions regarding aviation, trade and shipping.

We can't say whether a shipping agreement in that context at this point in time means the fairly traditional most-favored-nation type of maritime arrangement, where crews are protected and there is an agreement on the type of landing card sailors will have, and what have you, or whether they had reference to a cargosharing arrangement.

I can detect a fairly strong sentiment in certain parts of the administration for the conclusion of an arrangement with the Chinese that would, in fact, cover cargo sharing. I am not at liberty, and I don't think anyone is, to indicate to you what the specific provisions of that would be, but I would think that there would be much more emphasis in such an agreement if one were pursued, to protect our present, and possibly our growing, liner fleet in the Pacific than the heavy emphasis that we put on the bulk ships in the Soviet program.

The CHAIRMAN. I understand there is some interest in U.S. construction and operation of dry bulk ships. Can you discuss that with us, please?

Mr. BLACKWELL. Yes, sir. The present provisions of the Merchant Marine Act of 1936, as they were amended in 1970, are not very

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The reason we gave precedence to that application is that we thought that despite the fact that other applications were more timely in terms of their filing dates, the fact that the Cove Point liquifaction facility was in place indicated that that project would have a less contentious time at the energy regulatory agency, and also, that from an engineering point of view it could go forward more quickly.

And that is the money we applied for. It was not for the Pacific project. The fact of the matter is, as events have borne out, at least in hindsight, that the OMB decision was a relatively sound one because we all know what has happened with Iran.

Mr. DONNELLY. Just one further question. This LNG task forceI am not so sure I am phrasing it right, but the LNG task force that was dissolved and the decision that was made to deal on a case-by-case basis, was this a unanimous decision of this task force? Mr. BLACKWELL. To dissolve?

Mr. DONNELLY. To dissolve. Who made this decision?

Mr. BLACKWELL. I really don't know. I would assume that it was a consensus. But I don't think there is any doubt that the Department of Energy was playing a very critical role in that.

It is interesting that in the beginning, when it appeared that the cases would be decided on a case-by-case basis, many of those cases were deferred because of a lack of overall policy.

That study was designed to fill that policy gap. Then that committee disbanded and left it to an ad hoc case-by-case determination. So we were actually where we were.

Mr. DONNELLY. Back where we were before?

Mr. BLACKWELL. I would say, 10 or 12 months earlier, yes.
Mr. DONNELLY. Thank you very much.

The CHAIRMAN. Mr. McCloskey.

Mr. MCCLOSKEY. Thank you, Mr. Chairman.

Mr. Blackwell, your shipbuilding program for the next fiscal year consists of a program level of $124 million to support construction of one LASH ship and three dry bulk carriers. Yet, in your testimony you indicate that the three bulk carriers are to be built under a new initiative which the Congress has not yet received.

Mr. BLACKWELL. That is right, sir.

Mr. MCCLOSKEY. Can you state the details of that initiative? I refer back to the testimony where you say that the administration wants to remove certain restrictions which have inhibited bulk carriers.

Mr. BLACKWELL. I believe I can. It is very interesting that the Office of Management and Budget, in my opinion, inserted those three vessels into the budget based on the fact that we would have a new program and they would support it.

In the first place, we have proposed that a vessel owner who builds a ship with construction differential subsidy be permitted to sell the ship foreign within 10 years after he purchases the vessel. At the present time, the law prohibits the sale before the expiration of the useful life of the ship. We think that will provide flexibility to the operator to maintain modern tonnage. At the same time, there is a requirement, Congressman McCloskey, that the proceeds of that sale be placed in a capital construction fund

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