Summary: Testimony was given concerning a recent report on the economics of the Great Plains Coal Gasification Project and the impact of the Department of Energy's (DOE) recently revised energy price estimates on the project's economic viability. A partnership of five companies was awarded a loan guarantee to construct the Nation's first commercial-scale plant producing synthetic gas from coal. The Federal Financing Bank lent the partnership $2.02 billion and the partnership financed the remaining costs. The project's first DOE-required cash-flow report, submitted in March 1983, was less optimistic than a similar analysis prepared when the loan agreement was signed. It showed a much lower net income, more years of losses, and substantially reduced payback of funds because the price estimates used were significantly lower than those used earlier. In addition, tax implications were not considered. When taxes are considered, GAO found that the economic viability of the project could be more positive than estimated. GAO found that, although there would be some years during which the partners would not realize a return on their investment, over the first 20 years of plant operation the partners could realize an average annual 20-percent return on their investment. After its report was issued, GAO analyzed the impact of September petroleum prices and requested U.S. Synthetic Fuels Corporation price guarantees on the project's economics. GAO found that even small changes in the price of oil can have a considerable impact on the total project. GAO was unable to analyze the effects on profitability which an application for price guarantees filed by the project could have. However, GAO found that, if the project were to negotiate a price guarantee comparable to the assumed gas prices used for the period 1986-1996, the project's profitability over the first 20 years of operation would be greater than that projected in March 1983.
