Will John Brown turbines pump gas from Siberia, or rust under US ban?
London — The directors of John Brown & Co. Ltd., a billion-dollar British engineering company, sit in their corporate board room in Westminster, not far from Big Ben, pondering a momentous question.
They have a contract worth $181 million to supply 21 big gas turbines to Moscow. The turbines will help pump natural gas through the $10 billion trans-Siberian pipeline from Urengoi to Western Europe.
It is the biggest single contract John Brown's engineering division has ever had worldwide. But it presents a prodigious dilemma.
If the directors go ahead and supply the first six of the turbines, which are ready to be shipped from Scotland, they will please the Russians. But shipment would bang straight into President Reagan's highly controversial ban on United States equipment being used for the pipeline.
John Brown buys the heart of the turbines - the rotors inside them - from General Electric in the US. Technically, John Brown is a ''manufacturing associate'' of GE, because the first six rotors were delivered to the British company before the presidential ban.
Under the contract, first turbine deliveries to the Soviets must be made by ''mid-summer.'' No deliveries have yet been made, but a decision cannot be delayed for long.
Defying the presidential ban could well lead to John Brown being blacklisted in the US. That would be an enormous blow, because the company generates 25 percent of its global business from the US. John Brown could forfeit any future purchases of rotors from General Electric; the core of its worldwide turbine business could be destroyed.
But yielding to US pressure would upset the Russians, who would promptly activate penalty clauses in the turbine contract.
The company will not say how big the monetary penalties might be, but agrees they are worryingly high. Besides, it goes against the grain to be told to break a contract.
So the company is in deep trouble if it delivers the turbines, and in deep trouble if it does not. The mood of the chairman, Sir John Mayhew-Saunders, and his board is grim - and sad.
Their attitude is mirrored in France, West Germany, and Italy. All three, and Britain as well, reject the Reagan ban on US licensees or partners abroad supplying equipment for the pipeline.
While the governments of the four countries have little love for Kremlin-style communism, they do not believe that denying Moscow pipeline technology will punish it sufficiently for its attitude toward Poland (Reagan's reason for the ban).
These countries do not think the amount of gas scheduled to flow from Siberia will pose a threat to Western Europe if Moscow suddenly turns off the tap for political reasons. True, they say, pipeline gas will eventually make up 30 percent of total gas requirements, but overall Western European energy dependence on the Soviets will be only 5 percent.
And they are upset at the US government telling them what to do at a time when Reagan is selling grain to Moscow as fast as he can.
The President, they agree, is trying to break commercial contracts already in existence. He cannot be allowed to do so. France and Italy have vowed to order their companies to honor Soviet contracts. Chancellor Helmut Schmidt has made plain his own hostility to the US action.
In the background, of course, is European recession and unemployment, and the need for big contracts such as the Soviet one. Creusot-Loire of France and Mannesmann of West Germany share a $780 million contract for 22 compressor stations. AEG-Kanis of West Germany has 1,200 jobs at stake.
John Brown, with a smaller share of the deal, has 1,700 people in its turbine plant at Clydeside in Scotland.
The British department of trade has activated the first of three provisions in a law that, if fully invoked, would free John Brown from facing litigation in the United Kingdom by the US government or industry. The law, however, cannot compel John Brown, a totally private company, to sell the turbines if it decides not to go ahead.
John Brown itself is left with its dilemma - and shakes its collective head that its problems come from the very country in which it has sunk so much money, the United States.
Some (STR)175 million worth of turnover ($304 million) of John Brown's worldwide total turnover of (STR)680 million ($1.183 billion) comes from North America, mainly the US.
John Brown has bought Crawford & Russell of Stamford, Conn., a big consulting engineering corporation for chemical plants and offshore oil. It owns Leesona Corporation of Warwick, R.I., which it says is the largest maker of plastics and textile machinery in the US.
It also owns the Olafson Company of Lansing, Mich., a maker of machine tools, as well as running its own US operation.
The measured words of chairman Sir John Mayhew-Saunders in the company's financial statement for the year ended March 1982, conceal considerable emotion.
After remarking that the pipeline contract is the biggest problem facing the entire company at the moment, he goes on:
''We have a duty to make every effort possible to live up fully to our commitments under this contract, which was entered into in good faith and before the US government instituted its embargo on selected trading transactions with the Soviet Union.''
(The use of the word ''selected'' is a reference to continuing US sales of grain to Moscow.)
''It is a source of great sadness to your directors,'' Sir John continued to John Brown shareholders, ''that this, the most difficult problem facing the company today, could originate in the United States, where we have invested so significantly in recent years and by doing so have shown rightly such confidence in the great contribution our American companies make to the affairs of this company, not only in America but also here in the UK.''
If John Brown decides to honor its pipeline contract and risk retaliation in the US, it knows it can expect to buy no more turbine rotors from General Electric.
Where might it find them?
Rotors are made under license in France by a nationalized industry, Alsthom-Atlantique, and John Brown could try to strike a deal there. Company officials say the current situation is so sensitive that they cannot comment, but it is known that to make the rotors itself, John Brown would have to retool, with no certainty it could sell more big 25-kilowatt turbines elsewhere later on.
John Brown maintained its pre-tax profit levels in the year to March: a shade under (STR)14.2 million ($27.4 million), compared with a shade over the same figure the previous year.
It is now worried about the current year, which could bring penalties to the company whatever its corporate board decides to do about the trans-Siberian pipeline.