SEC. 18. The lease and the sublease shall each contain reasonable and customary provisions with respect to force majeure and default. Respectfully submitted. Hon. JOHN W. WEEKS, Secretary of War, Washington, D. C. UNION CARBIDE CO., UNION CARBIDE CO., New York, January 21, 1924. SIR: We hand you herewith our proposal dated January 21, 1924, relative to nitrate plant No. 2 at Muscle Shoals and to a power supply with respect thereto. Our business is a large and diversified one, and there are more or less regular demands for increasing amounts of hydroelectric power. Our products are produced on a tonnage basis and sold at moderate prices, and hence a large plant operation or unit is required for economical manufacturing. We are always, however, confronted with difficulty upon the question of distribution, and this has been emphasized since the higher railway freights have been effective. No one of our products could be manufactured at Muscle Shoals or elsewhere in the South upon a scale large enough to permit of economical manufacture and distribution, but owing to the number of our products and the diversity of our markets we are able to work our a plan of producing there and distributing several of our existing products, including the manufacture in a substantial way of a new product not now being commercially manufactured in this country. On the other hand, at points where our existing plants are located, we either own power developments or have under contracts, some of which run for many years, substantial blocks of hydroelectric power. Some of these contracts are more or less elastic, and in the aggregate they contain provisions which would permit, if we so chose, our relinquishing, either temporarily or permanently, between 40,000 and 50,000 hydroelectric horsepower. Furthermore, we have had in contemplation the construction of a large hydroelectric power plant at a site owned by an associated company which could undoubtedly be developed in an amount much larger than that contemplated by our proposal and at a price which would give us power at a somewhat lower figure. However, if our proposal with respect to nitrate plant No. 1 at Muscle Shoals is accepted, we would be able to postpone this development, which involves a large expenditure, and as a corollary would be able to hold this valuable water power in reserve for future requirements. When considering our proposal we hope you will take into consideration the tremendous importance and value of the many years of experience which our large organization has had in electric-furnace operation. This would aid greatly in working out the fertilizer problem in such a plant as nitrate plant No. 2. We think when you examine our proposal, it will be obvious to you that we are disposed to enter into the agreement in question either direct with the Government or with any lessee or purchaser of the power project at Muscle Shoals. Respectfully submitted. HON. JOHN W. WEEKS, Secretary of War, Washington, D. C. E. F. PRICE, President. UNION CARBIDE Co., New York, January 21, 1924. SIR: In compliance with your suggestion that we state in writing in a general way what we would be willing to undertake with respect to the Government's plant, power, and other properties at and in connection with its Muscle Shoals project, we beg to advise you that we would enter into an arrangement for a part of such properties along the following lines: LEASE To lease from the United States or any purchaser from or lessee of the United States: Nitrate plant No. 2 properties; the Waco Quarry properties; and a yearly average of approximately 50,000 electric horsepower, all upon the general terms and conditions outlined in the skeleton form of lease hereto attached, the amplified and detailed provisions with respect to such lease to be reasonable and to be incorporated in a formal lease of properties and power to be mutually agreed upon. FERTILIZER AGREEMENT If such a lease of properties and power is made, as outlined in the skeleton form of lease, we will enter into an agreement with the Government, for the term of such lease, to undertake the commercial manufacture of fertilizer on the following general terms and conditions: 46 66 To employ, in addition to the leased power above mentioned, up to a yearly average of approximately 50,000 electric horsepower (equivalent to a produe tion of upwards of 100,000 tons of fertilizing material having a nitrogen content of 20 per cent in nitrate plant No. 2 in the manufacture of Urea and/or Phosphazote" through the medium of cyanamide, under the Lidholm and/or Phosphazote" patents and processes, as the Government may elect; to sell the same to such agencies or purchasers as the Government may from time to time direct; and to do all reasonable research and experimental work to further develop, improve, and cheapen such process and/or processes of nitrogen fixation; all at cost plus 5 per cent (such 5 per cent not in any event to exceed $2 per ton of 2,000 pounds of fertilizing material on the basis of a nitrogen content of 20 per cent. In such manufacture, research, and experimental work to utilize our knowledge, experience, and technical ability and use every reasonable effort to successfully carry into effect the purpose of said agree ment. Licenses under said patents and processes to be without profit to us but subject to the payment to the owners of such patents and processes, of the cost of acquiring said licenses and the license fees payable thereunder as fixed in the options hereinafter mentioned; the Government to assign and transfer to us the right and license to use for such purpose any and all patents, processes, methods, and designs with and under which nitrate plant No. 2 was designed and/or equipped to operate in the manufacture of cyanamide. To install such additional machinery and equipment as successful commercial operation may make necessary for the conversion of such cyanamide into urea and/or "Phosphazote" at the request of the Government and, as the Govern ment may elect, either at its cost up to but not exceeding $1,250,000, any cost in excess thereof to be borne by us, or wholly at our cost, in which case such cost with interest at the rate of 5 per cent per annum on unrepaid balances thereof to be reimbursed to us from the rentals to accrue under said lease of properties and power; such additional machinery and equipment in either case to be the property of the Government. To purchase from the United States such amounts of power, as may from time to time be required for such manufacture, of the grade stated in part 2 of said skeleton form of lease and at the same prices and terms or at such other more favorable prices and terms as the Government may from time to time elect. Should such manufacture and sale at any time in the future prove competi tively impracticable or commercially uneconomic, then as the Government may elect and upon its request (a) to manufacture as its agent cyanamide with the facilities and on the general terms and conditions aforesaid and turn the same over to the Government and/or its nominees, at cost plus 5 per cent, (b) to operate as its agent other facilities, to be furnished by the Government in the vicinity, of approximately like capacity, for the production of fertilizer, at cost plus 5 per cent, or (c) to forthwith cancel said agreement for the manu facture of fertilizer, and discontinue use of the power to be furnished therefor. Amplified and detailed provisions with respect to such agreement to be rea sonable and to be incorporated in a formal agreement to be mutually agreed upon. We have acquired an option for a license on a royalty basis for the United States under the Lidholm process for the manufacture of urea from cyanamide. This process is covered by now issued United States patents as follows: We have also acquired an option for a license on a royalty basis for the nited States under pending applications for patents for the manufacture of "phosphazote," a fertilizer containing urea compounds and phosphates. While it is probably true that none of the existing methods of artificial nitrogen fixation will fix nitrogen at as low a cost as Chile nitrate under ideal conditions might theoretically be produced, or as ammonium sulphate (a by-product of coke ovens) is produced, several practical processes are available for use at Muscle Shoals, which, even allowing a reasonable price for electric power and reasonable license fees under patented processes, will produce fixed nitrogen at considerably less than the present or prospective market prices of Chile nitrate or ammonium sulphate based on an equivalent nitrogen content, and will thus materially aid in meeting the needs of the agriculture of the Nation of a greater amount and lower cost of fertilizer. These are processes for the direct synthetic production of ammonia and processes for the fixation of nitrogen through the medium of cyanamide. Further research and experimentation, both by established governmental agencies and by private initiative. should be encouraged, but until better processes are discovered and developed (which will at best presumably be a matter of years) existing processes should be utilized. The best of the direct synthetic ammonia processes should be put into operation at nitrate plant No. 1. Nitrate plant No. 2 could be utilized in the production of cyanamide, but this product has not proven altogether satisfactory as a direct fertilizer and is not readily marketable. It may, however, be converted into other products highly desirable from a fertilizer standpoint. One of these products is urea, in the production of which from cyanamide under the Lidholm process there is required merely carbonic-acid gas, a waste product from limekilns, which is utilized in the production of cyanamide, and small quantities of sulphuric acid. By using under the "phosphazote" process an excess of sulphuric acid and neutralizing it with phosphate rock, which is cheap and readily available, a fertilizer containing nitrogen in the form of urea compounds and phosphates can be produced. Urea. unlike Chile nitrate and ammonium sulphate, is manufactured in concentrated form containing 40 per cent and upward of fixed nitrogen, but is usually mixed for practical use in agriculture with limestone or other appropriate filler materials, bringing its nitrogen content down to 20 per cent, corresponding to the nitrogen content in commercial ammonium sulphate, or to 15.65 per cent, corresponding to the nitrogen content in commercial Chile nitrate, and its nitrogen content can be so brought to any other percentage desired by the user. Urea is an old, well-known chemical substance, but until recently not produced in appreciable commercial quantities. It is often referred to by soil scientists as the ideal nitrogenous fertilizer in that it contains neither acid nor alkali, and its nitrogen content, like that of animal manure, is in the admittedly preferable organic form. Under reactions due to the usual soil bacteria it is speedily converted in successive steps to compounds of nitrogen most advantageously assimilated by plant life. Commercial urea containing more than 40 per cent fixed nitrogen has been produced from cyanamide for several years under the Lidholm patents at an experimental plant in Sweden, and Cairo, the inventor of the cyanamide process and the world's largest manufacturer of cyanamide, has thought well enough of the Lidholm process to undertake, as licensee under the Lidholm patents, the commercial manufacture of urea in a pilot plant in Germany just ready to be put into 97903-24-PT 4- -2 operation. "Phosphazote" also is now being manufactured and sold commercially in Switzerland, although on a relatively small scale. We have been engaged in the design, construction, and operation of electric furnaces for a quarter of a century and have done a large amount of research and experimental work in connection with the Lidholm process. Some of the urea thus produced by us has been tested over a period of 17 months by the New Jersey State Agricultural Experiment Station under the supervision of the director, Dr. J. G. Lipman. These tests demonstrated that commercial urea thus made can be planted in direct contact with seed, and as a plant food in normal soils is equal, if not superior, to ammonium sulphate with most crops and equal to Chile nitrate with many crops. In complete fertilizers, both of medium and high analyses, such urea afforded mixtures of satisfactory texture and storage qualities. In order to further reduce to the minimum the cost of fertilizer to agriculture it may be advisable for the Government to furnish power for the fixation of nitrogen without charge and to acquire such patent rights and licenses as are necessary to such production in order that no royalties or license fees need be included in the production costs. Should this policy be adopted it may be desirable for the Government to hold control of the situation by retaining the ownership of nitrate plants Nos. 1 and 2 and reserving 100,000 electric horsepower for use in these two plants, divided equally between the cyanamide and synthetic ammonia processes, at least until such time as more highly efficient and economical processes may be discovered and developed, and in case of sales or lease of its hydroelectric and steam power plants to make the same with these reservations, reducing the selling prices or leasing charges accordingly. In this way the cost of producing nitrogenous fertilizer can be materially reduced and, if sold on the basis of cost plus 5 per cent, would effect a very large saving to agriculture. Respectfully submitted. UNION CARBIDE CO.. SKELETON FORM OF LEASE OF PROPERTIES AND POWER-MUSCLE SHOALS I Essential provisions with respect to property. Properties to be leased: (a) All properties constituting nitrate plant No. 2 (as officially known and designated), including lands, facilities, appurtenances and accessories, complete, except not to exceed 640 acres of unimproved, unoccupied land to be mutually agreed upon, its 60,000 kilowatt steam power plant, its substation at the terminus of the transmission line from Gorgas and (except as hereinafter otherwise provided) its industrial village; and (b) All properties constituting the Waco quarry (as officially known and designate), including lands, facilities, appurtenances and accessories, complete with such rights of way and transmission lines, if any, between the Waco quarry and nitrate plant No. 2 as the United States now owns. Alterations and additions to be permitted: New plant, machinery, etc., which may be added (other than additional machinery and equipment installed under the fertilizer agreement) to be the property of lessee, which has the right to remove the same at termination of lease, provided present capacity of nitrate plant No. 2, for the manufacture of materials necessary for the production of explosives is not thereby reduced. Lessee to maintain nitrate plant No. 2 in a condition of readiness at least equal to its present condition for immediate operation for the manufacture of materials necessary for the production of explosives. The United States to have the right on five days' written notice to lessee. to take over and operate the leased properties and to utilize all lessee's patented processes applicable thereto and its personnel and operating organization, on just terms to be fixed by the Secretary of War, for the manufacture of materials necessary for the production of explosives or other war materials if and whenever the United States becomes involved in war. Rental, $150,000 per year. Royalties of 5 cents per ton on all stone removed from the Waco quarry premises. Term of lease, 50 years, to begin when the hydroelectric power generating equipment at Dam No. 2 is put into commercial operation. The United States to rent to employees of lessee on reasonable terms sufficient housing facilities in the industrial village or, at the election of the Government, to include such housing facilities in the properties covered by this lease, the same to be maintained by lessee. II Essential provisions with respect to power. Amounts and grades of power to be furnished: A yearly average of approximately 50,000 electric horsepower (hereinafter called "E. H. P.") of which not less than 25,000 E. H. P. shall be continuous 12 months' power, and the remainder shall be seasonal power deliverable continuously for not less than eight successive months in each yearly period. The respective amounts of the various grades of such seasonal power (i. e., from the highest grade of 11 months or more but less than 12 months continuous power to the lowest grade of eight months or more but less than nine months continuous power) to be an approximately uniform proportion of the total respective amounts of such respective grades of seasonal power produced at Dam No. 2 power house; except that lessor may deliver higher grade power (including 12 months continuous power) in any amounts in substitution for the same amounts of any lower grade of seasonal power; lessee, however, not to be obligated to take in excess of 60,000 E. H. P. at any time. Price of power-in accordance with the following sliding scale based on grades of power delivered. Lengths of time of delivery in each year: Continuous 12 months---- Price per E. H. P. year $15.00 12.00 11.00 10.00 9.00 11 months or more but less than 12 months_.. 10 months or more but less than 11 months9 months or more but less than 10 months. 8 months or more but less than 9 months______ Delivery at a point in or near the furnace building of nitrate plant No. 2. Term of lease, 50 years. The United Staes to have the right on five days' written notice to lessee to take over the leased power, on just terms to be fixed by the Secretary of War, for the manufacture of materials necessary for the production of explosives, if and whenever the United States becomes involved in war. Mr. MORRISON. The first statement I wish to make-and I wish to say it without any qualification whatever-is that the Union Carbide Co. is not connected, directly or indirectly, with any other bidder in relation to this property. It is an American concern operating on an American invention, and has for many years done what I believe to be a fine thing for our country and for civilization generally in making electric-furnace products, without which, especially during the war, we would have been very considerably handicapped." In our first offer on the House side, which we now present to you, we agreed that we would take over plant No. 2 and that we would manufacture fertilizer there, and that we would purchase 50,000 horsepower of electric energy, pay rent upon the plant, and leave to the Government all the balance of the power and in possession of all its property. A further statement was made there which I desire to repeat here that would be of interest to all the bidders, and that is this: We will cooperate with any bidder or the United States Government: whoever gets this property, or whoever desires to operate it, or should the Government desire to operate this, we will take, as a purchaser, 50,000 horsepower under the terms of this agreement and we will manufacture in plant No. 2 urea as a fertilizer in the quantities proposed. That was our first proposition, which we have not withdrawn. We will buy the horsepower at the going rate. I am not speaking of |