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Mr. De Lugo. Not according to Mr. Rosenblat, sir. · May I say that I think that perhaps if Mr. Paiewonsky had exerted just a little more effort on his part he would have beaten even me, no question about it.

Senator DWORSHAK. With a little more effort on your part you might be the nominee for the governorship.

The CHAIRMAN. May I ask you one question on the legislature? You have been a member of the legislature since what year? Mr. DE Lugo. In 1954, sir. The CHAIRMAN. Did you vote for the molasses subsidy? Mr. De Lugo. I did, sir. I believe that entire legislature voted. for that.

The CHAIRMAN. Does the molasses subsidy provide that you never will charge a distillery more than 7 cents ?

Mr. DE Lugo. No. The subsidy, it was quite a while ago

The CHAIRMAN. Let me read you the language: The molasses subsidy referred to in section 4202 of this title shall be determined as follows:

(a) In the case of molasses purchased from sources within the Virgin Islands, the subsidy shall be the difference between 7 cents United States per gallon and the purchase price per gallon f.o.b. distiller's pipeline.

So for everything produced inside the islands the subsidy is everything above 7 cents; isn't it?

Mr. DE LUGO. Sir, I am not clear on this.

The CHAIRMAN. We both read and speak the English language: In the case of molasses purchased from sources within the Virgin Islands? Mr. De Lugo. Yes, sir; that would be VICORP. The CHAIRMAN (reading): The subsidy shall be the differential between 7 cents United States per gallon and the purchase price per gallon f.o.b. distiller's pipeline.

Mr. DE Lugo. Yes, sir. The CHAIRMAN (reading) : :.. In the case of molasses purchased from sources outside the Virgin Islands the subsidy shall be the difference between 7 cents United States per gallonand so forth.

That is everything from outside above 7 cents ?
Mr. De Lugo. Yes, sir.

The CHAIRMAN. How did they decide that 7 cents was the right price for molasses?

Mr. De Lugo. The people in the industry, the administration, members of the legislature discussed this and representation was made that that was the industry could survive. - The CHAIRMAN. Now we are hearing of these industries being sold to Schenley's for a rather attractive figure. Will the subsidy go to Schenley's now? Mr. De Lugo. I do not know about that, sir..

The news about the sale to Schenley's is news to me. I know nothing about the value of the various distillers or distilleries in the islands. I am not familiar with that subject, sir.

The CHAIRMAN. Mr. French tells me that the rum-producing industries subsidy law was repealed effective January 1, 1959. That is strange because I pick up the audit of the Virgin Island Corporation

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for fiscal year 1960 and that the price agreement was 7 cents a gallon. So whether the thing was repealed or not the price stayed at 7 cents, did it not? Mr. De Lugo. I believe the price is negotiated.

The CHAIRMAN. I am trying to see whether they negotiate with the legislature or Virgin Islands Corporation. Mr. De Lugo. The legislature does not enter into this picture.

The CHAIRMAN. Did they negotiate with the legislature to get 7 cents. If they negotiate with the Government they get 7 cents. They get 7 cents coming or going, is that right? Mr. De Lugo. That I am aware of today.

The CHAIRMAN. Did you have before you any reason for the 7 cents price? I am trying to find out why we can't get this corporation to operate at a profit and while I have not had much business experience I do know you have to have your selling price above your cost if you are going to stay in business, unless you are the Virgin Islands Corporation.

Mr. De Lugo. May I say this, sir, in answer to your question, if I may answer it to the best of my ability. The law that you read that was passed by the legislature was during the Suez crisis. It was for just this period where it was represented to us that the distilleries could not afford to buy molasses at the world price. When this crisis was over we repealed the law. Then after that, I am not cognizant of how the distilleries make their agreement with VICORP. I am not aware of, I do not know how they do that or reach agreement. But evidently they believe that 7 cents is the price that they can afford to pay to continue operation. But I knew nothing about it.

The CHAIRMAN. Now the Suez Canal crisis was over in 1960, was it not? *** Mr. De Lugo. Yes, sir; it was.

The CHAIRMAN. The price was 7 cents then. So the crisis held down molasses but nowhere else.

Mr. De Lugo. May I say the legislature was not responsible for that in 1960. We had already repealed the law.

The CHAIRMAN. This negotiation was a way of getting around the repeal.

Mr. De Lugo. That was VICORP. That is a report on VICORP, is it not?

The CHAIRMAN. I know it.

I say you repealed the act and the 7-cent price went out with such repeal. Then they went over and got it by direct negotiation.

Mr. De Lugo. That is right. But I am sure you would not hold the Virgin Islands legislature responsible for that.

The CHAIRMAN. Not at all. One time you folks got the price to 7 cents, the next time VICORP dropped the price to 7 cents. Regardless of who does it the price ends up in the same category, does it not?

Mr. De Lugo. Yes, sir; it does. Mr. PAIEWONSKY. Senator, would you like me to answer that question ?

The CHAIRMAN. Yes, sir; I will be happy to have you. Mr. PAIEWONSKY. I would like to answer the question of the 7 cents, what determined it. Immediately after the Suez Canal crisis the price of molasses in the world market dropped to below 7 cents, maybe around 5 cents. The Virgin Islands Corporation was not in a position to supply the needs of the distilleries and an outside contract was made with a company known as Pacific Molasses Co. to deliver a million gallons of molasses to St. Croix at the delivered price of 9 cents. That was the basis on which this price of 7 cents was agreed upon.

The CHAIRMAN. What is the world price of molasses now? Mr. PAIEWONSKY. It fluctuated with the situation in Cuba. It depends on the world conditions. Usually if there is a war or a crises the price will fluctuate anywhere from 5 cents, which is the normal price, to approximately maybe 18 cents, 16 cents, or thereabouts.

The CHAIRMAN. I bought all the Cuban molasses crop one time for the Department of Agriculture and the Commodity Credit Corporation. I thought the price was more than 5 cents.

Mr. PATEWONSKY. The latest price of Cuban molasses that was set before this situation developed with Castro was 10 cents. The world market price was 10 cents. Then Cuba rolled that price back to most of the purchases to 7 cents. Cuba usually sets it.

The CHAIRMAN. Then it would be greatly to the advantage of the United States to junk the Corporation and quit the growing of cane and buy it from Cuba at this rolled back price and not lose this $600,000-some-odd a year? Would you not want to recommend that as Governor if you are confirmed ?

Mr. PAIEWONSKY. No, sir; I don't think I would recommend that. On the question I know you have been dealing with and dwelling on quite a bit, the question of molasses, the distilleries during this period of crisis when the legislature passed the subsidy bill, most of the distilleries did not show a profit, sir, during that period.

There was no excessive profit. I know our distillery showed a loss not on account of the molasses price but on account of a great number of other problems that we had at our distillery.

The CHAIRMAN. Are there additional questions?
Senator ALLOTT. I have one or two.

Is it not a fact that in 1957 you were purchasing molasses from VICORP at 10 cents a gallon?

Mr. PAIEWONSKY. Yes, sir. Senator ALLOTT. The world market price then was 17 cents? Mr. PAIEWONSKY. Yes, sir. I can explain that. That price was determined by arbitration. I think I explained that yesterday. We had two contracts with VICORP. There was a reason for the rewriting of the second contract. But the first contract provided that in the event if we could not determine and agree on a price, that there was a great disparity between what we felt we could pay for the molasses and what the Government felt was the fair price of molasses taking all factors into consideration, that we would then go to arbitration. This was provided for in that contract.

Senator ALLOTT. At that time you were selling your rum at 75 cents to $1 for a proof gallon and the price of Publicker, who was the largest alcohol distillery in the United States, was at 38 cents.

Mr. PAIEWONSKY. I don't think there could be any comparison between the production in the Virgin Islands

Senator ALLOTT. I am just talking about the price.

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Mr. PAIEWONSKY, I don't know what their price is per gallon on rum but I know the price per gallon of alcohol which might be the same basis as proof gallon. But that is naked at the distillery. That does not include cooperage.

Senator ALLOTT. Does your price include cooperage ?
Mr. PAIEWONSKY. Yes, sir.

Senator ALLOTT. I have one or two questions of Mr. De Lugo before he leaves the stand.

You have been a member of the legislature for the last 4 years? Mr. DE Lugo. Yes, sir.

Senator ALLOTT. Yesterday, I asked about the Howard Lundgren Associates, the Leslie Hunt Associates, Sidney Kessler Associates, and the authorization by the Virgin Islands Legislature to issue Government bonds and sell them for $4 million, $3 million, and $2 million, respectively, for the building of hotels. Did you vote for those ?

Mr. De Lugo. I did, sir.

Senator ALLOTT. Do you have any connection with any one of these three groups ?

Mr. DE Lugo. Absolutely none.
Senator ALLOTT. Do you know who does own or control them?

Mr. De Lugo. I know some of the people. I know Mr. Sidney Kessler who I believe owns the Virgin Islands Hotel and sublets it to the Hilton chain.

Senator ALLOTT. Is Mr. Kessler a native of the islands? Mr. De Lugo. No; he has resided there for a long time. He built the first truly modern hotel there. He is a resident.

Senator ALLOTT. And has been for some time. Mr. DE LUGO. And has made a very substantial contribution to the islands' economic growth.

Senator ALLOTT. What about Mr. Hunt and his associates ? Mr. De Lugo. Mr. Hunt I am not too familiar with. I know him. I have spoken to him. Mr. Hunt is evidently trying to, I imagine, promote hotels.

Senator ALLOTT. As the leader of the majority for all practical purposes, the Unity Party and Democrat Party are about the same; aren't they?

Mr. De Lugo. I would say we are trying to reach the same goals. At certain times we use different methods.

Senator ALLOTT. Mr. Paiewonsky has been very influential in the Unity Party, has he not, as well as the Democrat Party? Mr. De Lugo. No; I would not say so. Senator ALLOTT. You would not say so? Mr. DE LUGO. No.

Senator ALLOTT. There must have been something that impelled this action to get commitments of $9 million of Government funds out of the Virgin Islands Legislature. Who made these approaches to the legislature to get the unusual authorization ?

Mr. De Lugo. Sir, they were made by the various companies or individuals involved. We could do this by an act of Congress. It was concurred in by the Interior Department. These bonds are not an indebtedness of the Virgin Islands government. They are solely secured by the venture, itself. If you are going to purchase these bonds and you don't think that the hotel is going to be a success you are out

of luck and you will lose your money but the Virgin Island government does not secure these bonds.

Senator ALLOTT. Am I mistaken then—I want to get this straightit is the fact that the legislature has authorized the issuance of these amounts in government bonds?

Mr. DE LUGO. Yes, sir. Senator ALLOTT. Not guaranteed. Mr. DE LUGO. Not guaranteed. Senator ALLOTT. Government bonds? Mr. DE Lugo. Yes, sir. I would like to be very explicit on that point. They are not an indebtedness of the government of the Virgin Islands.

Senator ALLOTT. How can they be government bonds if they are not an indebtedness?

Mr. De Lugo. They are handled by the government and that is about it. If somebody buys these things and they are going to get paid by the Virgin Islands government they are not good businessmen.

The CHAIRMAN. We have great evidence of that in the various States that are trying to develop industries.

Are there additional questions? I have at least one or two more witnesses. If not, thank you very much.

Mr. Brauer.
Mr. Brauer, will you state your business?


DISTILLERIES, INTERNATIONAL Mr. BRAUER. I am president of Sunfruit Tropical Products, doing business as St. Thomas Distilleries, International.

Mr. Chairman, and members of the committee, in looking around this room I was looking for the so-called committee that was opposed to Mr. Paiewonsky. I don't see anybody but myself. I came here at my own expense. So I believe that would refute anything that Mr. Hodge said.

The CHAIRMAN. By the way, do you have extra copies of your statement?

Mr. BRAUER. I do not, I am sorry. I only have this one. Mr. DICKSTEIN. Mr. Chairman, my name is Sidney Dickstein, 1411 K Street NW., Washington. I appear as an attorney for Mr. Brauer. We do have some revised copies. The statement which Mr. Brauer is making has been revised since these copies were prepared but I can provide the committee with several of them.

The CHAIRMAN. Go ahead. Mr. BRAUER. I am appearing today in opposition to the proposed appointment of Ralph Paiewonsky as Governor of the Virgin Islands,

"I do so with substantial trepidation for it is a well-known fact in the islands that when people oppose Mr. Paiewonsky they lose their ability to make a living there. Since the announcement of Mr. Paiewonsky's appointment, I have spoken to many people on the islands.

These include small retailers, independent real estate brokers, small construction contractors, and retired military and naval personnel

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