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$730M fed loan to Russian-owned steel firm withdrawn after GOP challenge

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By Michelle Malkin  •  January 6, 2012 06:05 PM

Headline first, then I’ll give you all the sordid background.

The Detroit News reports this afternoon that the Obama administration is canceling subsidies to Russian steel firm Severstal for production of advanced high strength steel for autos in Dearborn, Michigan. Pricetag: $730 million… (h/t William Amos)

Russian steel maker’s North American subsidiary will no longer be receiving a $730-million loan to produce advanced high strength steel for autos in Dearborn.

A U.S. Department of Energy official confirmed today that after reviewing Severstal North America’s project — which received a conditional loal commitment under the agency’s Advanced Technology Vehicle Manufacturing program months ago — it was decided that the agency would not award the funding after all.

It was not immediately apparent whether the loss of funding would put jobs at risk. At the time the conditonal loan commitment was announced last summer, Severstal North America had already filled more than half of the plant jobs expected to be created by the loan.

When the conditonal loan commitment was announced in July, the company said it expected its modernization efforts in Dearborn to create an estimated 2,500 construction jobs, 260 permanent manufacturing jobs and allow it to retain 1,400 manufacturing jobs. Energy Secretary Steven Chu said in a release then that the project would “help make American automakers more competitive as demand for lighter, more fuel efficient vehicles increases” and reduce imports.

But as the loan review went forward, Energy Department officials found reasons not to go ahead with the loan.

Par for the course: The White House/Energy Department will not reveal what those reasons were.

But it’s GOP watchdogs who raised questions about the deal last fall. The Hill:

The planned loan had come under attack from several GOP lawmakers, including House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.), and some of Severstal’s steel industry competitors. Sen. Dan Coats (R-Ind.) applauded the decision not to move forward.

“This announcement is a victory for taxpayers and steel manufacturers in Indiana,” he said in a statement. “The Severstal loan commitment never passed the sniff test, as multiple producers are already manufacturing this high strength steel without taxpayer financing.”

The rejection of the Severstal financing also comes amid wider GOP criticism of DOE loan and loan guarantee programs following the collapse of solar panel manufacturer Solyndra last year.

But LaVera said the decision not to move ahead with the Severstal loan was made on the merits of the specific case. “As we have consistently said, the additional due diligence the Department conducts after a conditional commitment is signed is an important part of the process and is vital to protecting the taxpayers,” he said.

Coats’ office, which assailed the White House policy of government picking winners and losers (all LOSERS from the taxpayers’ standpoint), applauds the decision:

“This announcement is a victory for taxpayers and steel manufacturers in Indiana,” said Coats. “The Severstal loan commitment never passed the sniff test, as multiple producers are already manufacturing this high strength steel without taxpayer financing. This is another example of why the government should not be in the business of picking winners and losers.”

In July, the DOE issued a $730 million loan to Severstal under the department’s Advanced Technology Vehicle Manufacturing Program to produce high strength, lightweight steel in Michigan. Six companies already manufacture the Advanced High Strength Steel that Severstal received a loan to produce– including Arcelor Mittal, Steel Dynamics and U.S. Steel in Indiana.

High strength steel has been manufactured in the United States since the 1980s and the current capacity for this steel actually surpasses current demand. Coats first raised concerns about the Severstal loan in a letter to Energy Secretary Steven Chu on August 2, 2011 and asked whether the DOE conducted appropriate market analysis before issuing its loan commitment.

In November 2011, Coats and Senator Pat Toomey (R-Pa.) sent a letter to Inspector General (IG) Gregory H. Friedman requesting a formal review of the Department of Energy’s (DOE) issuance of a conditional loan commitment to Severstal.

In their November letter, the senators wrote:

“Given the tremendous fiscal crisis that we find ourselves in today, it does not seem appropriate for the program to subsidize technologies that have already achieved commercial success through private sector means. American taxpayers deserve to know how the Department of Energy is making decisions regarding these types of loan investments.”

House GOP Oversight and Government Reform Committee chair underscores that but for conservative lawmakers’ objections, this rotten deal would have gone through:


“While I am pleased that the Department of Energy has reconsidered it decision to fund a $730 million loan to Severstal, it’s deeply disconcerting to know that this loan would have gone forward had Congress not raised concerns,” said Chairman Issa. “Following the waste of taxpayer dollars in the collapse of Solyndra, the Department of Energy needs to work on being better guardians of taxpayer dollars.”

***

Author Craig Bouchard, Vice Chairman and co-founder of Esmark Inc., has a related book, America for Sale, that provides investigative details on how Obama manufacturing czar/Big Labor lawyer Ron Bloom attempted to force his company to sell to Severstal. He wrote me a few years ago:

For background. I’ve spent nearly two years negotiating with and then against Ron in his role with the USW. Its been a brother/nemesis relationship. I can’t think of anyone who spent as much time with him in recent years as me. His support and that of the USW helped my company shock the steel world in 2006/2007when we won our hostile battle against the giant Brazilian firm CSN to acquire a nasdaq company (Wheeling Pittsburgh Steel). In the process we went from a very small company to becoming the 4th largest American steel producer. In 2008 the tables turned and after our board voted to sell our company to an Indian firm (Essar), the steel workers under Ron’s leadership opposed our board action.They preferred a Russian firm (Severstal), after a quiet deal made with Frankin Templeton’s Mutal shares (led by Peter Langerman). The USW/Russians/Franklin went hostile trying to force us to sell to Severstal. This was a very visible public fight. The USW finally litigated against us. I went up against Ron in a secret arbitration in Washington DC and won. All of this makes very interesting reading in the book.

By the way, did you know the USW committed 500 people to Obama’s campaign? Ron [o]rchestrated that. Ron’s top two agenda items are card check and legalizing 12 million illegal aliens. The USW believes both to be the key to increasing union participation/dues. (people forget…it[‘]s a business)

I used the knowledge I gained to write quite a bit about foreigners buying critical US assets. For instance, in steel, foreign companies now own 51% of US Steel production, with the Russians owning half of that. These Russian firms all received Russian “Tarp” money, so, in a sense, Putin controls a big chunk of the firms that build our national defense.

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