Sunday: Link to Iran might crush steel deal with India

A deal with Indian company Essar Global to build a $1.6 billion taconite mill on the Iron Range may be on the rocks, just three days after it was announced, because of the company's developing ties with Iran.

According to news reports, Essar is in negotiations to build an oil refinery in southern Iran -- an act that could violate U.S. law regarding terrorist nations.

It was just Wednesday when Gov. Tim Pawlenty announced the deal as one of the crowning moments of his trade mission to India. One of the largest private investment projects in state history, the plant in Nashwauk was expected to yield more than 700 jobs and provide a boost to the struggling Iron Range economy.

But on Saturday, moments after touching down in Minneapolis from Mumbai, Pawlenty said that the deal may be in jeopardy and that he would personally oppose it if the company is engaged in activities prohibited by the U.S. government.

Calling Iran a "terrorist state," Pawlenty said that "until these matters are resolved to my full satisfaction and that of the United States government, I will strongly oppose any state assistance for the Essar Steel plant project."

Itasca County is seeking $60 million in bonds to build infrastructure needed to open the taconite-to-steel plant.

The Reuters news agency reported Wednesday that Essar is expected to start construction on a 300,000 barrel-per-day refinery plant in southern Iran early next year.

Essar is also trying to build an Iranian steel plant and acquire oil exploration rights for the country's Azadegan field, the Middle East's largest oil reserves.

Thursday, Pawlenty received a call from the U.S. Commerce Department, warning him that the deal might be a violation. Also on Thursday, federal officials had announced new, stricter sanctions against firms doing business with Iran.

Pawlenty said Saturday that he had spoken privately with Essar Americas President, Madhu Vuppuluri on Friday about the reports and was told that Essar was exploring such a deal but that nothing had been finalized.

However, Pawlenty told reporters at the airport on Saturday, Vuppuluri "did not say that [Essar] would not do the deal."

Brian McClung, Pawlenty's spokesman, said the governor told Vuppuluri that if Essar was involved in prohibited business practices with Iran, he would "strongly" oppose any state assistance to the project.

McClung said Pawlenty had further conversations with officials from the U.S. Commerce and State departments until after midnight, before boarding a plane for the return flight to Minnesota.

Federal officials will be looking into the issue this week, McClung said.

Not happy in Nashwauk

Nashwauk Mayor Bill Hendricks got a heads-up phone call from Pawlenty's staff before the governor made the public announcement of the potential problem.

"It's not a good feeling," Hendricks said. "We're not happy up here. It's going to complicate things, which might be putting it mildly. But the governor has to do what he has to do."

Hendricks stressed that the Iranian deal has not been confirmed, although there have been reports of Essar negotiations with Iran since early 2007.

"Things are still a little murky," Hendricks said, "so until the United States government checks it out, we should all stand by and wait for the facts. If it turns out to be true, I can't blame him [Pawlenty] for his decision."

As much as Nashwauk needs the mill to revive its moribund economy, "we don't want to be doing business with terrorist nations," Hendricks said. "A company doing that, it's not a good way to come into the state of Minnesota."

Sen. Tom Bakk, DFL-Cook, who heads the Senate Taxes Committee, agreed, but said he questions whether other companies in Minnesota could be held to the same standard.

"With as many Fortune 500 companies as we have here, it's hard to believe no one has ties with Iran that now somehow might be called into question," Bakk said. "We need to proceed carefully here."

Now it's up to the feds

The federal government, which earlier this week announced tighter sanctions on Iran, must now determine if a potential Essar arrangement with Iran could shut down the company's involvement in the Iron Range project. India's oil minister, Murli Deora, said in March that Essar Group also is in talks to buy liquefied natural gas from Iran.

Pawlenty said he will talk to Minnesota Steel Industries to find out what, if anything, the group knows about Essar Global's plans in Iran.

No other known contenders

House Majority Leader Tony Sertich, DFL-Chisolm, said the plan for Essar to build the Nashwauk plant has been in the works for at least eight months and that as far as he knew, "no one else is waiting in the wings."

However, both he and Bakk said that the project is ready to go and that if Essar is not allowed to continue ownership, another buyer will be found. "Nothing's stopping this plant," Bakk said.

Minnesota Steel President John Elmore has said previously that he was looking forward to developing a viable taconite-to-steel mill plant on the Iron Range. Elmore said that Minnesota Steel's owners, the longtime Longyear and Bennett mining families, were expected to stay involved in the project's management even after the sale that closed Monday.

The site in question is the defunct Butler Taconite mine, which has been shuttered for roughly two decades.

The taconite-to-steel mill, which Minnesota Steel Industries has long proposed, is considered a technological advancement for the country. If completed, it would be the first combined (same site) taconite mine and steel mill operation in North America.

Staff writer Bob von Sternberg contributed to this report.

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