Gov. Mark Dayton hopes to announce Thursday whether he will order Essar Steel Minnesota to pay back $66 million in state incentives toward a $1.9 billion taconite facility being built in Nashwauk.
He threatened earlier this week to reclaim the money if Essar didn’t pay its vendors in full by the end of business on Wednesday.
“I have asked the Iron Range Resources and Rehabilitation Board and [Commissioner] Mark Phillips and his staff to talk with vendors directly,” Dayton said during a news conference Wednesday. Essar not paying its bills “is just really inexcusable and unacceptable” and has hurt several Minnesota businesses.
Essar could not be reached for comment.
Contractors, trade union representatives, site workers and state officers told the Star Tribune that Essar, as recently as eight weeks ago, owed $20 million to Minnesota construction, iron erection and contracting firms for work performed in and before September at the site. Essar has since paid contractors nearly $15 million of that debt, state officials said. However, the company also owes vendors for work performed in October and November.
The state agreed to contribute the money in 2008, when Essar promised what would be the state’s only integrated iron ore-to-steel mill.
The company has since stalled the project, then continued it as a taconite-only operation. Because it missed its fall deadline for completion, the company opened the door for the state to reclaim the incentives.
Dayton said legal proceedings will be required if he decides to go after the money. Making matters more difficult is that Essar Steel Minnesota is a subsidiary of the India-based steel, iron, coal and energy conglomerate Essar Global.
“To begin legal proceedings would be a marked shift in our working relationship with them, and I hope they won’t trigger that,” Dayton said. “But we are all fed up with this. I mean here is a [multibillion-dollar] company.”
Dayton said he won assurances six weeks ago from the CEO of Essar Global in Mumbai that Minnesota’s contractors would be paid in full.
Essar “gave me their word that they would bring their situation current with these relatively small business people on the [Iron] Range who are being virtually pushed into bankruptcy because they are not getting paid,” Dayton said.
Contractors who have been stressed to meet payroll and bonding agreements said they have not been paid and are “concerned,” said the IRRRB’s Phillips.
Some of the firms affected by late and partial payments include Hammerlund Construction and Northern Industrial Erectors, both of Grand Rapids; Jamar Co. in Duluth; Rice Lake Construction in Deerwood, Minn., Amptek Electrical in Aurora, Champion Steel in Keewatin, and Seppi Brothers Concrete in Virginia, Minn.
Darrell Godbout, with Iron Workers Local 512 in the Duluth-Nashwauk area, said nearly 300 of his union’s members were recently pulled off Essar’s job site at Nashwauk because their bosses were not getting paid.
“We have a lot of guys who are laid off,” Godbout said. “I have been a union rep for the Iron Workers for 20 years and I have never known a customer not to pay its contractors. I know of late payments, but nothing like this.”
Essar stopped construction for much of last year after running into cash flow problems that forced unpaid contractors to bail.
This time around, Godbout said several contractors are having trouble meeting payroll and benefit payments and yet had turned down other jobs to stick with Essar.
Dayton said Essar Steel CEO Madhu Vuppuluri and other officials are scrambling to secure new financing from lenders around the world.
Phillips said some contractors have said they worry that the new pressure applied by the state will hurt Essar’s chances of securing new loans that would ultimately help them get paid. A lawsuit also might fend off parties who might have wanted to take over the project from Essar. But he added that the economics of the iron ore industry also may have killed interest.
Global iron ore prices are at historic lows. “Ore is selling for just $40 a ton. I don’t know if anyone would pick it up and operate it at those prices,” Phillips said.
Construction of the taconite plant in Nashwauk is only about 70 to 80 percent complete, and the company has said it will open in the second half of the year.