-16 overall pool of coverage, and number of submarine parcels which may be claimed by a particular company for purposes of development), there will be significant and varying effects on the possibility of other participants entering the industry. For example, a legislated ceiling amount of $2,000,000,000 in coverage for all companies might (hypothetically) be adequate for purposes of allowing coverage for four fully integrated minesites. Legislating the investment guaranty: limit at that point would allow for all of the presently 11/ existing consortia to file claims for their mining interest in the event of loss.. It might also enable them to obtain coverage for all of their contemplated investment for the first ten years of operation. This might lead to a situation in which, at the onset of the federal program, all tracts which may be reasonably expected to be developed in the next decade will have been parceled out. Similarly, the maximum of allowed investment protection could be claimed by the consortia in existence at the time of passage. likely consequences could foreclose entry into the industry by any other participants, and would give singular governmental protection, as well as future advantage, to those 11/ Such "Claim" is referenced in this discussion in the legal sense of an entity having an alleged legal right or cause of action arising from a particular incident or transaction. As such, it should be distinguished from a "claim" to a submarine parcel or minesite in the vernacular of the mining industry. -17 who are presently in the business. A secondary effect would be that the present competitive balance among the participants in the industry would tend to be solidified by protection which relates only to present participants and to the present relative allocation of participation by each of them. For example, if consortium "A" presently has access to $800,000,000 of debt and/or equity financing upon the passage of legislation, that consortium would be able to obtain 40% of the hypothetical maximum available investment protection. The other three consortia would then divide the remaining amount, and consortium "A" would have an advantage with respect to attracting investment which would be frozen for the duration of the availability of the maximum available investment guaranty coverage. 12/ It is not necessary to determine who would benefit most from the hypothetical fact situation to reach the conclusion that there are significant impacts of any particular decision regarding the extent of coverage or 13/ methods of guaranty If Congress wishes to 127 allocation. This problem is compounded by the need of the insurance or guaranty authority or agency to make commitments based upon representations at the commencement of activity by earlier participants. 13/ Precedent for such a statement on antitrust implications is found in the Deepwater Port Act of 1974, P.L. 93-627, sec. 7, 33 U.S.C. sec. 1506, in which the issuance of a license is conditioned upon a review of antitrust implications by the Attorney General and the F.T.C. In the present situation, Congress may wish to assess whether legislation should establish standards for such a review, in light of the -18 have the participants at the commencement of the industry be the dominant participants in the industry, it should 2. Industry Structure A peripheral question, which has not been addressed in hearings to date, is that of the necessity of having a fully integrated structure with respect to mining operations. Companies presently participating in the industry appear to have a fully integrated structure which enables them to participate from the moment of extracting the minerals to the final processing and marketing stages. This may be a necessary or desirable structure, but hearings to date have not inquired as to the possibility of having, or creating incentives for, separate corporations being formed to participate in the various stages of the industry. In this regard it is interesting to observe the structure 14/ of the offshore oil industry. There are a limited unique problems of ocean mining and the financing of such activities. See, e.g., "Secretary of Transportation's Decision on Application of Seadock, Inc.," Dec. 17, 1976, Appendices "C," "D." 14/ This comparison is offered by way of example rather than analogy. The precise application of the analogy is contingent on -19 number of major oil companies which have the capacity to bid on leases, but, on the other hand, those companies and smaller ones bid for leases on an ad hoc basis through various joint ventures. In addition, because of varying capital formation and technological capabilities at a given point in time, these companies will not in all cases have a completely integrated capacity for the development of a particular tract. Furthermore, a number of separate companies have evolved for purposes of constructing drilling rigs, shipment of oil from development site to refineries, construction of pipelines, and for the conduct of the entire exploratory phase on, a separate basis. coverage The Congress may choose to consider whether a wholly or partially segregated structure would be possible or desirable for this industry. The amount of guaranty required might be reduced if various phases of the development process were divided among different industries. Separate entities may be tenable for purposes of building the ships, transporting the mined minerals, or for more specialized tasks such as designing types of equipment. These entities would have different tax situations, investment drawing capacity, and different losses in the event of an LOS treaty along the lines of the RSNT. If the industry or consortia were divided into different corporations participating in the degree to which manganese nodules may themselves be directly marketable. |