NEWS OF THE WEEK

advocate a rejuvenated CEQ separate from EPA and from Clinton's personal staff. "We believe CEQ plays a unique role in research and policy development and as the primary arbiter of conflicts over ΝΕΡΑ implementation that can't be duplicated by folding its functions into EPA or the White House," Sierra Club spokesman Blakeman Early explains.

During the Bush Administration, CEQ had a staff of 32 and a budget of $2.65 million. Today, it has three staff mem­bers and a budget of $625,000. Baucus and Chafee contend that CEQ needs a minimum staff "of 24 to carry out all its

statutory functions." These official re­sponsibilities include environmental ad­vice to the President as well as oversight of ΝΕΡΑ—the federal government's en­vironmental Magna Carta.

The Senators further argue for a strong, widely respected, experienced environ­mental leader to chair CEQ. In their letter, they call for someone with the clout to "provide management directives to every federal agency at the highest levels." Zoi says McGinty "knows the issues and has the confidence of the President and the Vice President, as well as others."

Lois Ember

Terra sets $400 million fertilizer acquisition Terra Industries of Sioux City, Iowa, has proposed a $400 million acquisition of Tulsa, Okla.-based Agricultural Minerals & Chemicals Inc. (AMCI), a move that will double its capacity for making nitro­gen-based fertilizers.

But several transactions must be com­pleted before the deal can go through, in­cluding a private placement of Terra stock and procurement of new debt financing.

Terra closed 1993 with sales of $1.2 billion, $229 million of which came from manufactured fertilizers. The remaining sales came from the company's distribu­tion business—selling fertilizer, crop protection products, seeds, and services through a network of more than 350 farm service centers and more than 770 affiliated dealers.

Besides doubling Terra's nitrogen ca­pacity, the addition of AMCFs produc­tion facilities "gives us the opportunity to reduce by more than 10% our outside purchases of nitrogen fertilizer for resale through our retail network," notes Terra president and chief executive officer Burton M. Joyce.

AMCI—which is privately held by majority shareholder Morgan Stanley Leveraged Equity Fund II and by Transammonia, a marketing firm—had 1993 sales of $366 million and earnings before extraordinary items of $8.5 mil­lion. It owns a 60% stake in Agricultur­al Minerals Co. (AMC), a limited part­nership based in Tulsa that manufac­tures nitrogen fertilizers, including ammonia, urea, and urea-ammonium nitrate. AMCI also operates Beaumont Methanol, which runs a 1.8 billion-lb-a-year methanol plant in Beaumont, Tex.

Currently, AMCI and Terra annually produce 2.8 billion lb and 2.6 billion lb, respectively, of anhydrous ammonia— which is then upgraded to nitrogen so­lutions, urea, and ammonium nitrate. Terra recently began producing 800,000 lb per day of methanol at its ammonia plant in Woodward, Okla.

As part of the transaction, Terra will assume AMCFs long-term debt hold­ings, which totaled $217 million as of June 30. Terra's long-term debt totaled $46 million on the same date.

At a glance Terra Industries Sales: $1.2 billion in 1993 Earnings: $22.8 million in 1993 Headquarters: Sioux City, Iowa Employees: 2,400 Products: nitrogen fertilizers, crop protection products, seeds, methanol, and related services

Agricultural Minerals & Chemicals Inc. Sales: $366 million in 1993 Earnings: $8.5 million, excluding extraordinary items, in 1993 Headquarters: Tulsa, Okla. Employees: 350 Products: nitrogen fertilizers and methanol

Terra expects to finance the acquisition through a $100 million private placement of its common shares with Mnorco, its largest shareholder. Minorco—a Luxem­bourg-based precious metals and indus­trial minerals concern—will acquire an additional 13.3 million shares at $7.50 per share, giving it a total of 50.5 million shares, or 60.5%, of Terra stock.

Terra is now negotiating debt financ­ing through Citibank, but the form that financing may take has not yet been de­termined. Terra also will use $50 million of its own and AMCFs cash to round out funding for the acquisition. And it is considering replacement of short-term bank lines of credit with "permanent" financing.

In addition, when the deal closes—ex­pected to be in October—AMCI share­holders will purchase from Terra for $4 million a call option for 130 million to 140 million gal of methanol per year for three years at 90 cents a gal.

AMC, the limited partnership, and Terra were listed as 97th and 98th, re­spectively, on C&EN's ranking of the Top 100 U.S. chemical producers for 1993. If chemical sales for AMCI and Terra are combined, the resulting com­pany would rank 73rd, on the basis of 1993 results.

George Peaff

Rhône-Poulenc reports difficult first half Despite a disappointing first half, the French chemicals and pharmaceuticals firm Rhône-Poulenc expects that sus­tained improvement in company oper­ations and anticipated gains from re­structuring will lead to an increase in net income for 1994.

Jean-René Fourtou, chairman and chief executive officer of the company, describes 1994 so far as //paradoxical.,,

The first half showed a greater than ex­pected pickup in economic and market activity—but it also was marked by low­er prices, reduced currency and capital gains, and internal restructuring costs that hurt earnings.

Rhône-Poulenc executives are optimis­tic despite the mixed results for the first half, which they reported last week in New York City at a briefing for financial analysts and shareholders. Sales were up 6% from first-half 1993 to $775 billion, but net earnings dropped 32% to $170

6 AUGUST 15, 1994 C&EN

Rhône-Poulenc posts first-half loss Sales Operating income8

$ Millions 1994

Organic/inorganic $1,359 intermediates

Specialty chemicals

Fibers/polymers Health care Agrochemicals Otherb

TOTAL

1,228

1,107 3,089 1,092 -127

$7,748

Change from 1993

4%

3

7 8 4

—

6%

1994

$ 31

80

63 333 167

-102

$573

Change from 1993

1,223%

24

861 -34

46 —

- 7% a Includes restructuring and nonrecurring charges, b Negative figures result from trading activities.

million. The decrease reflected significant restructuring charges incurred mostly by the company's 68%-owned pharmaceuti­cals unit, Rhône-Poulenc Rorer.

However, at the operating level— which does not reflect interest expense, gains on sales of assets, equity in affiliat­ed companies, and taxes—the compa­ny's financial performance doesn't look so bad. Including restructuring and oth­er nonrecurring charges, operating in­come for first-half 1994 dropped only 7% from 1993's first half to $573 million. Without such charges, operating income actually rose nearly 15% to $738 million.

Even including one-time charges, op­erating income rebounded dramatically in two sectors—organic and inorganic intermediates, and fibers and poly­mers—starting from very small base lev­els. And specialty chemicals and agro-

Chemical considerations are adding ur­gency to current U.S.-North Korea ne­gotiations that began Aug. 5 and are aimed at freezing North Korea's sus­pected nuclear weapons program.

A primary concern is negotiating a way to safely store or reprocess some 8,000 spent uranium fuel rods removed from North Korea's nuclear reactor in May and June. In the two pools where the rods are now stored, there is an im­mediate threat of corrosion reactions that could result in radioactive contamina­tion of the environment. However, the problem "can be solved if North Korea is willing to cooperate," says physicist David Albright, director of the Washing­ton, D.C.-based Institute for Science & International Security. At press time, an-

chemicals showed sizable double-digit increases in operating income.

In the company's health sector, operating income dropped 34%, largely as a result of the impact of re­structuring (income was down just 1.6% excluding restructuring). However, R&D spending in health care is being maintained at 15% of sales to support the advance of products in the research pipeline toward market readiness. Fourtou stresses that innovation, customer service, and new

product developments will be key for the company's future growth.

A healthy signal is that overall de­mand was up and sales volume rose 5% in the first half, notes Thomas Kirk, chief financial officer of the U.S. opera­tions of Rhône-Poulenc. Prices of com­pany products dropped 1.5% overall in the first half but are expected to in­crease in the future.

A major goal for Rhône-Poulenc is to reduce its debt, currently at $4.7 billion, which is equivalent to a debt-to-equity ratio of 46%. But Fourtou suggests that his firm is prepared to accept higher debt if given the opportunity to strengthen its position through acquisi­tions. And he still sees pharmaceuti­cals, especially in the U.S. and Japan, as a growth path for Rhône-Poulenc.

Ann Thayer

nouncement was expected shortly of any agreements reached in the first round of negotiations.

North Korea has offered to shut down its small 5-MW Calder Hall reactor—a graphite-moderated reactor that is ideal for producing weapons-grade plutoni­um—and to stop construction of two larger reactors of the same design, if Western nations finance construction of a new light-water reactor.

However, because of the danger that the magnesium metal alloy cladding on the rods will corrode, negotiators fear that North Korea will soon insist on re­processing the rods, which could yield enough weapons-grade plutonium to produce up to 10 nuclear weapons. The rods are currently stored in algae-laden

dirty water that is not being treated to prevent corrosion. Albright notes that there are two basic types of corrosion of the magnesium alloy cladding: general superficial corrosion and localized or pitting corrosion. General corrosion is accelerated by high water temperatures and a pH below 11.5. Localized or pit­ting corrosion, which begins in cracks or crevices in the cladding, is promoted by sulfate and chloride ions.

Once the cladding corrodes, the urani­um metal reacts with water to form ura­nium oxide and hydrogen. The hydro­gen then reacts with uranium to form uranium hydride, which is pyrophoric— it burns explosively in water. The result­ing combustion can lead to release of ra­dioactivity from the spent fuel and to en­vironmental contamination.

Western countries that store this type of spent fuel in water have taken sever­al measures to reduce corrosion. One precaution is to keep the water's pH at 11.5 to 12 by adding sodium hydroxide and continuously removing carbonate ion. Another safeguard is to use only demineralized water, to eliminate chlo­rides and sulfates that can accelerate corrosion. A third measure is to keep the water cool—at 15 °C. The water in the North Korean pools has a pH of 11 and a temperature of about 30 °C and is not demineralized.

Thus, one potentially safe solution for the rods is to immediately treat the wa­ter in the pools. This step could prolong fuel storage for many months, perhaps a year, Albright says. Another approach is to place the rods in water-containing casks with a space above the water to collect hydrogen and to put these casks in the pools—a proven technology used in the U.K. and France.

A third alternative is to place the rods in dry storage. However, this technology has not been proven for rods that have been stored first in pools; it has been used only for rods stored dry directly af­ter removal from reactors.

Even if Western nations finance a light-water reactor, North Korea will still have a source of plutonium for nu­clear weapons. Such a reactor "is not a substantial barrier to proliferation," stresses Steven Dolley, research direc­tor at the Nuclear Control Institute, a public interest research center focusing on nuclear proliferation. "Reactor-grade plutonium can readily be made into weapons," he points out.

Bette Hileman

Chemical issues spur U.S.-North Korea talks

AUGUST 15,1994 C&EN 7