Circumstances Surrounding the First Colony Peat-to-Methanol Project

U.S. Government Accountability Office

Circumstances Surrounding the First Colony Peat-to-Methanol Project

RCED-84-32: Published: Nov 10, 1983. Publicly Released: Nov 21, 1983.

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Pursuant to a congressional request, GAO examined certain issues relating to the First Colony peat-to-methanol project, including: (1) the authority of the Chairman of the U.S. Synthetic Fuels Corporation to sign a letter of intent favorably recommending to the Corporation's Board of Directors the award of loan and price guarantees to a particular firm; (2) whether the Davis-Bacon Act applies to the project; (3) concerns held by the staff of the Corporation; (4) concerns held by environmentalists and Corporation efforts to consider such concerns; (5) the Corporation's justification for providing price guarantees for the project; and (6) the ownership of the peat land on which the project will be situated and the arrangements for developing it.

GAO found that nothing prohibits the Corporation from being party to a letter of intent. However, it is unclear whether the Chairman had the authority to sign such a letter without formal approval or delegation from the Board of Directors. Since the letter of intent includes financial assistance in the form of loan guarantees, the Davis-Bacon Act would apply. GAO also found that there is conflicting information regarding those concerns raised by the Corporation staff, which recommended against federal backing for the project. While the Corporation has stayed abreast of environmental concerns, it did not attempt to resolve these concerns before the letter of intent was signed and is leaving resolution of these issues to the state permitting process. Corporation officials believe that price guarantees are necessary to insulate the project sponsor from uncontrollable factors such as market prices, inflation, and interest rates. The sponsor will acquire real property for the plant site and loading terminal, easements for access to the site, and mineral rights to about 15,000 acres of land, with an option for about 100,000 acres more.

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Recommendations for Executive Action

Status: Closed - Implemented

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Board of Directors of the Corporation should either formally authorize or prohibit the chairman's signing of any future letters of intent.

Agency Affected: United States Synthetic Fuels Corporation

Status: Closed - Implemented

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Board of Directors of the Corporation should assess the adequacy of Corporation information on two key questions regarding the peat-to-methanol project--replication potential, which is a statutory factor to be considered in awarding financial assistance to a project, and successful testing of the North Carolina peat in a pilot-scale facility, which is important to the economic viability of the project and a condition placed upon the project by the Board of Directors during the Corporation staff's review of the project--to assure itself that both have been fully resolved.

Agency Affected: United States Synthetic Fuels Corporation