Synthetic Fuels Corporation's Profit Sharing Provisions With Six Proposed Projects

RCED-85-140: Published: Jul 10, 1985. Publicly Released: Aug 12, 1985.

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In response to a congressional request, GAO reviewed the Synthetic Fuels Corporation's (SFC) methodology for estimating federal receipts anticipated from profit sharing provisions in proposed financial assistance agreements between SFC and sponsors of synthetic fuels projects.

GAO found that SFC analyses of profit sharing revenues for six projects were much higher than those of the sponsors' estimate, and SFC revised its gross profit sharing revenue downward approximately $1.5 billion in 1985. In converting projected price guarantee outlays and gross profit sharing revenues to present-discount value, GAO found that the price guarantee outlays would be about $2.7 billion, and the gross profit sharing revenues would be about $859 million. GAO found that the price guarantee payments that sponsors could receive during the early years of the projects were worth more than the profit sharing revenues the government could receive in the future. The 1985 analysis projected that the six projects could provide the Treasury with approximately $7 billion in net revenues over the projects' useful lives after tax factors are considered and the proposed price guarantee assistance expenditures are deducted. However, the federal government would not receive most of the additional income tax revenues or profit sharing payments until the projects' later years. In present-discounted value terms, the federal government would receive about $884 million less in income tax receipts than it would grant in tax benefits. The six projects could receive a total subsidy of about $2.8 billion in present-discounted value terms. Finally, GAO found that the 1985 SFC energy price projections were generally much higher than other projections.

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