Darkening Storm over Gulf

Few U.S. corporations have been so badly tarred by revelations of illegal political contributions at home and questionable payments abroad as Gulf Oil Corp. Since those dark days a year and a half ago, Gulf had seemed to make considerable progress in restoring its reputation. Among other things, it ousted Chairman Bob Dorsey and replaced him with Jerry McAfee, who had run its Canadian oil subsidiary and had no connection with the payoffs. Yet last week the Pittsburgh-based multinational was enmeshed in a new web of scandal--especially concerning a uranium price-fixing cartel that it had joined with McAfee's awareness.

That was not Gulfs only problem. A federal grand jury in Pittsburgh last week also indicted two Gulf executives, Vice President Fred W. Standefer and Tax Compliance Manager Joseph F. Fitzgerald, on charges of bribing an Internal Revenue Service agent who audited Gulfs books. According to the indictment, Gulf paid $3,300 in air fares, lodging and other perks, to send the tax man, Cyril J. Niederberger, and his family on five vacation trips to such places as Pebble Beach, Calif., and Las Vegas. Niederberger has already been convicted for his part in the scandal and is appealing a six-month jail sentence. During his trial the Government charged that Niederberger greatly underestimated the amount Gulf paid to political candidates.

Serious as the bribery charges were, they are far overshadowed by the uranium cartel. Gulf, through its Canadian mining subsidiary, was the only U.S.-affiliated member. Other participants were the governments of Canada, France, Australia and South Africa, a string of major uranium-producing companies in those countries and an English-based mining company, Rio Tinto-Zinc. According to a stack of sensitive Gulf and Canadian government documents--subpoenaed by a House Commerce subcommittee and made public last week --the cartel was highly organized, with a paid secretariat in Paris and detailed rules for 5 rigging bids, allocating markets and driving up prices.

Though the cartel existed only from 1972 to 1975, it appears to have hit a jackpot. During that period world uranium prices exploded from $6 a pound to more than $40; they are still around that level.

One consequence of the price rise was that Westinghouse Electric Corp. in 1975 reneged on contracts it had made with 27 U.S. utilities to supply them with uranium for their reactors at an average price of $9.50 a pound for 20 years. The utilities sued Westinghouse and the matter is still before the courts. Westinghouse in turn sued 29 uranium producers, including Gulf, charging them with price fixing. A Washington grand jury began investigating last year after the Justice Department, which is also probing the matter, received a number of Gulf documents. If an antitrust case against the producers could be made to stick, Westinghouse's legal justification for scrapping its contracts would be greatly strengthened.

The disclosure of the documents by the subcommittee was protested by embarrassed Gulf officials. McAfee and other Gulf executives have contended that Gulf was in effect pressured by the Canadians to join the cartel under an implied threat of being run out of Canada. Congressman Albert A. Gore Jr., a Tennessee Democrat, sarcastically told McAfee: "You say that Gulf Oil was some kind of corporate Patty Hearst, you were forced to do this." A former Gulf official, L.T. Gregg, testified that he had helped to draft a letter that went out on Canadian government stationery asking Gulf to join the cartel. Other papers, the subcommittee contends, portray Gulf as a willing, even eager, participant. A Gulf representative helped draw up the cartel's rules, and Gregg conceded that he had proposed one specific price increase.

No Effect. Gore also knocked a hole in Gulfs contention that the cartel's actions had no effect on prices in the U.S., which produces almost all of its own uranium. The Congressman asked S.A. Zagnoli, president of Gulf Mineral Resources Co., whether the cartel's boosting of world prices was "effective in raising the prices for all U.S. utilities that purchased supplies of uranium in foreign markets." After some hedging, Zagnoli conceded that "to the extent that U.S. utilities bought overseas, they probably paid a higher price." The points are important: Gulf would be subject to U.S. antitrust action only if its participation in the cartel was voluntary and the cartel's actions had an impact on U.S. commerce.

The subcommittee's hearings are already making waves abroad. Last week Canadian Finance Minister Donald Macdonald called on President Carter to halt any further congressional investigations into the cartel. Ottawa contends that it helped set up the cartel in order to defend Canadian miners against "predatory" tactics of American uranium producers, who it contends were selling uranium at "loss-leader" prices. At the time the cartel was formed, the U.S. accounted for 70% of the world market, and imports from Canada and other foreign countries were banned.

At week's end the subcommittee's chairman, John E. Moss, a California Democrat, said the entire matter might be turned over to the Justice Department to determine whether Gulf broke any U.S. laws. In addition, the evidence now being gathered on Gulfs actions will provide potent ammunition for Congressmen who want to force the oil companies out of nonpetroleum energy fields.

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