Lawmaker Questions Federal Loan Issued for Severstal Expansion Project

Oct. 28, 2011
Republican committee chair suggests Severstal could have financed the expansion itself.

A Congressional oversight committee is investigating whether the U.S. Department of Energy should have issued steel producer Severstal North America a conditional loan to expand production of lightweight steel grades for the auto industry.

Republican Rep. Darrell Issa of California signed an Oversight and Government Reform Committee letter to Energy Secretary Steven Chu questioning why the department offered a $730 million loan under a program intended for auto manufacturers and component suppliers.

Issa, who serves as committee chairman, asked Chu to explain how Severstal's Dearborn, Mich., plant meets the definition of a component supplier rather than a material producer.

Issa also questioned whether the division of Russian steel giant OAO Severstal could have financed the project itself. The company had sold plants in Ohio, West Virginia and Maryland to shift financial resources to its Dearborn facility, Issa contends.

He also noted that Severstal CEO Alexei Mordashov is listed by Forbes as one of the wealthiest people in the world with a net worth of $18.5 billion.

"Accordingly, it does not appear that Severstal would have any difficulty self-financing the Dearborn project or finding financing on the open market," Issa said.

In the past, U.S.-based steel producers have criticized the amount of government incentives provided to foreign steel producers. Issa asked whether the Energy Department analyzed the potential advantage the loan gives to Severstal over domestic steel makers.

The DOE awarded Severstal the conditional loan in July under its Advanced Technology Vehicle Manufacturing Program to support the company's modernization activities and new construction in Dearborn.

The department cited the project's potential to significantly increase the supply of advanced high-strength steels in North America as demand continues to grow for fuel-efficient vehicles.

U.S. steelmakers have begun producing more lighter-weight steel that has traditional strength characteristics to meet fuel-economy demands in the auto industry.

The new pickle line tandem cold mill is part of a $1.1 billion capital improvement initiative that Severstal has undertaken to expand its finishing capabilities.

Severstal defended the loan acquisition in a prepared statement.

"Severstal North America has met all the requirements of the ATVM loan program during the nearly two-year due diligence process," the company said. "The next-generation advanced high strength steel technology we are putting in place with this project is absolutely critical for advanced technology vehicle manufacturers to meet the future fuel efficiency goals targeted by the U.S. government."

A DOE representative was not immediately available for comment.

See also:

Steel Industry Faces Weighty Ultimatum

Severstal Starts New Cold-Rolling Line in Michigan

Advanced High-Strength Steel Through the Years

Nucor Expects to Replace Steel Grade Currently Sourced From Japan

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