June 30, 2010

A tale of two Obama loan guarantees.

The manager of a Milwaukee custard stand on Friday asked Joe Biden for lower taxes in return for dessert, and the Vice President told him not to be “a smartass.” Perhaps on his own visit to Wisconsin today, President Obama will have a better answer for the latest blue-collar casualties of his Administration’s anticarbon obsessions.

Last Thursday, the U.S. Export-Import Bank denied loan guarantees to Reliance Power Ltd., an Indian utility building a coal-fired power plant near Sasan, India. Bucyrus International Inc., a South Milwaukee-based manufacturer, was ready to export some $310 million in mining equipment—and about $600 million over three years—but Reliance’s order was contingent on the favorable financing rates provided by the Ex-Im guarantee. Reliance cancelled the order Monday morning and will reboot with Bucyrus’s competitors in China or Belarus if the bank doesn’t reverse in the coming days.

The Reliance-Bucyrus deal met all of the Export-Import Bank’s qualifying criteria, including the tougher environmental and CO2 standards that the White House has imposed over the last several months. But the bank nonetheless rejected the project in a 2-to-1 vote under pressure from the Treasury and State Departments. “We were absolutely flabbergasted and shocked,” Bucyrus CEO Tim Sullivan told us in an interview.

According to Mr. Sullivan, the decision was reached because the “carbon footprint” of the project is too large, though the Ex-Im Bank has published no objective guidelines to quantify that judgment. “President Obama has made clear his Administration’s commitment to transition away from high-carbon investments and toward a cleaner-energy future,” Obama-appointed Ex-Im Chairman Fred Hochberg said in a statement. After “careful deliberation,” he added, the project’s “adverse environmental impact” made it untenable.

Those deliberations can’t have been too careful, however, given that the Sasan plant is already under construction and is scheduled to open in 2012. The coal to feed it will still be mined, and demon carbon will still be emitted. The only difference is that an American business, and the 1,000 or so people who work there or for the companies in its 13-state Midwest supply chain and were depending on the project, will no longer benefit.

We’ve long opposed the Export-Import Bank, which was established to aid U.S. manufacturing exports with loan guarantees, when the market is a better arbiter of the allocation of capital. Then again, the bank is the prototype for Mr. Obama’s agenda of politically directed credit, which makes the Bucyrus decision especially revealing about White House priorities.

In February, for instance, the Administration approved a $528 million low-cost loan to Fisker Automotive, which plans to build a luxury hybrid car that will sell for $48,000 before Uncle Sam’s $7,500 tax credit. Fisker’s plant is in Mr. Biden’s hometown of Wilmington, Delaware.

Read more at: http://online.wsj.com/article/SB10001424052748703964104575334912606052680.html?mod=WSJ_Opinion_AboveLEFTTop

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