Tense Essar negotiations with Dayton, contractors

Construction at Essar Steel Minnesota near Nashwauk on Oct. 8, 2015. In November, most contractors left the site, some of which haven't been paid yet. (Aaron J. Brown)

Construction at Essar Steel Minnesota near Nashwauk on Oct. 8, 2015. In November, most contractors left the site, some of which haven’t been paid yet. (Aaron J. Brown)

UPDATE: Today, Gov. Dayton’s spokesperson Matt Swenson issued this statement, which indicates that Essar is issuing new capital into its Nashwauk project:

“Governor Mark Dayton spoke Thursday afternoon with IRRRB Commissioner Mark Phillips and Cathy Polasky from the Minnesota Department of Employment and Economic Development (DEED), to discuss the status of Essar Steel Minnesota’s payments to its vendors.

“Commissioner Phillips and Ms. Polasky conducted additional due diligence efforts overnight Wednesday and Thursday. They confirmed with the company, its vendors, and its CEO, Madhu Vuppuluri, that Essar Steel Minnesota had paid, in full, $20 million in outstanding obligations to its vendors, meeting the Governor’s October 12th demands.

“Additionally, Essar Steel informed state officials Thursday that an international bank is now at the project site performing due diligence, with the aim of providing additional capital to bring current all additional outstanding obligations to Essar’s vendors by the end of the month. That additional capital would also help assure the completion of the project, with timely payment of its contractors and vendors moving forward.

“Governor Dayton was satisfied with the company’s actions and assurances, and will not call for the immediate repayment of the state’s loan. He is also sympathetic to the concerns of some vendors, who have expressed that more strident demands at this time could jeopardize the future of the project, and limit the company’s ability to make timely payments on any outstanding and future obligations.”

Here was my report from earlier in the morning:

According to local media reports this morning, Gov. Mark Dayton has not yet called the $66 million loan to Essar Steel Minnesota as a result of the company’s nonpayment of local contractors. He had threatened to do so if payment wasn’t assured by Wednesday evening, but negotiations apparently continued past the deadline.

A source familiar with the discussions told me this morning that it appeared contractors would be paid at least enough to be satisfied for now. Neither the governor nor Essar has commented publicly yet.

The western Mesabi Iron Range eagerly awaits word on this matter. The $1.9 billion Essar project is one of many intriguing subplots to the larger economic downturn among Northern Minnesota iron mines.

On one hand the new plant is designed to be a more efficient taconite producer, lower cost and capable of producing value added iron products sooner than other Range mines. It’s been the one of the biggest economic development hopes of the region since the early 2000s.

On the other, the project’s India-based parent Essar has struggled for almost a decade to properly finance and execute plant construction. Starts and stops have plagued the project, simultaneously stoking and dashing local hopes for good news.

Cliffs Natural Resources has gone public with deep skepticism about Essar, a notion shared by other industry experts as well. Construction laborers I know describe the project as a “zoo,” full of disorganization and waste. Meanwhile, local businesses have been driven nearly bankrupt waiting for the company to pay.

Nevertheless, Essar has spent hundreds of millions of dollars so far, and has erected the major plant structures on the site, arguably progressing past a “point of no return.”

All of this is underscored by a global glut of new iron and steel production and plummeting prices for the iron ore products this region has centered its economy upon for generations.



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