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Dayton backs off as Essar pays some bills

An October view of Essar Steel Minnesota's taconite plant under construction near Nashwauk. Bob King / rking@duluthnews.com

Essar Steel Minnesota has paid $20 million in overdue bills to contractors working on its Nashwauk taconite plant, a good-faith effort that has spurred Gov. Mark Dayton to back off calling a debt the company owes the state.

Dayton earlier this week threatened to call in a nearly $66 million loan Essar owes the state if the company didn’t start paying contractors on time and for past due bills.

Essar has been dogged for years by allegations of late or nonpayment of contractors on the Nashwauk taconite plant under construction.

Dayton has repeatedly called that situation “unacceptable.” But on Friday he said officials from the Iron Range Resources and Rehabilitation Board and state Department of Employment and Economic Development confirmed with Iron Range businesses that Essar in recent days had paid up $20 million in past due bills.

Moreover, Essar officials told state officials that representatives from an “international bank’’ are  now at the Nashwauk site investigating whether to loan Essar money to pay additional past-due bills by the end of the year.

That additional capital “would also help assure the completion of the project, with timely payment of its contractors and vendors moving forward,” said Matt Swenson, Dayton’s spokesman at the Capitol.

“Gov. Dayton was satisfied with the company’s actions and assurances, and (Dayton) will not call for the immediate repayment of the state’s loan,” Swenson said in a statement.

Some local officials and contractors also had warned state officials not to press too hard against Essar for fear the company would walk away from the $1.9 million project, the state’s first all-new taconite operation in nearly 40 years that promises to employ 350 workers.

That includes the state now backing off demands that Essar repay $66 million owed the state because the company did not create jobs at a proposed iron and steelmaking facility in Nashwauk by the October 2015 deadline.

Dayton is “sympathetic to the concerns of some vendors, who have expressed that more strident demands (by the state) 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,” Swenson said.

Essar on Friday said it is working to secure funding to pay back the state money as well.

“We appreciate the work and support of the governor and the state agencies as we here at Essar continue to focus our efforts on this massive project along with the support of contractors to keep construction activities progressing on the project,” said Mitch Brunfelt, Essar Steel Minnesota spokesman. “We also hope to finalize a payment agreement with the governor’s administration soon to reimburse the state for the $65.9 million grant utilized to construct the publicly-owned infrastructure servicing the Essar Steel Minnesota site.”

After years of construction in fits and starts at the Nashwauk site, the company claimed one year ago that it had secured $850 million in financing to finally finish the plant. It’s unclear why Essar seems to have again run out of cash. While the site was bustling with activity as recently as October, work has again ground to a virtual halt. Essar officials have said work may begin again after January.

Essar has essentially been in default on the state money since October because it failed to live up to the 2007 agreement to build the iron and steel mill that would have added an extra 100 jobs and brought added value to Minnesota iron ore that local officials have sought for decades.

Dayton had demanded the company make a $10 million payment immediately and then pay more as the taconite plant operates. But the governor in recent weeks has seemed more upset about Minnesota businesses not being paid by the Mumbai, India-based Essar.

Dayton went as far earlier this week to say he wished the company would sell the plant to another firm that would operate more responsibly.

“Everyone involved in this is fed up with Essar. The question is, how hard do you push?” said state Sen. Tom Saxhaug, DFL-Grand Rapids, in an interview earlier this week. “I think everyone (state and local officials and businesses) are on the same page. We want this built, but they (Essar) have to pay their bills.”

The $66 million from the state was awarded from the Minnesota Department of Employment and Economic Development, through Itasca County, to pay for roads and railroad tracks as well as gas, water, sewer and electrical lines to the sprawling plant site. The money was an incentive for Essar to go beyond processing taconite and add value and jobs by actually making iron and steel at the site.

While Dayton appears willing to get that money back through litigation, the effort may not be as easy as simply filing a lawsuit. Most of the state money was funneled through Itasca County, Nashwauk and the city’s public utilities commission, and those entities would need to agree to pursue the case.

Essar has said it hopes to be making taconite pellets at the Nashwauk facility by late 2016. Critics have said that deadline can’t possibly be met because the project isn’t far enough along.

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