Oil: Growth Amid the Sugar Cane

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Few underdeveloped areas have flourished as dramatically as Puerto Rico, where the tax incentives and government-built facilities under Operation Bootstrap have attracted 600 companies, created 65,000 jobs and raised per capita income from $121 to $900 a year. Bootstrap, however, has lured mostly light manufacturing. To keep its economy growing at the current 8% rate, the island needs heavy industry.

Since it is located midway between Venezuelan oil and U.S. markets, Puerto Rico has settled on oil and petrochemicals as a suitable basic industry. Two refineries have so far been put into operation, and this month construction begins on a major petrochemical complex. Financed 75% by Phillips Petroleum and 25% by Puerto Rico's Industrial Development Company, the new plant will ultimately generate a $600 million investment. Phillips' plants, along with satellite industries, will eventually employ 33,000.

First Call. The facility's basic plant, the ninth domestic petrochemical operation for fast-growing Phillips, will be erected on 400 acres of sugar-cane fields in Guayama district on Puerto Rico's south shore. Phillips will invest $45 million in the core plant, receive a twelve-year tax forgiveness, get on stream in 21 months. Then the company will reinvest its earnings for ten years (to a total of $55 million) in a string of satellite petrochemical plants on 2,600 surrounding acres. The satellites will be owned jointly by Phillips, other U.S. companies and Puerto Rican investors, will turn out urea for fertilizers, polyethylene, polystyrene and polyester for plastic or synthetic fiber products, synthetic rubber, carbon black and nylon.

Angering the Competition. The principal product of the Guayama refinery, however, will be 24,800 bbl. daily of motor fuel for U.S. East Coast markets, in which Phillips is expanding. Since all oil imports are under quota, a presidential proclamation was required to enable Phillips to ship oil products from Venezuela to Puerto Rico. Other oil companies will have to cut their import allotments to accommodate Phillips. Result: the two-year period in which the Interior Department studied the Phillips-Puerto Rican application produced a bitter oil-industry battle.

Competitors complained that Phillips got preferential treatment. They pointed to the fact that Puerto Rico, which was anxious to have Phillips, was represented by the Washington law firm of Supreme Court Justice Abe Fortas, a close friend of Lyndon Johnson's. Phillips' attorney, moreover, was former Interior Secretary Oscar L. Chapman. Despite the furor, Johnson finally approved the quota change last month after Puerto Rican officials pointed out that, among 12 oil companies, only Phillips had agreed to their joint venture and reinvestment requirements.