John D. Correnti, the businessman Arkansas is counting on to deliver “the largest economic development project in the state’s history,” a proposed $1.1 billion steel mill in Mississippi County in northeast Arkansas, has recently failed to deliver on promises for big projects in Mississippi.
Tuesday Arkansas Gov. Mike Beebe announced that Correnti’s Big River Steel LLC, Blytheville, plans to build a steel mill near Osceola that would employ 525 people. Bebee plans to ask the legislature for $125 million in incentives for the project, with $50 million for a loan and the rest a gift.
Today, the lead front-page article in the Arkansas Democrat Gazette is that the Arkansas Teachers Retirement System wants to invest $60 million in the project. The head of the retirement system said it expects a 20 to 30 percent annual return on the investment in the steel mill.
Public officials in Northeast Mississippi have said Correnti’s failure to deliver on big projects promised there has left a bad taste in their mouths.
The Mississippi Legislature approved Correnti for $75 million in incentives for a Silicor Materials plant in Lowndes County. Correnti promised he would partner with international investors on a $200 million project to bring an innovative silicon purification process and high-paying jobs to Mississippi. But the company missed a Dec. 31 deadline to put $150,000 in an escrow account to keep it eligible for tax incentives from Lowndes County.
A Columbus Commercial Dispatch headlined Jan. 5 was: “Jilted!: Collapse of Silicor project is latest of Correnti’s empty promises.”
Lowndes County Board of Supervisors President Harry Sanders said taxpayers are out about $230,000 on the Silicor project Correnti promised that never came to fruition. Sanders predicts the big steel mill in Arkansas will never happen.
“It makes no sense to me at all,” Sanders said. “John Correnti and this group have a history of speaking of great big, huge projects that never end up happening. Nucor has two steel mills within 30 miles of where the new plant is planned. You have a huge new steel mill in South Alabama that is up for sale, and two or three other steel mills that have closed and are out of business. If the Arkansas Legislature does their due diligence, they will never pass a bond issue to give them the money because the numbers don’t work.”
Correnti was involved with the successful startup of a steel company in Columbus now owned by Severstal. But Sanders said Correnti was fired from there, and then later fired as CEO of Nucor Corporation, one of the largest steel companies in the U.S.
“After he was fired by Nucor, he went to Bethlehem Steel,” Sanders said. “After Bethlehem Steel got bought out by Nucor, Nucor fired him again. Correnti has a vendetta against Nucor.”
Correnti was quoted in a Forbes article “Iron Wills” as saying the firing by Nucor was “an ego-driven power play.” The lead sentence in the story asked: Who’s responsible for the mess at minimill operator Birmingham Steel Corp?”
“Severstal here in Columbus is the only project he has ever completed,” Sanders said. “He was supposed to build a rebar business in Amory near here that never got off the ground. His silica purification plant never got off the ground. He tried to build a steel mill in Puerto Rico. So I don’t know. His track record is just not very good. But he is a hell of a salesman.”
Sanders said he believes that Correnti uses states like Mississippi and Arkansas to put up huge amounts of startup money, and then tries to attract investors.
“They go around and say, ‘If the Arkansas Legislature says it is a good deal, why don’t you put some of your money in?’” Sanders said. “In this environment we have in the economy right now, it is real hard to come up with the equity they need. Who are their investors? They leak names here and there, but don’t say. Do they have any customers lined up to buy their products?”
Sanders said the Silicor plant (originally named Calisolar) was previously planned for Ohio, where it had been offered a $275-million loan from the U.S Department of Energy for the project that was to create 1,100 permanent jobs. Then Correnti announced the plant would be built in Lowndes County.
Sanders said after the third delay on meeting requirements for incentives for Silicor, the county required Correnti to put up $150,000 in good faith money for $19 million in Lowndes County incentives. The money would have been refunded if the proposed $200-million project went through.
After failing to meet the deadline of Jan. 31, Silicor announced that it still wants to build the plant in Mississippi — but not in Lowndes County.
“We are out about $230,000 in legal and engineering fees on this project they promised that never come through,” Sanders said. “They moved the Silicor plant site three times here in Lowndes County, and each time we had to do the environmental and engineering work on it. It ran up a lot of bills, and then all of the sudden they packed up and ran.”
Taxpayers in Amory are also out money after a proposed Correnti rebar plant there that broke ground in October 2008 was never finished due to a lack of funding. Amory aldermen terminated the lease for the project.
Charles Bradford of Bradford Research Inc. in New York said he didn’t know enough about what markets the proposed plant in Arkansas would be going after.
“It could be a niche business where there is not enough capacity or it could be aiming at a market that is saturated,” Bradford said. “I have no information. But the person sponsoring it, John Correnti, is well respected in the industry.”
Bradford said there is clearly too much capacity in the steel industry. “There are other plants for sale,” he said. “There are plants that are closed that could be reopened, but they wouldn’t be terribly efficient plants. I do understand he had a rebar mill he wanted to build in Amory, Mississippi, where the timing was really bad with the recession. The financial backers, I gather, backed out. The mill in Columbus, which is now Severstal Columbus, I think has done pretty well.”
Bradford said competition is good; it is what makes inefficient plants close down. And he said the time to build a plant like this is when the economy is down.
“You definitively don’t wait for the economy to heat up because by the time it was built, you would be in a recession,” Bradford said. “It takes a couple years to build and perhaps longer for permits, and then you would be bringing new capacity online likely during a new recession. The best thing is to build a new mill during weak economic periods when you can get the best pricing for equipment, and come on line later when business is better.”
The proposed new steel mill might compete with Severstal Columbus for customers, and for supplies of scrap metal. Sanders said if the plant is built in Arkansas, the prices for scrap metal—the raw material used for the mills–might go up considerably making it harder for either operation to be successful.
The head of the Arkansas Teachers Retirement System, George Hopkins, was quoted in the Arkansas Democrat Gazette today as saying he has already been warned other steel companies may spend thousands trying to halt the project because they are scared of competition.
“When you see all these attacks and you will see more coming about this mill, it just shows this mill scares the people who will have to compete with them,” Hopkins said.
Greg LeRoy, executive director of Good Jobs First based in Washington, D.C., said the most important question is whether the proposed new steel mill will serve some niche in the marketplace not currently being served.
“Whoever is vetting it needs to know a lot about the customers they are serving, and why it is plausible to think there is additional supply needed in those niches,” LeRoy said. “I can’t tell what niche the new mill is going to serve that isn’t being served by existing mills, whether in Mississippi or Pittsburgh. Somebody vetting this deal in Arkansas really needs to know the answers to those questions. Those are tough issues in terms of the viability of the facility.”
Good Jobs First is a watchdog organization that looks at the issue of whether large taxpayer subsidized investments in one state come at the expense of jobs and industrial vitality in other states. LeRoy said that during the recession, some states have gotten sloppy about vetting deals. Currently there are criminal investigations into former Boston Red Sox pitcher Curt Schilling and his 38 Studios deal in Rhode Island, a video game company that went out of business shortly after received a $75-million loan from the state.
“It looks like the state of Rhode Island didn’t do a very good job vetting that deal,” LeRoy said. “Sympathetically, public officials are under pressure because of high unemployment. The number of deals states can compete for is under stress. That is a double whammy with more officials competing for fewer deals. We think that explains why in some cases the vetting is not as good as it should be. I would caution any public official looking at any deal to fight the tendency to be sloppy on vetting.”
Mississippi County Arkansas Economic Development chief Clif Chitwood said the economic development officials in Mississippi are “just bitter” they missed out on the $1.1 billion steel mill.
“Arkansas and Mississippi, we compete with each other on every project,” Chitwood said. “We compete with Lowndes County on a lot of projects. They are on the Tombigbee; we are on the Mississippi River. Both counties practice an aggressive form of economic development, along with Tunica and Tupelo. I’ve been in the business 16 years and I have never worked a project where I didn’t have a competing city in Mississippi. That’s what always happens. The two states are very competitive with each other and, obviously, any company that comes into the Mid South that doesn’t want to be in Memphis will be looking at communities like Mississippi County or counties in Mississippi. We have known Mr. Correnti’s since he moved here in 1980s with Nucor. He was always a good corporate citizen, and we are excited to have this project.”
Chitwood said it was his understanding that there would be “a small amount of overlap” between the two Nucor mills that represent the largest employer in Washington County, and the Big River mill. He said one Nucor plant makes I beams for high-rise construction, and another makes rolled steel primarily applicable to the oil and gas industry. He said the Big Rivers mill would primarily make electrical steel, whose applications are in transmission lines and transformers.
Asked about Correnti’s projects in Mississippi that failed, Chitwood said every developer has projects that don’t pan out. He said the Silicor plant in Mississippi could have been the victim of the uncertainty surrounding renewing federal incentives for alternative energy, and the fact that abundant new supplies of natural gas are making alternative energy developments less economical.
“Here in Washington County we recruited companies for main frames inside windmills, and all of these companies are running behind in job creation forecasts,” Chitwood said.
Asked about the $230,000 Lowdnes County invested in Silicor, Chitwood said that is just the nature of the economic development business. Most of the projects economic developers go after don’t materialize. He said there are 2,000 new projects per year, and 1,000 of those go to cities of one million or more. That leaves 18,000 economic development organizations chasing a thousand projects per year.
“If you don’t have a philosophical view of world, choose a different career,” Chitwood said. “Site development costs are all part of being in economic development business. This site for Great River Steel was one of the three finalists for ThyssenKrupp project that went to Mobile, Alabama. I spent $200,000 on that project, and did everything it took to convince the company this was a clean site and if they choose us, there would be no surprises, no jack in the boxes. That is what companies demand of people they do economic development businesses with. Counties that want to attract big projects must have money to do that kind of preparatory work. A company isn’t going to do it because some other county will be willing to do it. I have never been under the impression that just because I was doing that I had any more entitlement to that project because I’m always competing with other economic development agencies that are doing the same thing that I am doing.”
Arkansas could be lucky it didn’t land the ThyssenKrupp plant — the biggest steel plant built in the U.S. in 40 years. The Wall Street Journal has reported that, “ThyssenKrupp is pulling the plug on that $11.8 billion investment, citing high production and transportation costs, a weakening market and intense competition.” The plant that opened in 2010 in for sale, reportedly for $1 billion.
In July 2012 ArcelorMittal, the world’s largest steelmaker, asked for wage and benefit cuts totally 36 percent citing soft demand and weak prices for steel. A representative of the United Steelworkers said it has been a tough few years, but the steel industry is cyclical as it always has been.
Correnti had originally made plans to site the steel mill now planned for Arkansas on a 1,000-acre megasite in West Point in Mississippi. Correnti said that site was dropped because of the failure to negotiate lower electric rates for the energy intensive steel plant.
Ironically, Correnti first looked at locating the plant now known as Severstal Columbus in Mississippi County. At the time, Correnti said he moved the project to Columbus because Arkansas didn’t offer the necessary incentives and they were unable to negotiate an adequate contract for the electricity needed.