The Oil Shale Corporation Loan Guarantee Contract

GAO was asked to examine various aspects of the recently signed loan guaranteed contract between the Oil Shale Corporation and the Department of Energy (DOE). Specifically, GAO was asked to determine whether (1) all relevant provisions of the Defense Production Act of 1950 were adhered to, (2) the Act's mandate for the President to take immediate action to achieve synthetic fuels production was fully implemented, and (3) it would recommend approval of the loan guarantee.

In its examination, GAO found that the contract is inconsistent with the requirement of the Defense Production Act of 1950 which specifies that financial assistance should be granted for the purchase of synthetic fuels to meet the needs of national defense. Under the contract, the Department of Defense (DOD) is required to purchase at market prices fuels which are not necessarily derived from the syncrude from Oil Shale unless DOD exercises an option to purchase syncrude directly. Additionally, the policy statement that the projects be geographically dispersed was not met since the selected projects were both in the same geographical area. Further, the contract was inconsistent with the requirement that immediate action be taken to achieve synthetic fuels production for defense needs since it is questionable whether the 13-month timeframe for awarding the contract can be considered immediate action. Finally, GAO believes that, although the contract is generally consistent with the requirements of the Act with certain exceptions, any recommendation that it could make would have to be predicated on its review of the Administration's consideration of other critical factors such as Oil Shale's ability to repay the loan, the status and risk associated with the technology involved, and the degree of protection afforded the Government under the contract.