The federal government will eventually foot much of the bill for constructing a new rocket-fuel ingredient plant near Cedar City, according to information in a recent U.S. General Accounting Office study.
In fact, the GAO expects PEPCON to recover all of the costs to build its new plant within seven years from the government. That will come through special surcharges on government purchases of ammonium perchlorate from the new plant, the report said.That chemical is an oxidizing agent used in virtually every solid-fuel rocket in the nation's inventory. Military and civilian agencies need more than 60 million pounds of it a year. Each space shuttle launch, for example, uses about 1.7 million pounds.
PEPCON's old ammonium perchlorate plant near Henderson, Nev., was destroyed May 4 by a fiery explosion that killed two people. That seriously reduced the amount of ammonium perchlorate available because the destroyed plant was one of only two facilities in the nation that made the chemical.
The company is now rebuilding its plant 14 miles west of Cedar City at a cost it has estimated at $50 million plus. The construction is being rushed with a target date of May 1 to begin production.
The GAO report said if production begins on that schedule, rocket programs in America and Europe could proceed on schedule with no adverse effects. But if the Cedar City plant for some reason did not begin production this year, a shortfall of up to 14 million pounds of the chemical could exist and could slow some programs.
The GAO report said some delay had occurred in rebuilding the PEP-CON facility because of the company's difficulty in obtaining funds from interested banks "because the banks want government guarantees for their loans. . . The government has not and will not guarantee PEPCON loans."
But as an incentive to help PEP-CON - and to help a rival company named Kerr-McGee - expand their ammonium perchlorate plants, the government is allowing the companies to recover construction costs through special surcharges.
"The government will allow PEP-CON and Kerr-McGee to recover their respective capital investment by allowing accelerated amortization charges to be added to the base price of the product," the GAO report said.
"Even though exact details of the financial arrangements are considered business sensitive in both cases, it is expected that capital investments could be fully amortized in seven years.
"Any amount not recovered by the end of the seventh year would be fully payable to the government," the GAO report said.
But the report, dated last December but released publicly only recently, said that until such surcharge plans are finally approved and financing is arranged, "it is not clear what the replacement cost will be or what exactly the government's liability will be."
The GAO report was prepared for Rep. Jack Brooks, D-Texas, the chairman of the House Committee on Government Operations.