The CHAIRMAN. Yes; so that insofar as any hopes anyone has, as far as you are personally concerned, unless something else was done, unless you were overruled by higher authority, or unless Congress would change the law-I do not know whether we could do it by special joint resolution, as Senator Payne suggested they might as well figure they had better be figuring on 90 percent?

Mr. MORSE. I would recommend such a change from the Congress if they are willing to do so.

The CHAIRMAN. You have no objection to the law, as such? Mr. MORSE. By no means. We want the tankers built. Mr. PELLIGRINI. In other words, if I understand you correctly, if you were satisfied that these were special-purpose bills, you would have no objection to the 100 percent insurance?

Mr. MORSE. Yes, sir; provided it was in a form or a dignity that would overrule all my questions and the background of the bill.

Mr. PELLIGRINI. In other words, the thing should be substantial in form enough to overrule the background?

Mr. MORSE. Yes, sir.

The CHAIRMAN. I think that makes it clear. Now I want to ask you one further question

Mr. MORSE. Pardon me for interrupting.

The CHAIRMAN. That is all right.

Mr. MORSE. A simple change in the characteristics of these ships might make them special-purpose vessels in our thinking.

Mr. PELLIGRINI. What special characteristics?

Mr. MORSE. I would rather have Mr. McMullen talk about that. I am not expert on ship design.

Mr. MCMULLEN. It is noted in the letter from the Department of the Navy that they differ significantly from varying commercial characteristics; for example, if these ships had 20 knots in them or if they had pumping capacity so that they could fuel at sea in time of war. The CHAIRMAN. Would the MSTS agree to a change in design? Mr. MCMULLEN. I have no idea.

The CHAIRMAN. I know you could not have done that, it would have to be asked for by the Defense Department, would it not? Mr. MCMULLEN. Yes, sir.

The CHAIRMAN. They could make them different than the four that are now being built under the Navy contract.

Mr. MCMULLEN. Yes, sir.

The CHAIRMAN. I have no further questions, Mr. Morse. At this time we will hear from Admiral Denebrink.

Admiral DIETRICH. Admiral Denebrink is in the hospital, so I am here representing him, sir.

The CHAIRMAN. Do you have authority from Admiral Denebrink to say that he agrees with the late interpretation, the recent interpretation, of the Secretary of the Navy as to whether these ships are special purpose?

Admiral DIETRICH. I do have that authority, sir. I can amplify that if you wish.

The CHAIRMAN. The committee will be glad to hear you, Admiral Dietrich.

STATEMENT OF REAR ADM. NEIL K, DIETRICH, UNITED STATES NAVY, DEPUTY COMMANDANT, MSTS

Admiral DIETRICH. My name is Rear Adm. N. K. Dietrich, deputy commander, Military Sea Transportation Service.

This statement is directed to the matter of delays encountered in the program contemplated by Public Law 575, 83d Congress, 2d session, which statute authorized the construction by the Department of the Navy of 5 tanker vessels of 25,000 deadweight tons with a speed of 18 knots, and the time charter by the Navy for a period of 10 years of 15 tankers of the same general specifications to be constructed by private owners.

Construction of tankers by the Navy: Public Law 575, 83d Congress, 2d session, authorized construction by the Navy of 5 tankers and the Congress appropriated $30 million for that purpose.

(Public Law 663, 83d Cong., 2d sess., August 26, 1954.)

This sum was sufficient to permit the construction of four of the authorized tankers.

Inmediately upon the appropriation of funds for the construction, contracts were awarded by the Bureau of Ships, Navy Department, to the Sun Shipbuilding & Drydock Co., of Chester, Pa., for the designing of the four tankers.

Bids for the construction of the tankers were invited on October 13, 1954, by the Maritime Administration acting on behalf of the Navy. Bids were to be opened on November 17, 1954. A contract for the construction of three tankers was awarded the Sun Shipbuilding & Drydock Co., as the lead yard.

A contract for construction of one tanker was awarded to the Ingalls Shipbuilding Corp. of Pascagoula, Miss.

Under the first contract, deliveries are expected 2 months apart commencing on February 15, 1956; under the second contract the delivery date is June 4, 1956.

Chartering of tankers by the Navy: Public Law 575, 83d Congress, 2d session, was enacted August 10, 1954. On August 20, 1954, commander, Military Sea Transportation Service, having in the meantime been designated by the Secretary of the Navy as the contracting officer to charter the 15 tankers to be privately owned, issued an invitation for offers to charter such vessels.

Wide circulation was given the invitation. Copies were sent to 295 owners of American-flag tankers and persons who had previously expressed an interest in the construction of the proposed tankers; also to many owners of dry cargo vessels, brokers, and organizations of the shipping industry.

Offers in response to the invitation were to be submitted not later than November 20, 1954, and were to remain open until January 19, 1955.

Due to the limitations and restrictions contained in the act, it was considered that 90 days would be required for prospective owners to make the necessary fiscal arrangements and to obtain firm commitments from shipyards for the construction of the tankers.

It was believed that 60 days would be required in which to negotiate final charter contracts and to obtain the clearances required before awards could be made.

Seven offers for a total of 28 tankers were,received on November 20, 1954, in response to the invitation. Subsequent amendments to those offers submitted in due form have raised the total of these original offers to 34. None of these offers met all requirements of the invitation and none of the offerers was prepared to accept an award free of conditions.

As none of the offerers could present definitive information with respect to all of the essential elements of its costs or financing plans or give acceptable assurance of performance under the proposed contract, none was in a position to negotiate with the Government with respect to the rate of charter hire.

All offerers advised that their offers could not be fulfilled without mortgage insurance furnished by the Government. They indicated their expectation that such insurance would be available to them under terms to be announced by the Maritime Administration at an early date.

In the circumstances, commander, Military Sea Transportation Service, had no choice but to await the time when the offerers could so firm up their offers as to permit consideration. As no announcement had been made by the Maritime Administration by January 19, 1955, the date awards were to have been made, commander, Military Sea Transportation Service, with the concurrence of all offerers extended the time for making awards until March 1, 1955; for the same reason later extensions to April 1, 1955, and May 1, 1955, were made.

The Maritime Administrator announced on March 25, 1955, that mortgage insurance would be available, to owners meeting certain requirements, for 90 percent of 87% percent of construction costs of the proposed tankers.

As some of the offerers had represented that their offers could materialize only with mortgage insurance for 100 percent of 87%1⁄2 percent of construction costs, commander, Military Sea Transportation Service, has asked each of the original offerers to advise whether it will seek to firm up its offer with mortgage insurance on the announced basis.

As of this date 2 offerers proposing to construct a total of 14 tankers have advised they expect to apply for such mortgage insurance and that they will soon be prepared to negotiate charters with the Government. They indicate, however, that another extension of time will be required, at least to May 15, 1955.

I would like at this point to modify the last 2 sentences just read to inform the committee that, since this statement was written, and just before leaving MSTS headquarters for this hearing, MSTS received a letter from the attorneys of 1 of the 2 offerers above mentioned, stating that this offerer is still in the process of finalizing his financial plan and at this time is not able to make a positive statement that he will apply for 90 percent of 871⁄2 percent mortgage insurance.

The Department of the Navy considers basically sound the principles encompassed by Public Law 575 relating to private ownership and construction of tankers for charter by the Government and has made every effort to carry out the purposes of the law. Nevertheless, until firm and unconditional offers are received the Navy will be unable to conclude the necessary long-term charters.

In each instance where action was taken by the Department of the Navy with respect to the chartering program under Public Law 575,

83d Congress, 2d session, Commander Military Sea Transportation Service reported such action and the then status of the program in letters addressed to the chairmen of the Senate and House Armed Services Committees. (Letters of December 3, 1954, January 19, 1955, February 25, 1955, and March 29, 1955.)

The CHAIRMAN. There is no need, Admiral, for you to amplify Admiral Denebrink's testimony, which I personally think is in conflict with the Secretary's letter and interpretation.

I do not mean to question his honesty, but apparently now he agrees with the Navy's contention.

Admiral DIETRICH. No, sir; Mr. Chairman. I think it is only fair if I may, to say that Admiral Denebrink's testimony as given before both the House and the Senate committee was in an effort to be completely clear, explicit, and candid in order that there would be no question about the characteristics desired, and why they were desired; but it was never-if I may speak of intent now, sir. The CHAIRMAN. Yes, sir.

Admiral DIETRICH. The intent of describing these characteristics was to prescribe a ship which would be acceptable for commercial interests in private industry with the average accepted life of 20 years, which could be chartered by the Government MSTS for the first 10 years of life.

It was never intended that this was to be a special-purpose ship, but it was always the intent, because that was the only consideration that entered into the planning of this ship over a year in consultation at several times with representatives of private industry and of shipbuilders too, within MSTS, to describe only a ship that would be acceptable to private industry for commercial use, but which could be chartered by MSTS, thereby retiring certain Government-owned ships, and putting privately owned and operated ships into Government service under the long-term charters.

The CHAIRMAN. In other words, what you were doing is describing a type of ship?

Admiral DIETRICH. Exactly, sir.

The CHAIRMAN. Which was tailored for the needs that you thought existed?

Admiral DIETRICH. Yes, sir; and which would be acceptable to private industry for commercial use.

The CHAIRMAN. Which you thought would be or he thought would be?

Admiral DIETRICH. Yes, sir.

The CHAIRMAN. And at the end of a 10-year period?

Admiral DIETRICH. Yes, sir.

The CHAIRMAN. Whether or not that falls into the category of special purpose is a matter of interpretation; is it not?

Admiral DIETRICH. Entirely, sir.

The CHAIRMAN. And whether or not it does could be based upon the test or specifications and use and so on and so forth?

Admiral DIETRICH. Yes, sir.

Mr. PELLIGRINI. Admiral, following up the reasoning which you have just given, the Senate in acting on Public Law 575 provides for the construction and charter to the Navy of a ship in a range from 25,000 to 32,000 tons; is that not correct?

Admiral DIETRICH. That was later changed.

Mr. PELLIGRINI. That is what the Senate did?

Admiral DIETRICH. Yes.

Mr. PELLIGRINI. And that same range in size was a design which was to take care of the commercial aspects of these tankers; is that not accurate?

Admiral DIETRICH. I was informed that was the Senate intention. Mr. PELLIGRINI. And that was done by the Senate as a result of the representations made to the Senate by the commercial operators; is that not accurate?

Admiral DIETRICH. As far as I know that is accurate. I did not hear all the testimony.

Mr. PELLIGRINI. When it got over to the House side, however, Admiral Denebrink and the Navy agreed. I believe Mr. Thomas and the others were of the opinion that that tanker was not suitable, that a commercial tanker which could range in size to 32,000 tons was not suitable for the restricted Navy use; is that not correct?

Admiral DIETRICH. That is correct; an objection was made by both.

Mr. PELLIGRINI. And that was what Admiral Denebrink had in mind when he answered Mr. Shafer and Mr. Vinson in the language as read by the Senator; is that not correct?

Admiral DIETRICH. I would assume so, Mr. Counsel, because he wanted to reiterate the MSTS need was for 25,000 tons.

The CHAIRMAN. And he did not want to get up into the range where that was the normal commercial range of tankers?

Admiral DIETRICH. If that be the normal commercial range.
The CHAIRMAN. It could be higher.

Admiral DIETRICH. Also lower.

Mr. PELLIGRINI. In other words, it was the Navy's view, as represented by Admiral Denebrink, and as I say, I believe 1 or 2 other members of the civilian end of the Navy Department appeared and testified, that you had to have a different type ship?

Admiral DIETRICH. A ship with particular characteristics; that is

correct.

Mr. PELLIGRINI. That is all.

The CHAIRMAN. Thank you, Admiral. I oes anyone else have anything to say. Are there any bankers to tell us about financing.

I want to say that Mr. Azoy was here representing some financial institutions that are interested in the financing, but he was going to file a statement.

We will keep the record open for Mr. Power of Dillion-Eastman also.

STATEMENT OF A. J. ANDERSON

Mr. ANDERSON. Mr. Chairman, Mr. Power was unable to be here, and I am Mr. Anderson talking for the financial situation. I would like to say one thing to clear a little of the financing of these three companies in regard to the liability of the Government under this

insurance.

Our system is set up in such a way that we figured the profit possible and possible recovery of equity capital in conjunction with two major oil companies, using as a basis for our figures their operating costs and also used as a basis the operation of the present MSTS freight tankers.