Loan to Russian steel-maker canceled

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WASHINGTON -- The Russian steel company Severstal won't get a controversial $730 million federal loan after all.

The U.S. Department of Energy on Friday nixed the loan that would have helped Severstal produce high-strength automotive steel at its Michigan subsidiary in Dearborn.

"It is unconscionable for a federal agency to consider using taxpayer dollars to build up foreign companies, putting U.S. companies like U.S. Steel at a competitive disadvantage," said Sen. Pat Toomey, R-Pa.

Sen. Daniel Coats, R-Ind., agreed. "The Severstal loan commitment never passed the sniff test," he said.

Mr. Coats and Mr. Toomey have been working for months to block the loan and now are calling for a broader investigation into the Energy Department's handling of loans.

"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," the senators wrote in a November letter to Energy Department Inspector General Gregory H. Friedman.

Meanwhile, Sen. Carl Levin, a Michigan Democrat, decried Friday's decision to cancel the loan.

"I continue to believe approval of this loan would be good for the development of advanced technologies, which are so important to America's manufacturing future," Mr. Levin said in a written statement. "I will be insisting on a detailed explanation of what has changed in the department's analysis since the conditional approval of the loan in July."

Severstal spokeswoman Katya Pruett declined to say why the loan authorization was pulled. Instead she referred calls to the Energy Department. A spokesman there did not respond to a request for information, but Mr. Toomey's office speculated that lawmakers' opposition was at least part of the reason the department reversed course.

"It seems a very odd use of taxpayer dollars to give a massive loan to a foreign steel company to produce material that U.S. Steel and other [domestic] companies are in the process of making with private financing," said Toomey aide Mitch Vidovich. "A loan of this magnitude constitutes a huge subsidy."

U.S. Steel Vice President James D. Garraux could not be reached Tuesday, but in July he lambasted the Energy Department for interfering with the marketplace by giving one competitor a taxpayer-funded advantage.

The Advanced Technology Vehicles Manufacturing Loan Program is meant to "accelerate the domestic commercial deployment of ... new or significantly improved energy technologies," according to department guidelines.

In a July press release announcing the loan approval, Severstal North America said the loan would be used to design, manufacture and construct a finishing line for production of steel that meets fuel-efficiency and crash standards. The company estimated the investment would save 1,400 jobs and create 2,760 new ones.

"Severstal is deeply disappointed by the decision of the U.S. Department of Energy" to withdraw the loan offer, Ms. Pruett said. "The company will be reviewing alternative financing options to continue its modernization and expansion programs. Severstal remains fully committed to its automotive customers and will continue to develop the advanced high-strength steel technology that its customers require."

Tracie Mauriello: or 703-996-9292.


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