Russian Oligarch Tries to Cash In on Obama's Crony Capitalism

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Alexi MordashThe Department of Energy announced on Friday it would not complete a low-interest, $730 million loan to Severstal North America, after it had given the company a conditional commitment in July under its Advanced Technology Vehicles Manufacturing program.

DOE gave no reason for its disapproval of the loan, but it had come under scrutiny about its judgment after the collapse of solar company Solyndra, which was lent $535 million in taxpayer dollars. House Oversight and Government Reform Committee Chairman Darrell Issa called upon Energy Secretary Stephen Chu to revisit the Severstal project – which would modernize its facility in Dearborn, Mich. to produce so-called advanced high-strength steel (AHSS) – because the company “had ample means to carry out the project” and had “apparently no need for federal financing,” among other reasons. Severstal N.A. is a wholly owned subsidiary of OAO Severstal, owned by Russian tycoon Alexei Mordashov (in photo),  whose growth is at least partially attributed to his ties to powerful political and business interests in the Kremlin under President Vladamir Putin. Forbes estimates his worth at $18.5 billion.

AHSS is desired for the manufacture of more lightweight vehicles intended to meet new government-mandated fuel efficiency standards. When the conditional commitment was made in July, Congressional Democrats from Michigan and Secretary Chu praised the agreement.

“The Severstal project will help make American automakers more competitive as demand for lighter, more fuel efficient vehicles increases,” Chu said. “By manufacturing more advanced high strength steel here at home, we rely less on imports and create thousands of new jobs that get people back to work.” 

But Republican Sens. Dan Coats (Indiana) and Patrick Toomey (Pennsylvania) contended that type of steel is produced by other manufacturers and is plentiful, even with more stringent CAFÉ standards for automobiles. In a press release, Toomey even included a statement by a Severstal competitor that just happens to be based in his home state.

“The federal government has no business interfering with competition in the marketplace by giving one competitor this type of advantage,” said James D. Garraux, U.S. Steel’s general counsel and senior vice president for corporate affairs.

Coats also appeared to have a protectionist angle, noting in his own press release that three companies in Indiana already produce AHSS. But the two senators also heard echoes of Solyndra.

“Given the tremendous fiscal crisis that we find ourselves in today, it does not seem appropriate for the program to subsidize technologies that have already achieved commercial success through private sector means,” the senators co-wrote in a letter to DOE Inspector General Gregory Friedman, asking for an investigation. “American taxpayers deserve to know how the Department of Energy is making decisions regarding these types of loan investments.”

Puzzled, Mordashov said Severstal N.A. was not a Russian company, but “an American company which is an American taxpayer, which provides American jobs, which is going to supply the American automotive industry with a product the industry needs to meet requirements of fuel consumption reductions….” But Coats called it “crony capitalism.”

That may be true, and there may be other reasons (although not really expressed by the senators) to be concerned about a Russian oligarch setting up shop in the U.S. (but apparently not with another’s ownership of the New Jersey Nets), but Severstal’s near-success in obtaining the loan is no more “crony capitalism” than what is routinely allowed to go on in the U.S. without criticism from members of Congress. In fact, Sens. Coats and Toomey need look no further than other beneficiaries of the Advanced Technology Vehicles Manufacturing program to find stronger evidence of “crony capitalism” than there was with the proposed loan for Severstal.

Consider, for example, Nissan North America, part of another international conglomerate that hardly needs backing by U.S. taxpayers. The Japan-based automaker received a $1.4 billion loan (that actually did close) under the ATVM program to retrofit a plant in Smyrna, Tenn., to build the all-electric Leaf and to also construct an advanced battery manufacturing facility.

The suggestion of mutual back-scratching between Nissan and government is much stronger than with Severstal, which has had no campaign donations to politicians and spent only $245,000 on lobbying in 2009, according to the Center for Responsive Politics. Nissan employees, on the other hand, have donated thousands of dollars to candidates and the company has spent millions of dollars – including more than $11 million from 2007 to 2009 – on lobbying. The company has employed powerful influencers like the Breaux Lott Leadership Group to advocate for its interests, including for the stimulus legislation that fueled the ATVM program. The benefits redounded so powerfully to Nissan that now Tennessee is one of the few test states for deployment of charging systems for electric vehicles.

Ford Motor Company – which likes to proclaim it did not take bailout money like General Motors and Chrysler did – received a $5.9 billion loan from DOE to retrofit factories in five states “to introduce new technologies that will raise the fuel efficiency of more than a dozen popular vehicles.” Amusingly, DOE proclaimed “the project will convert nearly 33,000 employees to green manufacturing jobs.” Ford has spent north of $5 million (sometimes far north) on lobbying in each year since 2004.

And then there are the luxury electric vehicle makers Fisker and Tesla, which both received ATVM loans from DOE of $529 million and $465 million, respectively. Both companies are backed by wealthy donors to President Obama. Much smaller than Nissan or Ford, nevertheless both companies escalated their lobbying expenditures into six figures each during 2009 when passage of stimulus funding was critical to their opportunity to obtain government backing for the manufacture of their electric vehicles.

The passion and scrutiny exercised by the two senators over the loans to Severstal because of suspicions of “crony capitalism” were admirable, especially since it helped cause the loan to fall through. But giveaways and backing from government is nearly an everyday occurrence – at the local, state and federal level – and nary a word is spoken. Taxpayers would be a lot better off it politicians got indignant more often than just when Russian billionaires are involved.

Paul Chesser is an associate fellow for the National Legal and Policy Center.