Brian Solomon

Brian Solomon, Forbes Staff

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11/09/2011 @ 11:44AM |1,135 views

Russian Billionaire Awarded Controversial Energy Dept. Loan

Just two months after the bankruptcy filing for publicly-financed solar-panel manufacturer Solyndra, controversy swirls around the latest questionable loan coming from the U.S. Department of Energy. This time, the $730 million loan was given to Russian billionaire Alexei Mordashov‘s steel manufacturer Severstal North America.

Mordashov is the 29th richest man in the world with $18.5 billion. Son of Soviet mill workers, he built Severstal into a massive conglomerate, acquiring acquiring automakers, coal companies, and transportation companies. Mordashov also has ties to some of Russian President Vladimir Putin’s advisers in the Kremlin, The New York Times reported in 2006.

Severstal received the loan to to retool and expand operations in Dearborn, Michigan, where it had purchased Rouge Steel Company in 2004. The Energy Department announced in July that the funding will support modernizing existing facilities as well as the “design, manufacture, and construction of new facilities to produce the next generation of automotive advanced high strength steel.” Severstal estimated that the project will create more than 2,500 construction jobs and over 260 permanent manufacturing jobs.

“The Severstal project will help make American automakers more competitive as demand for lighter, more fuel efficient vehicles increases,” said Energy Secretary Steven Chu at the time.  “By manufacturing more advanced high strength steel here at home, we rely less on imports and create thousands of new jobs that get people back to work.”

Many Michigan lawmakers supported the deal, but now a wave of politicians and commentators are attacking it. Representative Darrell Issa (R-Ca.) wrote a public letter to Secretary Chu in which he questioned the need for taxpayer funds. Issa alleged that there was enough production of this type of steel to meet demand and that Severstal had already begun these expansion plans without federal financing.

“Given the immense wealth and power of Severstal’s CEO and the fact that the corporation had already made significant investments in the project, it is surprising that DOE would choose Severstal for a loan meant to spark new businesses and technologies within the automotive industry,” Issa wrote.

Two of Issa’s Republican colleagues joined the attack this week. Senators Dan Coats (R-Ind.) and Pat Toomey (R-Pa.) questioned whether an overcapacity of high-strength steel could cost jobs at other mills. Both senators are from states with steel mills of their own.

Energy Department spokesperson Damien LaVera released a statement in response, reiterating Secretary Chu’s original comments.

“Over the nearly two-year due diligence process we have undergone with the DOE, we have met every ATVM loan program requirement, and we are looking forward to making an important contribution to the production of ATVs,” Severstal North American company spokesperson Katya Pruett said in a statement. Pruett also rebutted Rep. Issa’s claims, saying that the high strength steel “is in high demand, is a critical component, and it is in short supply.”

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  • normaward normaward 2 hours ago

    Here’s what the United States Department of Energy is spending 40 percent of its $29 billion annual budget on:

    http://viableopposition.blogspot.com/2011/04/united-states-department-of-energy.html

    Rather than helping consumers improve energy efficiency and save money in this time of high energy costs, billions are being wasted baby-sitting America’s nuclear arsenal.

  • 41justice 41justice 1 hour ago

    I am begining to believe that Chu got a Noble prize in stupidity. Finance is entirely outside his field. How many bad loans is the administrative going to make to foreigners. The only redeeming factor is that it is within the U.S. I don’t trust any of those millionaires and billionaires that managed to appropriate public property and resources when the Soviet Union broke up. Aren’t there enough Russian mobsters in the U.S. already?

  • goatrope goatrope 24 minutes ago

    How much longer will the US treasury be looted in an attempt to buy votes from union members?

    Who gave Congress the power to borrow unlimited amounts of money and leave my grandchildren with the tab?

    The federal government should not be picking winners and losers. The current President has surrounded himself with Chicago-style thugs, and we are all paying a huge price for it.