Ex-Im $32 million loan guarantee to Brazilian company supported 250 American jobs for ... three days

The Washington Free Beacon’s CJ Ciaramella made a great catch on this story, which exemplifies the ludicrous nature of government interventions into markets they don’t understand, in order to make claims they can’t possibly keep.  It starts with a PR announcement on August 3rd, apparently by the Export-Import Bank of the United States, heralding a $32 million loan guarantee to Brazilian firm Wind Power Energia.  The loan, which applied to efforts to sell wind-turbine blades to Brazil, would safeguard 250 American jobs at LM Wind Power Blades Inc of Little Rock, Arkansas:

In line with its congressional mandate to increase support for renewable-energy exports, the Export-Import Bank of the United States (Ex-Im Bank) has authorized a $32.1 million loan guarantee to Wind Power Energia S.A. of Sao Paulo, Brazil, for the purchase of wind turbine blades manufactured by LM Wind Power Blades Inc. of Little Rock, Ark.

Ex-Im Bank’s financing, which guarantees a Bank of America loan, will support approximately 250 permanent American jobs at the company’s Little Rock, Ark., and Grand Forks, N.D., manufacturing facilities.

“The Bank’s loan guarantee will facilitate the export of American-made products to one of our nine key markets at a critical time,” said Ex-Im Bank Chairman and President Fred P. Hochberg. “By doing so, it will simultaneously support American jobs in a valuable industry and boost Brazil’s clean-energy prospects.”

The wind blades will be used to complete a 180-megawatt wind farm in the Brazilian state of Bahia and another 211-megawatt farm in the Brazilian state of Ceara.

LM Wind Power of … Little Rock, Arkansas?  Not exactly; as Ciaramella discovered, that’s just a field office.  The firm is actually headquartered in Kolding, Denmark.

Anyway, August 3rd was a Friday.  By the following Monday, those 250 by-gum-guaranteed jobs turned into 234 layoffs:

Wind turbine blade manufacturer LM Wind Power has announced that it is laying off 94 employees and 140 temporary workers at its Little Rock, Ark., manufacturing facility.

The company cited the U.S. government’s failure to extend the wind energy production tax credit (PTC) as the reason for the layoffs.

Wait a minute!  Did Congress pass a bill on the Saturday or Sunday to block the extension of the PTC?  Did those dastardly politicians sandbag the Ex-Im Bank?  Nope.  The decision not to extend the PTC took place in February.  The language was part of the payroll-tax extension bill that finally got finished after a couple of months of brinksmanship between House Republicans and the Obama administration:

Hopes that a near-term extension of the production tax credit (PTC) for wind power would be included in legislation to extend the payroll tax cuts through the remainder of this year are nearly extinguished, as NAW has learned that congressional leaders have reached a tentative framework agreement on the payroll tax cut – but it does not contain a PTC extension.

A House-Senate conference committee is expected to approve the deal, which will then go to the House and Senate as soon as today. Sources, who wished to remain anonymous, told NAW that both legislative bodies are expected to quickly sign the measure before congressional leaders depart for the President’s Day recess that begins Feb. 20.

The omnibus bill extends the payroll-tax holiday and unemployment insurance through the end of the year and allows doctors to fully claim Medicare reimbursements – a measure that addresses the so-called “doc-fix.” Those provisions would be paid for with reductions elsewhere in the budget.

However, the bill does not include tax extenders such as the PTC, which, for wind power, expires at the end of this year.

In other words, LMWP knew for months about the PTC tax extension issue [see update below].  Did anyone at the Ex-Im Bank know about it?  Did they bother to research LMWP’s fiscal footing before issuing a $32 million loan guarantee?  Apparently not.

Nor is that the only problem that LMWP had with the government, Ciaramella reports:

When LM Wind Power came to Little Rock, Arkansas, in 2007, it said it would employ 1,000 people by 2012. But the global economic crunch led to diminishing demand. Three months before its loan guarantee was finalized, LM Wind Power announced its profits had fallen 41 percent last year.

LM Wind Power also has had numerous citations for workplace safety violations. The Department Of Labor’s Occupational Safety and Health Administration cited the firm 11 times in an investigation beginning October 2010 for exposing workers to unsafe conditions and noted the company had demonstrated a “continued pattern of failing to comply” with OSHA standards.

In 2010, LM Wind Power Blades was cited with OSHA violations because of conditions that killed a worker.

Terrific.  Just the kind of company that deserves a $32 million bet.

So let’s recap: The government-backed Ex-Im Bank gave a Brazilian company $32 million to buy wind-turbine blades from a Danish company to protect 25o American jobs for … a weekend.  That’s $42,666 per job per day saved.  Nothing like government to make efficient use of capital, eh?

Update: As Scott Lincicome clarifies, the PTC is still in effect; the bill just didn’t extend it past 2012:

He also e-mailed me:

HI Ed,

I saw your story on the Ex-Im fiasco, but I think one point might be wrong.  The wind PTC is still in effect and will expire at the end of the year (see, e.g., here: http://awea.org/issues/federal_policy/upload/PTC-Fact-Sheet.pdf).  Senate Finance just approved a tax extenders bill – with wide bipartisan support – that included the PTC extension (at a cost of $12B over 10 years! – ), but it’s not clear whether it’ll survive the House/Senate conference (or even a full Senate vote).  Big Wind is citing to that uncertainty – rather than their uncompetitive product, of course – as the reason for all these layoffs.  I’m actually writing a paper about US subsidies so have been tracking this one pretty closely (and tweeting abt it: https://fr.twitter.com/scottlincicome/status/231360613337673728). Hope this helps.



Also, I had the loan transaction backwards.  The Ex-Im Bank gave the loan guarantee to the Brazilian company to buy wind turbine blades from the Danish company to save 250 American jobs for a whole weekend.  If you find this confusing … welcome to reality.  I’ve edited the headline and the post to reflect that change.