Synfuels Board Grants Loan Guarantee : Legality of Move to Aid Unocal Project in Colorado Is Disputed

The Synthetic Fuels Corp., supposedly killed last month when Congress barred it from signing contracts or spending money, rose from the grave Tuesday to give a $327-million federal loan guarantee to a politically sensitive Unocal Corp. project in Colorado.

The action, taken by the agency’s five-member board, moves Unocal closer to tapping $900 million in federal subsidies for shale oil that the troubled Parachute Creek project was supposed to have begun producing two years ago. The loan guarantee will help finance a new combustion technology for the Colorado plant, which is intended to make jet fuel for the military.

The synfuels board unanimously approved the guarantee after lawyers argued that it did not violate a Dec. 19 congressional resolution that had ended the agency’s spending and contracting powers.

But enraged congressional Democrats accused the board Tuesday of subverting Congress’ intent with the help of the White House, which had been under intense pressure from Colorado Republicans to approve the Unocal project.

Height of Hypocrisy

“The Reagan Administration is off to a grand start in the Gramm-Rudman era,” said Sen. Howard M. Metzenbaum (D-Ohio), referring to the Administration-backed law that orders massive spending cuts to balance the federal budget by 1991. “It has elevated hypocrisy to new heights.”

“I think it’s outrageous,” said Jill Lancelot, a lobbyist for the National Taxpayers Union, a persistent synfuels critic. “Here we are in the midst of Gramm-Rudman trying to have a balanced budget, and they’re giving away money to a project that doesn’t work.”

Legislative aides in the House, where opposition to the synfuels agency is especially strong, indicated that Tuesday’s vote may be challenged in court. But one aide conceded that the chances of a successful lawsuit are slim because the legislation that created the synfuels corporation reserved to the Justice Department the right to file most lawsuits.

A Unocal spokesman called the loan guarantee “the last step” for the Parachute Creek plant, which already has cost the Los Angeles-based company more than $700 million. Once the plant begins producing oil, Unocal’s subsidiary, Union Oil Co. of California, will be guaranteed a price of almost $68 per barrel--far above the current price of about $21--until the $900 million in subsidies is exhausted.

Aggressive Lobbying

Although Unocal said it was continuing to study “modifications” to the idle project, the company had lobbied strongly for the federal loan guarantee as a key factor.

Unocal’s Colorado project is the last of only four synthetic oil and gas programs financed by the synfuels agency in its five-year history. The agency awarded the project $500 million in price subsidies last October--adding to $400 million it had received earlier--and was racing to approve the crucial $327-million loan guarantee when Congress voted to shut it down.

But the agency’s lawyers argued for two hours Tuesday that Congress did not bar the guarantee when it rescinded the synfuels board’s powers because the agency already had legally committed itself to completing the Unocal financing package in October. The lawyers noted that the board had pledged to issue a guarantee then, although it did not sign any legal commitment at the time.

Congress’ spending ban does not affect the $327-million guarantee, the lawyers stated, because the money will be drawn from the $900 million in unspent subsidies that the synfuels board already had committed to spend.

Rep. Mike Synar (D-Okla.), a long-time agency critic, called those arguments “absurd” and said that the action “opens the gates for another $900 million in wasted tax dollars.” But a congressional aide, speaking on the condition that he not be identified, said the board’s action is “a close legal call” that may stand up under court scrutiny.