Mr. LAUSI. Yes, I do. But, as I understand the contract you are referring to, the price of the molasses was set by the aribitrators. The CHAIRMAN. Yes. I do not know just how the aribitrator was selected, but he was selected from Puerto Rico, was he not?

Mr. LAUSI. Under the provisions of the contract that we had with Mr. Paiewonsky and Mr. Skeoch, the other distiller in St. Croix, each party would select an arbitrator, that is, the Virgin Islands Corporation and the two distillers, would each pick an aribitrator and the two aribitrators would pick the third arbitrator, and the third arbitrator picked the Chief Justice of Puerto Rico, Judge Snyder.

The CHAIRMAN. In addition to the aribitration which took place one year in which they reduced the price from 17 cents, and I am speaking from memory as to what went on, they further reduced this price to 7 cents. They had a contract that said they would pay 2 cents less than the landed price at St. Croix.

If the landed price at St. Croix was 15 cents and they reduced it to 10, they altered the contract, did they not?

Mr. LAUSI. I do not believe the 2-cent reduction was part of the contract, Mr. Chairman. The contract with the distillers, in substance, provided that the parties would agree upon a price for the molasses. If they were unable to agree on a price, then the matter would go to arbitration.

The CHAIRMAN. So there never was a contract price?

Mr. LAUSI. Not this contract we are referring to now that was executed in 1954.

The CHAIRMAN. It states:

These parties annually agree, prior to the 1957 crop, at a price which was 2 cents below the delivered price of molasses at St. Croix based on the world market.

that was done by mutual agreement prior to this?

Mr. LAUSI. Yes.

The CHAIRMAN. How do you account for the loss of $600,000 in a single year on sugar operations alone?

Mr. LAUSI. It was a very disastrous year, Mr. Chairman. The crop was not a good crop. It was far below our quota. It was primarily due to the lack of rains.

The CHAIRMAN. Do they have to run the mill when there is nothing to mill?

Mr. LAUSI. Yes, I would say you have to run a mill, because we have several hundred small producers that depend on that mill for processing their cane. This year I think you will see a different

The CHAIRMAN. What I am trying to say to you is if we had a grain elevator and there was a short wheat crop, you would run the grain elevator until you got the wheat crop in but you would not have to have cars standing in line for days to unload.

Does not the same thing happen down there? Can you not close down the mill when you get through or do they have to keep it open at all times and all hours?

Mr. LAUSI. The mill is a grinding operation. Right now it runs from about the middle of January to about the middle of April. That is when the mill is running, grinding sugarcane. Other than that, it is shut down for grinding purposes. It may be in partial operation

for repairs and maintenance, but it is shut down for grinding purposes.

The CHAIRMAN. Did anybody take a look at that $600,000 loss to see what occasioned it?

Mr. LAUSI. The occasion, Mr. Chairman, was the lack of sufficient sugarcane. It was a bad crop all around.

The CHAIRMAN. We had some discussions as to the quality of the molasses. The General Accounting Office thought the molasses was good. The purchasing firm thought it was bad.

Do you know anything about that particular crop?

Mr. LAUSI. No, sir. All I know is that our position is that it was good molasses. That was the position stated by our president. I believe he had evidence to substantiate his position.

The CHAIRMAN. It came out to the same point, did it not? They went ahead and paid, anyhow, at the tail end of it. It was a dispute for a short time.

Mr. LAUSI. It was a dispute for several months but it was settled. The CHAIRMAN. Does the Government get the same amount of money as if it was admitted by both sides to be good?

I am not saying whether it was or was not. But did Paiewonsky pay the full price?

Mr. LAUSI. He paid the full price of the claim that we had against him.

The CHAIRMAN. So there was no financial loss to the United States? Mr. LAUSI. No.

The CHAIRMAN. Senator Miller?

Senator MILLER. The nominee testified the other day, as I recall, that there was dirt and mud mixed in with the cane.

Do you know anything about that?

Mr. LAUSI. No, sir. I am not competent to testify on that, Senator. Senator MILLER. If there had been, it would not have been good molasses such as you testify, you thought it was.

Mr. LAUSI. Frankly, I do not know what constitutes good molasses or bad molasses. I really do not.

Senator DwORSHAK. You are acquainted with the operation of VICORP over there in handling the sugar crop. How many people on the islands are dependent upon the sugar operation for a livelihood?

Mr. LAUSI. I think the permanent employment force, and this I would like to check to be sure, is around 350 or 400 people. But there are many numbers of small farmers who produce sugarcane on a 1or 2-acre plot of land, 3 acres, 10 acres, who are dependent upon the sugar operation for a livelihood.

Senator DwORSHAK. How many people are on the payroll of the government?

Mr. LAUSI. The local Virgin Islands Government?
Senator DwORSHAK. Yes.

Mr. LAUSI. My best guess is about 1,500.

Senator DwORSHAK. So, then, by comparison, we have been hearing so much about the importance of the sugar industry to the economy of the islands, it is not really as important as we think. It is not a life or death matter. It may provide employment for people who would be unemployed otherwise, but with the big return of revenue

from the United States in the form of a grant through the Organic Act, it would appear that the sugar operation is quite insignificant as compared with the overall income of the islands.

Mr. LAUSI. No, sir, I would not say that. I would say it is very significant. I think when the sugar operation is disbanded, if it is, you will have several hundred small farmers that are going to have to look for another means of livelihood for themselves and their families.

Senator DwORSHAK. Can they not raise another crop besides sugarcane?

Mr. LAUSI. I understand they have tried that in the past but for some reason or another, it does not work. Everybody seems to come up with an idea once in a while that it ought to be an agricultural paradise, to raise a lot of lettuce and tomatoes, and so forth. But it does not work that way.

I am not enough of an agriculturalist to know what the answer is. Senator DwORSHAK. In Louisiana, and so forth, where they produce sugarcane, they are successful in producing other crops. I wondered why so much emphasis had to be placed on the sugar industry in the Virgin Islands, why there is not greater diversification which obviously would be good for the people who live there?

Mr. LAUSI. There has been programs in the past but they did not succeed.

The CHAIRMAN. Thank you.

Is Dr. Bartlett here?

Mr. LAUSI. He is the president of the Virgin Islands Corporation. The CHAIRMAN. Come forward, would you, Doctor?

STATEMENT OF KENNETH BARTLETT, PRESIDENT, VIRGIN ISLANDS CORPORATION, ST. THOMAS, V.I.

The CHAIRMAN. Dr. Bartlett, you are the president of the Virgin Islands Corporation?

Mr. BARTLETT. Yes, sir.

The CHAIRMAN. How long have you been in that capacity?

Mr. BARTLETT. Since December 1953.

The CHAIRMAN. How much has the Virgin Islands Corporation lost during that time?

Mr. BARTLETT. The total figure is somewhat in excess of $1,200,000, I believe.

The CHAIRMAN. In all those years?

Mr. BARTLETT. In those 8-odd years. It may be somewhat more

than that.

The CHAIRMAN. It lost $600,000 in 1 year, did it not?

Mr. BARTLETT. That is correct, but we also had one year when we did have a profit, and we had smaller losses on other occasions. Mr. Lausi has the figures here.

The CHAIRMAN. This, I recognize, Mr. Bartlett, has no direct relationship to the nomination of Mr. Paiewonsky. I suggest to others that we ought not ask questions that have no direct relationship to the nomination, but if they will pardon me, I am going to ask a question or two because I am very anxious to find out if there is any hope of getting this on a paying basis.

Does the Virgin Islands Corporation have anything to do with the powerplants?

Mr. BARTLETT. Yes, sir.

The CHAIRMAN. How long have you operated that?

Mr. BARTLETT. Since 1952.

The CHAIRMAN. Did it operate at a profit prior to the time you took it over?

Mr. BARTLETT. It has operated at a profit up until 1959.
The CHAIRMAN. What started going downhill in 1959?

Mr. BARTLETT. I think probably the most important factor was the terrific expansion in power usage which we had. Our yearly increase was in the area of 22 to 25 percent per year. In other words, we were doubling our power usage about every 4 to 5 years. We fell behind in getting appropriations and these funds to bring in new equipment. The old equipment was being utilized to the utmost in order to try to meet these powerloads.

In 1959, we had funds to purchase a 2,500-kilowatt engine. This was delivered to us during the summer of 1959. It went on the line on December-the middle of December-1959.

I was only able to accept this engine as of about 3 weeks ago. The CHAIRMAN. What was the matter with it?

Mr. BARTLETT. Completely defective. First, we burned out all the rotor and starter due to defective installation. That was finally replaced by the manufacturer.

The engine, itself, then developed a connecting rod problem. The company was forced to bring in a complete, new connecting rod assembly. That was finally put into the engine this fall.

We finally got the machine back in operation, or in first-class operation, about the beginning of January of this year, and we accepted it about 3 weeks ago, after negotiating for almost a year and attempting to get a first-class piece of machinery operating.

The CHAIRMAN. Who was the manufacturer of it?

Mr. BARTLETT. Enterprise Manufacturing Co. of California.
As a result of this-

The CHAIRMAN. Did you get any bids from other organizations? Mr. BARTLETT. Yes. I do not remember that particular bid, but we usually have in the area of five or six bids on any engine of that type. We just bid one recently for St. Croix. I think we had six bids, in which it was awarded to Worthington Corp.

The CHAIRMAN. Worthington Pump?

Mr. BARTLETT. Yes.

The CHAIRMAN. This was 2,500 kilowatts?

Mr. BARTLETT. Yes.

The CHAIRMAN. How does that compare with your loads?

Mr. BARTLETT. Our base load in St. Thomas today is running at 5,100 kilowatts.

The CHAIRMAN. So you picked up about half the load. Do you use it very much?

Mr. BARTLETT. We practically had little or no usage out of it during the entire year until the beginning of 1961.

Since January 1961, it has been providing first-class service and is our base engine.

The CHAIRMAN. Now you are installing a saline water plant, are you not?

Mr. BARTLETT. That is correct, sir; presently that is under construction.

The CHAIRMAN. How much is that going to cost?

Mr. BARTLETT. That will cost about $1,900,000.
The CHAIRMAN. And will supply how much water?
Mr. BARTLETT. 275,000 gallons per day.

The CHAIRMAN. At what estimated cost?

Mr. BARTLETT. At $1.75 per 1,000 gallons. That includes cost for amortization and a small return on the investment.

The CHAIRMAN. Would you have been better off to have acquired another motor or two for your powerplants?

Mr. BARTLETT. In connection with the salt water distillation, we are installing the first steam turbine which will produce 3,125 kilowatts of power net, or 2,500 to the system. About 600 will be used in the operation of the saline waterplant.

The CHAIRMAN. Where will you get the fuel for that?

Mr. BARTLETT. That will be imported. It usually comes from Aruba, Curacao, or Venezuela. We take it in tanker loads and drop it directly at the Virgin Islands, at these ports.

The CHAIRMAN. Are you acquainted with Mr. Paiewonsky?

Mr. BARTLETT. Yes, sir; I have many dealings with Mr. Paiewonsky.

The CHAIRMAN. Is it your opinion he can operate the Virgin Islands Corporation along with you as a director of it?

Mr. BARTLETT. Yes, sir.

The CHAIRMAN. Have you any resolutions about trying to make this into a paying venture?

Mr. BARTLETT. Yes. I think it will be most difficult to put the sugar operation on a paying basis. The Virgin Islands, because of the nature of the climate, our lack of water, places it in probably the most marginal sugarcane producing area perhaps in the world.

The CHAIRMAN. Do they have any similar climate in Puerto Rico? Mr. BARTLETT. The only area that would compare with it would perhaps be on the southwest coast of Puerto Rico, where comparatively a small amount of cane is produced:

The CHAIRMAN. But in that Caribbean area there is sugarcane produced at a profit, is there not?

Mr. BARTLETT. At a profit?

The CHAIRMAN. Yes.

Mr. BARTLETT. Yes.

The CHAIRMAN. If there is not, I do not see why they are fighting for quotas.

Mr. BARTLETT. Of course, Puerto Rico has many areas under irrigation. We have no water for irrigation whatsoever. They are able to grow it in the dry areas because of the fact that they have substantial amounts of irrigation water.

The other point is that over the years the record will show that we have actually made a profit in the growing of sugarcane. Our profit in the field operations, I would think over the past 8 years, has shown a profit at least during 5 of those years in the actual growing of sugarThe heavy losses have usually come in connection with the

cane.