Dayton threatens to call Essar Steel's $66 million loan

Gov. Mark Dayton has delivered an ultimatum to Essar Steel Minnesota: If the company fails to pay its vendors immediately, he'll call the company's $66 million state loan.

Essar has until Wednesday at 5 p.m. to pay its suppliers and contractors in full for construction at a future taconite operation in Nashwauk, Dayton said in a statement on Monday. The company had previously promised to fully pay all of its Minnesota vendors by Oct. 12, Dayton said, but "those assurances were not fulfilled."

The governor's actions are unprecedented, said Tony Barrett, economics professor at the College of St. Scholastica in Duluth.

"I have never seen anything like it," Barrett said. "Obviously the state has subsidized this project … so there is a [feeling of] a little bit of betrayal or a sense of disappointment for sure. Their actions are hurting Minnesota businesses. So I can understand where the governor is coming from. This is not a happy situation."

Essar officials were not available for comment Monday, but said previously that they were working with all of its vendors to address what some contractors described as a cash flow problem.

Some contractors have pulled workers from the Nashwauk job site and furloughed staff. An estimated 200 workers are affected, said Iron Workers Local 512 representative Mike Walters.

"There have been layoffs. We have been getting phone calls here. The [vendors] have been holding on to workers for as long as they could. But some couldn't do it anymore," he said.

Walters said Dayton's ultimatum is the right move.

"It will get a little a little action and get their attention at Essar," he said.

"That needed to happen because this [late payment problem of Essar's] has happened before."

Contractors, trade union representatives and site workers told the Star Tribune that Essar had promised to pay its contractors partial payments, but in some cases it is weeks late on millions of dollars in collective billings.

Several contractors have been affected, including Hammerlund Construction and Northern Industrial Erectors, both of Grand Rapids, Jamar Co. in Duluth and Rice Lake Construction in Deerwood.

In his statement Monday, Dayton said he told Essar CEO Madhu Vuppuluri in a phone call last week that failure to make good on Essar's late payments to vendors by Wednesday will prompt the state to demand that Essar repay the entire $66 million it now owes Minnesota because it did not finish building its $1.9 billion iron ore plant on the Iron Range by Oct. 1 as promised.

Barrett, of St. Scholastica, said repeated promises to fix payment problems without a resolution or detailed explanations on why they're happening in the first place has "evaporated the goodwill" Essar initially generated on Minnesota's Mesabi Iron Range.

Essar had originally promised to build a fully integrated iron ore and steel production facility, but later said market conditions forced it to reconfigure the project as only an iron taconite plant.

Essar Steel Minnesota, which is owned by India-based Essar Global, has taken on multiple loans in order to finish the massive construction project that was announced back in 2007.

The company broke ground on the project in Nashwauk in 2008, but has sputtered along in fits and starts because of financial problems.

A few weeks ago, Mitch Brunfelt, Essar Steel's assistant general counsel, said the company is on track to complete the project by the second half of next year.

Essar's parent company has vast steel, iron and coal operations.

Local officials and state legislators said they wonder whether the project might be saved with the help of new financial partners who could finish the project, which is about 80 percent complete.

Dee DePass • 612-673-7725