Saturday, June 6, 2009

PetroChina about to buy McDermott International, a Panama “based” corporate tax-avoider and the US Navy’s sole source for nuclear fuel

Mind you, this article was published April 20, 2009... Over a month ago, and not a word from the MSM, or anyone else, about the outcome of the deal.

McDermott International also manages the National Strategic Petroleum Reserve

If the rumors are true, PetroChina, a Chinese “Government Controlled Entity” (pdf), is on the verge of buying McDermott International, a company that, as I understand things, is the U.S. Navy’s sole provider of nuclear fuel and nuclear fuel assemblies. McDermott, a Panama “based” corporate tax-avoider, also manages the U.S. Strategic Petroleum Reserve. (along with a lot of other critical national defense infrastructure. Take a look.)

This rumored buy-out comes at a very interesting time. First, McDermott subsidiary Babcock and Wilcox bought out NFS (a competing nuclear fuel provider for the Navy) in January of this year.

(NFS was a troubled company that the Springboard covered previously–here, here and here.)

Second, the 2007 National Defense Authorization act, thanks to Representative Gene Taylor (D-MS), mandates that all future big Navy ships employ nuclear propulsion. But, now that we’re locked in and want high-energy/big power generation capabilities, where will the fuel come from? And at what price?

Third, what better way to transform the Chinese Navy’s expected “carrier-building” announcement into a great-power referendum?

Rather than a simple, “hey, we’re building our first carrier, whee!” the announcement becomes, “Not only are we building carriers, we now own the means to build…nuclear supercarriers.”

Fourth, given that the purchase may be announced as early as Monday morning, this buy-out of a critical piece of the U.S. Defense Industrial Base risks putting an undeniably sharp edge on China’s upcoming naval celebration.

In the event the rumor is real, and the sale is announced tomorrow (or later this week), as the USS Fitzgerald (DDG-62) arrives for China’s Naval Review and CNO Roughead begins his effort to positively engage China, this takeover offers a humbling example of how financial power can trump even the largest of navies. If true, this is an old-fashioned big-power nose-tweaking, pure and simple.

To be frank, if this buy-out happens during China Naval Review, we, the United States, will have lost face throughout China and, well, pretty much the rest of Asia.

To China’s credit, this financial maneuver is a fascinating geopolitical endeavor that speaks far louder than any conciliatory language the world is likely to hear during China’s Naval Review.

Finally, China’s economic jockeying comes at a time when the Obama Administration is still racing to reset national security policy. There’s a heck of a lot going on, and it all gives SECDEF Gates’ recent comments regarding America’s ability to confront modern-day economic warfare a particular poignancy.

To Gates, a recent wargame was, according to (subscription):
“…an eye-opening experience and it also reflected some shortcomings in the ability and willingness of different parts of the government to share information openly…”
Amen. Look, has anyone–besides the little ‘ole Springboard–who, I might add, has been hollering about this for a long time–gamed this? Where’s the policy discussion? Why no public or market preparation?

What, pray tell, is the implication of China’s aggressive business play, and, if this takeover does happen, what are our options?

Article Source, US Naval Institute

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