Big River Steel Report Says Officials Overestimated Benefits of Osceola Plant

Arkansas Economic Development Commission Executive Director Grant Tennille (top left) meets with the Arkansas Senate on Monday. Senate members questioned Tennille and others on details about the Big River Steel project announced last week.

(Update: The second of two consultant reports on the Big River Steel project has been released. You can read about it here.)

LITTLE ROCK – State economic development officials overestimated the long-term benefits of a proposal to help finance a $1.1 billion steel mill proposed in northeast Arkansas, because they didn’t consider uncertainties surrounding the project, according to report released Thursday by a consultant that lawmakers hired.

Legislative officials released the executive summary of a report by IHS Global Insight, a firm hired by the House and Senate to look at the proposed Big River Steel mill in Osceola. Gov. Mike Beebe has asked lawmakers to approve a $125 million financing plan for the mill, which is expected to employ 525 people.

(More: Download a PDF of the executive summary of IHS Global Insight’s report on Big River Steel.)

Lawmakers said they expect to receive the consultants’ full report Friday. The three-page summary said that the steel industry can absorb another plant like Big River, but said the facility may not be able to reach its performance goals if another major plant opens.

“IHS asserts that the (Arkansas Economic Development Commission) has, to some extent, overestimated the long-term, net economic benefits of the incentives being considered for the BRS project, primarily because they did not fully consider some of the key assumptions” such as production levels, the firm said.

Of the $125 million in bonds that Beebe wants to issue to help finance the project, $50 million would be a loan to the company while the remaining amount would be paid off by taxpayers. Big River Steel is led by John Correnti, a former Nucor Steel executive who engineered the 2007 launch of a successful $650 million steel mill at Columbus, Miss.

Arkansas Economic Development Director Grant Tennille said he has some questions about the firm’s methodologies and conclusions, but said he believed the analysis was fair and confirmed many of his department’s findings. Tennille said the proposal includes “claw back” provisions for the state to reclaim money if the mill doesn’t meet its performance goals.

“I’m betting on the Big River guys that they’ve analyzed the market well, that they know how to operate in this market and they’ve proven to the world very recently that they can do it,” Tennille said. “I think they can do it again and if they can’t we’ve put the safeguards in place to allow us to get the state’s money back.”

But the report could spur opposition to the proposal as lawmakers prepare for a hearing Monday on the plant and the financing plan. House Speaker Davy Carter said he had some questions about the report, but didn’t see any major surprises. Senate President Michael Lamoureux said he was reviewing the findings.

House Majority Leader Bruce Westerman, R-Hot Springs, said the findings concerned him.

“I’m certainly not sold on it based on the summary report that we got,” Westerman said. “I would have hoped it would have been much better.”

Representatives fromt the Arkansas Economic Development Commission, including Tennille, held question-and-answer sessions for both houses of the state Legislature last month.

During those sessions, those economic development officials expressed confidence in Correnti’s ability to build the plant, get it running and have it producing steel at the necessary capacity to pay back what it will owe the state. 

During his session with the Senate, Tennille said the state structured to the longest clawback period it had ever negotiated: 15 years. In that time, AEDC could take back state money if Big River didn’t meet its promised employment level (525 workers), average salary ($75,000) and size of investment ($1.1 billion).

Tennille also said that if the Legislature agreed to authorize the bonds to provide the incentives, the state wouldn’t sell them until Black River equity investors put $300 million of their own money in escrow and secure financing for the other $700 million. The company must spend $250 million of its own money on the project before spending the first $1 of state money.