The Department of Energy (DOE) gave loans and loan guarantees to, among others, Solyndra, LightSquared, SunPower, Shepherds Flat Wind Farm, and BeaconPower. All have two things in common: they all failed (or are failing), and they are all politically connected to the Obama administration. Now we get word that DOE lent Severstal Dearborn LLC, a wholly owned subsidiary of a Russian company, $730 million. Severstal makes special high-strength, light weight steel that is supposed to be useful in the manufacture of energy efficient automobiles. But we also find that Severstal is already producing the steel the loan was supposed to subsidize, and that there are several other companies in the light weight steel business. Severstal is a Russian steel maker, controlled by Alexey Mordashov who, according to Forbes, is worth $18.5 billion.
Here is the DOE announcement of the loan to Severstal.
Government's justification for this kind of investment is that the private sector companies won't invest in these necessary, albeit risky technologies. But that justification doesn't apply here. The technology was already on the market. What we have here is the government picking winners in an already existing market.
Now we find that two senators, Dan Coats (R-IN) and Pat Toomey (R-PA), are asking DOE's inspector general to look into the Severstal loan. Both senators are from states with steel mills. They question whether the loan will cost jobs at other mills, since there's an overcapacity for high-strength auto steel. The House Oversight and Government Reform Committee, chaired by Rep. Darrell Issa (R-CA), is also questioning the loan. The senators want the DOE inspector general to investigate whether steel qualifies under the DOE loan program and whether DOE did any market analysis before making the loan. And Issa asked why Severstal didn't finance the project itself. The senators cited Severstal's documents that say two of the three required lines will be finished by December, then asked, "Is it proper to give a company more than half a billion dollars for facilities that they have already built?"
DOE defended the loan; said Damien LaVera, DOE spokesman. "Severstal's application is for a project that would help make American car manufacturers more competitive as demand for lighter, more fuel-efficient vehicles increases, strengthen the American steel industry," The loan is part of DOE's $25 billion Advanced Technology Vehicles Manufacturing (ATVM) program which is supposed to help the green movement in the auto industry.