[StBernard] Alabama lands German steel mill project

Westley Annis westley at da-parish.com
Fri May 11 23:07:15 EDT 2007

BATON ROUGE -- Alabama has won out over Louisiana in the high-stakes
competition for a 2,700-employee steel mill plant that will be built by
ThyssenKrupp AG of Germany for $3.7 billion.

The company's supervisory board made the decision this morning in

Backed by Alabama's huge incentive package, an industrial site north of
Mobile was selected over a site near Convent on the Mississippi River in St.
James Parish.

One of the largest private manufacturing investments in the United States in
the past decade, the plant was a coveted project in terms of economic impact
and international visibility.

"This was a very difficult decision," said Bob Soulliere, President and CEO
of ThyssenKrupp Steel and Stainless USA, who was leading the selection
process. "Louisiana made an excellent proposal and demonstrated many
important and valuable attributes for business development. Gov. (Kathleen)
Blanco and her team made a tremendous effort and the professional approach
of officials in Louisiana made our decision all the more difficult. We thank
the Louisiana state team for their hard work, dedication and commitment to
the selection process."

The search began in February 2006 with 67 potential sites in 20 states. From
the initial sites, ThyssenKrupp narrowed its search to locations in Alabama,
Arkansas and Louisiana. In February of this year, the company announced that
it was focused just on Alabama and Louisiana.

In a statement after the announcement, Blanco said it was a "tremendous
honor" to be one of the two finalists for the project and "proves that
Louisiana is moving forward with extraordinary momentum. Our success with
this project demonstrates Louisiana has established a stronghold in the
global economy and can successfully compete for world-class projects."

The company said Friday it would invest $3.7 billion in the facility, up
from the previously announced $2.9 billion.

"The increased investment primarily results from a rise in both steel and
stainless steel capacity, as well as the installation of additional
equipment to allow further diversification of the product portfolio," a
company statement said.

"The decision to select Alabama was made based on the criteria the company
has been using in the site selection process," a company statement said.
"Decisive factors included logistical considerations of the company's supply
chain from Brazil to our projected customers; operating costs such as
electricity and labor; and site-specific capital expenditures."

Louisiana officials said site-preparation and energy costs were a drawback
for the state's proposal. The Alabama site is an industrial and residential
area called Mount Vernon.

"Due to its high cost-efficiency, Mount Vernon is the ideal location," the
company statement said.

Alabama Gov. Bob Riley said, "With this project, Alabama and ThyssenKrupp
are making history. A project this size, with this amount of economic
impact, comes along perhaps once in a generation. It is transformational,
and we thank our partners at ThyssenKrupp, our state and local economic
development team, and Alabama's outstanding workforce for making our success

ThyssenKrupp Executive Board Chairman Ekkehard Schulz said, "This project is
a central element of the group's strategy for the steel and stainless
segments, aimed at achieving profitable growth in Europe and North America.
It will considerably strengthen ThyssenKrupp's position in North America."

The construction phase will create as many as 29,000 jobs and the ripple
effect over 20 years of operation would yield as many as 52,000 indirect
jobs, the company has estimated.

The plant will produce steel slabs, carbon steel and rolled stainless steel
for the auto, appliance and construction industries. The 150-acre factory
will have a roof more than 15 times the size of the Superdome's lid.

Alabama will now enter final negotiations with ThyssenKrupp to complete the

Alabama and Louisiana both offered incentives packages in the form of
infrastructure improvements, tax breaks and job-training programs.

The 3,467-acre Alabama site is in northeast Mobile County and southeast
Washington County, about 35 miles from downtown Mobile. There is a Tombigbee
River dock on the facility. An existing Norfolk Southern rail line runs onto
the site.

Unlike the St. James site, seagoing vessels cannot reach the Tombigbee dock,
requiring deep-draft vessels instead to shift their cargo to barges at the
Alabama State Docks near downtown Mobile. Alabama's chief counter to that
disadvantage is stronger soil than the banks of Mississippi River offer in
Louisiana, translating to a significantly lower initial construction cost
along the Tombigbee.

The Alabama site also is more central to the southeastern United States'
industrial base, particularly the automobile manufacturing plants and
associated suppliers in Alabama, Mississippi, South Carolina, Tennessee and

In the way of cash incentives, the Alabama Legislature recently approved a
constitutional amendment to increase the borrowing limit of an economic
development bonding authority by $400 million, with state officials saying
the money would be used to lure ThyssenKrupp and other industrial prospects
to the state. The bonds would be paid off with royalties from natural gas
harvested in state waters off the Alabama coastline.

The state has also earmarked $900 million worth of Gulf Opportunity Zone
bonds authorized by Congress. Designed to spur economic development in Gulf
Coast states affected by the 2005 hurricanes, the GO Zone Act allows states
to pass on government-rate, tax-free bonding authority to private industry.
In this case, that means ThyssenKrupp could pay bond holders, but on the
same terms as a state bond sale.

Still, the company's cash flow is so strong, it does not need to rely on the
bond markets to pay for the plant, financial analysts say. The company has
no debt and does not want to acquire any.

Alabama's most generous incentive is a capital investment tax credit that
allows a company to reduce its state corporate income tax bill by an amount
that is as much as 5 percent annually of its initial capital investment,
with some equipment expenses not included. The credit is not refundable;
meaning a company's maximum advantage in a given year is reducing its
corporate income tax bill to zero. Still, a manufacturer that incurs enough
tax liability could conceivably recoup 100 percent of its up-front

The statutory perk is normally in effect for 20 years, but the Alabama
Legislature recently extended the credit to 30 years for any company with an
initial investment of at least $2.5 billion and an initial payroll of 2,500
employees. The package also granted ThyssenKrupp a 10-year break on utility
taxes and extended the usual decade of breaks on non-education property
taxes to 20 years.

Local governments in Alabama also are allowed under state law to abate local
property taxes and other levies. Published report in Alabama have also said
local governments there are expected to pony up $60 million in incentives,
though it is not clear whether that is direct incentives in addition to tax

In the area of workforce development, the Alabama Industrial Development
Training program became the first such state agency to earn certification
from the International Organization for Standardization. The program, a
function of the state's two-year college system, has enjoyed a mutually
beneficial relationship with the burgeoning automobile industry in Alabama.

The Convent site's soft soil required thousands of deep-driven pilings and
the location would have needed major improvements to roads, the port and
power lines to accommodate the sprawling factory.

Although many details were kept secret during negotiations, Louisiana's
total incentive package was close to $2 billion. Gov. Kathleen Blanco won
approval in the Louisiana House of Representatives Thursday for $400 million
that would be used to prepare the plant's infrastructure. Lawmakers say the
governor also had pledged nearly twice that amount in additional incentives
toward infrastructure and other purposes, money that would have been
borrowed or appropriated by the Legislature from the state budget.

In addition, the state was offering to waive sales taxes on utilities and
the plant would have been eligible for the state's Quality Jobs tax credits,
incentives worth several hundred million dollars. A state job training
program was also a significant cost factor.

The new steel plant will tie in to a steel slab plant the company is
building in Brazil. Starting operations in 2009, the Brazilian plant will
supply the cruder form of steel for further processing at ThyssenKrupp
plants in Germany and at the proposed plant on the Gulf Coast.

The U.S. plant will include multiple mills producing the various types of
steel and a melt shop able to make as much as 1 million metric tons of slabs
annually, similar to the material made in the Brazilian plant.

The plant's supply and customer chain will be linked to take advantage of
trade within the North American Free Trade Agreement area, the region from
Canada to Mexico where ThyssenKrupp hopes to expand its share of business.
Among its clients, the plant would supply auto factories in the southeast
and an appliance manufacturing plant the company operates in Mexico.

The company's subsidiaries, ThyssenKrupp Steel AG and ThyssenKrupp Stainless
AG, both of Duisburg, Germany, will jointly build the plant. The parent
company is involved in a variety of industries and is one of the top
suppliers of elevators.

The ThyssenKrupp Group, based in Dusseldorf, Germany, employs 188,000 people
in 70 countries and has annual sales of about $61 billion. The two
subsidiaries involved in the new American project, ThyssenKrupp Steel AG and
ThyssenKrupp Stainless AG, combine for $22.3 billion in annual sales. The
corporation's existing American operations, spread over 70 companies and 400
locations, comprise 25,000 employees and about $10 billion in annual sales.

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