Iron Range steel project again faces Iran problem

Let me start this locally and spread it out.

LOCAL: Here on the Iron Range, people have enjoyed great hopes of a massive economic boost from a combined iron mine and steel plant near Nashwauk, a proposed project now known as Minnesota Steel. This idea has been floating around in some form since shortly after the closure of Butler Taconite on the same location back in the early 1980s. (That closure signaled the beginning of the infamous local depression that sapped our population and drained local morale). Over the past two years, hopes have risen higher than ever after the establishment of a private backer — India’s Essar Global — and strong state and local financial support for the project which would create hundreds of jobs and secure the Iron Range economy for a generation. Permits have been issued. Groundbreaking has been scheduled.

WIDER LENS: But those groundbreakings have been delayed and delayed, initially because of Essar’s inability to secure financial close (the global credit crisis was blamed at one point) and now mostly because of unresolved questions about local infrastructure and Essar’s growing ambitions throughout North America. In fact, Essar had picked up a steel plant in Algoma, Mich., and is trying to buy a swath of steel facilities across the Rust Belt. It all begs the question, what is this company’s real plan for the Iron Range? All we really have to go on are India media reports of the company bragging of its “control” of iron ore supplies on the Iron Range. Well, we know they need our ore, but the whole deal was premised on the idea that we’d be making steel here, too.

At the same time, the state bonding funds designed to help Itasca County are looking insufficient to build what Essar would need to get rail service to the mine. The county and city of Nashwauk are scrambling to figure out how to pay for what is needed to get the project going according to the original agreement.

EXTRA WIDE LENS: The deal came closest to unraveling during the last Minnesota legislative session when Essar was also negotiating a natural gas deal with Iran. Minnesota’s GOP Gov. Tim Pawlenty, a V.P. hopeful, took a loud public stance opposing any state aid for any company in cahoots with Iran, a U.S. foe on many foreign policy issues. Essar agreed to end its natural gas deal to ensure support for Minnesota Steel back here. I wrote then and maintain that deals like this — perhaps any such major deal from now on — will probably be full of such conflicting international subplots. In a global economy we deal with extremely diversified companies looking to make money in every corner of the world. (Unless, of course, we think of ways of developing our own projects here in America. But that’s another problem for another post).

I’ve received several items from a reader showing media reports (specifically Metal Bulletin Ltd, a copyrighted source with no link) of reopening negotiations for a crude oil/refined gasoline swap between Essar and Iran. According to that report, speculation is rampant that Essar’s dealings with Iran will threaten their deals here in the U.S., especially Minnesota Steel. Now, either Essar plans to play hardball or they’re looking for a way out of the Iron Range deal as it’s currently structured. Since Essar has many of its regular engineers and officials now working on the Range, I’m betting they’re here to tango. All sorts of reports indicate that Essar is ramping up steel production everywhere it can, many times in efforts to get steel back to India for development.

As I’ve written, working with the steel industry of the 21st century means working with emerging powers like India and China — in India’s case, private companies within the nation, and in China’s, the communist government. This will be complicated business. I don’t have a problem with Essar doing business on the Iron Range, but I am now getting the feeling that the officials of the Iron Range, the Iron Range press and even lowly folks like us need to hold this company to accountability for their actions all over the world. They are telling us what we want to hear, which is no different than any other developer for any other project. The only people looking out for us are us.

Shovels! We need to see shovels, and the production of the advanced equipment needed for the steelmaking phase of the project, or else this is just a chess piece on a big, big board.