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offer a method by which the balance sheet would look better after some period of time.

Mr. HATHAWAY. Of course, if it is going to be operated as it is now, it is important that we make a decision immediately so that we can line up cargoes and so forth.

Mr. MEHANN. Yes. As I indicated, she is leaving at the end of the week for the Far East and this is her last scheduled voyage. She is returning in early August and there are no plans to operate or lay up or anything beyond that point that we know of.

Mr. HATHAWAY. Even if we continue to operate as it is, the reasons that you have given are significant ones that call for quick action. Mr. MEHANN. I believe they are, yes.

Mr. HATHAWAY. Thank you very much.

Mr. CLARK. Mr. Reinecke.

Mr. REINECKE. I have no questions. I certainly think it was fine testimony.

Mr. CLARK. Mr. Byrne.

Mr. BYRNE. I want to congratulate you on the statement. I read some time ago where the Government spent $3 million to operate this ship. Now, wouldn't it bring more money into the Treasury with containers as it is now and where do they arrive at the $3 million? They never answered my letter.

Mr. MEHANN. The cost of operating the ship insofar as FAST is concerned amounts to about $1.4 million. The additional numbers adding up to the neighborhood of $3 million would come from such sidesupport functions as training of engineers and deck officers and other people and the facility at Galveston.

Mr. BYRNE. Thank you. Thank you, Mr. Chairman.

Mr. CLARK. Mr. Drewry.

Mr. DREWRY. Mr. Mehann, during the testimony when the Maritime Administration was before us, reference was made to these alternatives of keeping the ship operating as she is, laying her up, making the conversion as to capacity, and making a much larger conversion which would install a new plant.

As I recall it, the statement was made by Mr. Kemper Sullivan that by about May 1 they expected to know what direction they were going to take or at least what direction they were going to recommend, and then I believe there were some 30 days additional required to circulate around the idea and develop a conclusion.

Have you been consulted in connection with your willingness to proceed with the operation of the ship on any basis?

Mr. MEHANN. This date for deciding what is to be done with the ship appears to be an asymptotic one. That is to say, it is a date which we never quite reach. The current date is June 15. We have been consulted, I would say, only informally, and certainly no meaningful discussions have been held or requested concerning the basis for continued operation.

Mr. DREWRY. I believe Mr. Hansen of Waterman, when he was here, indicated that if the ship was going to be continued to be operated and you didn't want to do it, they would be glad to. I was just interested to know what, if any, steps have been taken to be prepared to continue operation if it was continued.

Mr. MEHANN. I would certainly state that our company is certainly interested in continuing with the operation, but there has been no discussion as to what the basis would be beyond this current second charter year.

Mr. DREWRY. Would it be fair to ask you to say whether your commany is equally interested in operation of any new ships that may be proposed under a program that may be developed? Mr. MEHANN. I think that the interest of AEIL wherein the proposals come as a matter of long record and that interest still prevails although the suggestion to go in that direction has fallen on rather barren ground.

Mr. KURRUS. Mr. Drewry, could I comment on that?

Mr. DREWRY. Yes.

Mr. KURRUS. American Export Isbrandtsen filed an application for subsidy for three nuclear-propeled ships approximately 2 years ago with the Maritime Administration. I think it was a little bit over 2 years ago. The application was actually in the alternative: either we proposed to build three 30-knot container ships that would be conventionally fired or three nuclear-propelled container ships.

The application was based upon a detailed economic study, and I might say trade route 1 is the trade route that operates between United States Atlantic ports and the Far East. It is one of the longest trade routes in the world and one of the routes where nuclear propulsion is considered to be the most economically feasible both because of the length and because of the high-value cargo that moves on that route. Initially the application was given some consideration by the Administration. We had some discussions with them. Subsequently we received fixed bid proposals from both Westinghouse and Babcock & Wilcox. We had considerable discussions with Babcock & Wilcox and with Westinghouse.

The fixed bid proposals that they submitted were very detailed. They were both over 2 inches thick, as I recall. They were evaluated by a special consultant that AEIL hired. After this, we had some informal testimony before the Joint Committee on Atomic Energy, but as far as I know, nothing has been done at the Maritime Administration to push this application along, to submit any comments on it, and it is my understanding that it is just sitting there.

The company is extremely anxious to move ahead and construct the three vessels. They would each cost, according to indications that we had, approximately $34 million. They would compare with conventionally fired ships of 30 knots that would cost about $23 million.

The company would have been willing to construct either kind in order to give the Administration a fair alternative, but nothing has been done with that application, and we have, as far as I know, heard nothing about it for almost a year and a half.

Mr. DREWRY. When you say "fixed bids," you mean "fixed price"? Mr. KURRUS. I didn't mean "fixed bid." I said "fixed proposal" indications. This is an area where an invitation to bid is probably not appropriate because B & W and Westinghouse are not designing the same type of reactor. We gave them an indication that we wanted a reactor that would produce 100,000 shaft horsepower; they both developed their own reactor and they gave us a fixed proposal, a price at which they would produce the reactors.

Mr. DREWRY. With appropriate guarantees?

Mr. KURRUS. Yes, appropriate guarantees. I must say that the guarantee period had not thoroughly been worked out. We would insist on long-term guarantees in this type of equipment. They both indicated that they were willing to give long-term guarantees, guarantees that would exceed the normal shipyard guarantee of 6 months or a year, but we never got to that stage of the game because we never had any further dialog with the Maritime Administration and never got to the point, obviously, of discussing the construction contract.

Mr. DREWRY. This $34 million range that you are speaking of, Is that for the ship?

Mr. KURRUS. Yes.

Mr. DREWRY. The total ship?

Mr. KURRUS. The $34 million would be the approximate cost of the ship as we had anticipated. It is the ship that Dr. McMullen generally described this morning. It is approximately a 35,000-deadweight-ton ship, assuming the container is fully loaded. The $34 million would include the cost of the reactor and the complete cost of the ship.

However, I must say that the entire cost of the program would have been much greater because American Export Isbrandtsen Lines would have purchased approximately in the neighborhood of $40 million or $50 million worth of equipment that would have had to go into this program, but this has nothing to do with the subsidy cost to the Government, the containers and related equipment and shoreside facilities.

Mr. DREWRY. There have been suggestions that these alleged firm price offers are maybe more illusory than firm. Are you satisfied with the firmness of the offer made by B. & W.?

Mr. KURRUS. As a lawyer, Mr. Drewry, I don't think we had anything that we could have legally held them to. They may have been illusory to that extent, but I believe, I honestly believe that both Babcock & Wilcox and Westinghouse would have anxiously proceeded to produce the reactors and supply the reactors at the prices they indicated. I don't think there is any question about it at all. There may have been illusory features of the proposals in other areas, in the areas of guarantees, but I think all of that could have readily been worked

out.

Mr. CLARK, Mr. Reinecke.

Mr. REINECKE. Mr. Kurrus, are you going on the assumption here that this would be subject to the same percentage of subsidy as normal shipping?

Mr. KURRUS. No; we had proceeded on a different assumption. Chairman Garmatz had introduced a bill, actually, I think, 4 years ago, that would have provided some governmental assistance for the first-time costs in producing a nuclear-propelled ship because of the prototype costs and the reactor.

Our proposal was that we would pay in accordance with the ship being an oil-fired ship, a conventionally powered ship. In other words, we would pay our participation of the $23 million figure.

Let's assume the $23 million figure is correct. Obviously, it would have to be subject to competitive bids or some kind of analysis, but it was our proposal to pay approximatly half of the $23 million rather

than to pay half of, for example, the $35 million, and I think this has been the general consensus of a fair basis because, after all, part of the $35 million figure represents costs that wouldn't be incurred if a nuclear program moved ahead.

Mr. REINECKE. Then would Babcock & Wilcox or Westinghouse pick up the difference? You mentioned another $10 million or $15 million in development costs.

Mr. KURRUS. This is an area that was subject to negotiation, I think, with both of the nuclear-reactor suppliers. They possibly would have been willing to subsidize part of the first-time costs. They hadn't made that proposal. One of the reasons they hadn't made the proposal is that we never really got anywhere with the Maritime Administration, but it is possible that Westinghouse or B. & W. would have been able to reduce their costs and possibly meet part of the first-time costs in the hope that a nuclear program for merchant vessels would move ahead, but they hadn't made that proposal formally.

Mr. REINECKE. Thank you.

The CHAIRMAN. Mr. Drewry.

Mr. DREWRY. Mr. Mehann, I have just one observation. You stated that you had been with the Savannah project since 1959. One thing that has impressed me in these hearings is that the people who have spoken most firmly not only about the Savannah and continued operation but also the future of merchant ships, seem to be the key people who have been with the life of this so-called white elephant since her origination-you and Mr. Teale and Dr. McMullen and Mr. Hansen and others. I think that in itself speaks pretty well for the concept of keeping her in operation. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Mehann, for your statement and your advice and guidance here this morning.

The meeting will recess until Thursday. On Thursday we will have Mr. Shaw back, the Director of the Division of Reactor Development and Technology of the Atomic Energy Commission, and Mr. Ran Hetenna, president of the Maritime Overseas Corp. Thank you.

(Whereupon, at 12:05 p.m. the subcommittee recessed, to reconvene at 10 a.m., Thursday, May 25, 1967.)

MARITIME PROGRAM, 1968, AND NS "SAVANNAH"

THURSDAY, MAY 25, 1967

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON MERCHANT MARINE

OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D.C. The subcommittee met at 10:15 a.m., pursuant to recess, in room 1334, Longworth House Office Building, Hon. Edward A. Garmatz (chairman of the committee) presiding.

The CHAIRMAN. The meeting will please come to order.

This is a continuation of the series of hearings we have been holding concerning the proposed layup of the NS Savannah.

Since the first day of hearings, on March 7, we have heard a number of witnesses from the Department of Commerce/Maritime Administration, ship operators, naval architects, reactor manufacturers, and the Atomic Energy Commission.

When that hearing was recessed, it appeared that there might be a number of other questions to be asked of Mr. Shaw and he very kindly consented to return. He is here this morning and available for further questioning.

In addition, Mr. Hettena, vice president of the Maritime Overseas Corp., could not be heard on the day he was previously scheduled. Mr. Hettena is with us this morning, and we will be pleased to receive his statement at the conclusion of Mr. Shaw's testimony.

You may proceed, Mr. Shaw, if you have any statement. We do have some questions here. I am wondering if you may want to add something before we ask some of these questions.

STATEMENT OF MILTON SHAW, DIRECTOR, DIVISION OF REACTOR DEVELOPMENT AND TECHNOLOGY, ATOMIC ENERGY COMMISSION; ACCOMPANIED BY DR. GEORGE M. KAVANAGH, ASSISTANT GENERAL MANAGER FOR REACTORS; AND IRVING HOFFMAN, AEC PROJECT MANAGER FOR THE MARITIME PROGRAM-Resumed Mr. SHAW. No, sir; I have nothing to add. I am prepared to answer your questions, sir.

The CHAIRMAN. On page 244, line 25, you stated 25 percent as a possible reduction in cost through a R. & D. program. Would this be done by the AEC or the reactor manufacturers, and briefly how would this be accomplished?

Mr. SHAW. Mr. Chairman, the point I was trying to make is that there are really two ways of effecting improvements in cost. One is by what is commonly referred to as a "product improvement ap

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