Essar accepts state's final offer on repayment terms

After much hand-wringing, Essar Steel Minnesota accepted the Gov. Mark Dayton's "final ultimatum" to repay $66 million in state incentives the company received for a development project in the Iron Range.

Dayton had issued the terms on Dec. 23. The India-based taconite company responded to Dayton's offer in the last hours on Wednesday.

Under the agreement, Essar must begin payments in February 2016 and must pay at least $10 million to the state by March 31, 2016. The remaining $56 million of the loan will then be repaid in 16 quarterly installments beginning in 2017.

Dayton's offer also requires Essar Steel to notify the state about the status of all of its vendor payments every quarter.

"Essar Steel Minnesota CEO Madhu Vuppuluri's willingness to accept the state's final offer — and repay the loan because it did not live up to the terms of its original agreement — is an important step to move this project forward," said Dayton in a statement. "This project is tremendously important to the Iron Range, supporting more than 700 construction jobs and an expected 350 permanent jobs once the plant opens."

Essar owes the money because the company missed several development deadlines tied to the state grants and loans. The company accepted the grants in 2008 when it said it would build the state's only fully integrated iron-ore-to-steel plant.

The project in Nashwauk has stalled several times and was scaled back to a taconite processing plant after the bottom fell out of the steel industry. It then missed a renegotiated October 2015 construction deadline for the taconite-only facility.

In November, Dayton threatened to sue Essar if it did not immediately pay contractors. The company made partial payments to the contractors early last month and agreed to pay the rest by the end of the day Thursday. That satisfied the state and set negotiations back on track for the repayment agreement announced this week.

Mitchell Brunfelt, Essar's assistant general counsel, said in a statement that the company is "pleased that the parties have succeeded in bringing closure to this important matter."

"With this issue resolved, Essar will continue to focus its efforts on keeping payments flowing to our contractors and vendors and on moving forward again with this historic project," he said.

Brunfelt did not respond for requests to comment on payments to contractors and if they would be made.

Two weeks ago, contractors on Minnesota's Iron Range said that while Essar was largely caught up on money owed from this summer, the company still owed vendors at least $18 million for construction work done mostly in September, October and November.

But by late in the afternoon Thursday, at least three Minnesota contractors were still waiting for payment.

State officials said Essar might be arranging final financing agreements with its bank that would help the project and contractors long term. Essar "had indicated to us that they would try to clear it all up by the end of the year," said Mark Phillips, commissioner of the Iron Range Resources and Rehabilitation Board. But as of New Year's Eve, "it goes on and on."

It is unclear what action Dayton will take should Essar not make good on its promise.

Dee DePass • 612-673-7725