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November 16, 2012

GOP Senators Demand Probe of A123 Bankruptcy Bailout



Should a China-based company be able to bail out a bankrupt U.S.-based green energy provider that holds numerous Department of Defense contracts—at least one of them classified? Or should the federal government step in to help the struggling company out, possibly investing good taxpayer money after bad? Those are two issues being investigated aggressively by Senate Republicans, led by John Thune of South Dakota and Chuck Grassley of Iowa.  

According to a story in the Detroit Free Press, Waltham, Massachusetts-based A123 Systems, a developer and manufacturer of advanced lithium-ion batteries, received a $946,830 check from the U.S. Energy Department on the day it filed for Chapter 11 bankruptcy last month.

Prior to the filing, in mid-August, the Wanxiang Group, a China-based parts maker that has acquired a number of auto assets across America’s Midwest, had made a $465 million offer to buy the faltering battery company—but the deal collapsed when A123 was unable to comply with the conditions of the agreement. Now, Wanxiang continues to compete with Milwaukee-based Johnson Controls, a global diversified technology company, to purchase A123.

The Senators are pursuing answers both about the U.S. grant — which they claim represents another failure of the DOE loan program — and about the possibility of a deal with a Chinese firm.

The federal funding provided on October 16 — which supplemented $133.3 million of a Department of Energy grant already received by A123, bringing the total stimulus payment up to about $134 million— was challenged by Senators Thune and Grassley in a letter to Treasury Secretary Tim Geithner on November 1. Geithner has oversight of the Committee on Foreign Investment in the United States (CFIUS) — an inter-agency group authorized to review transactions that could result in control of a U.S. business by a foreign person in order to determine the effect of such transactions on the national security of the United States.

A123 also told the two U.S. Senators, in a letter to which Reuters (News - Alert) received access this week that it may seek additional distributions from the original $249.1-million Energy Department stimulus award it won in 2009. The check that A123 received in October in the amount of nearly $1 million was the latest payment as part of the original grant, which has been distributed incrementally as the company meets certain benchmarks.

“A123 has received millions of taxpayer dollars to develop technology and intellectual property that should not simply be shipped to China,” said Thune. “Considering A123’s grid energy storage activities and active military contracts, the Obama administration must thoroughly scrutinize any transaction that would lead to A123 being owned by a foreign company. After several attempts, Senator Grassley and I have yet to receive straightforward answers from the administration on taxpayer-backed A123. Given the urgency of the bankruptcy process, we expect the administration to respond to our questions without delay.”“When Senator Thune and I started asking questions about A123, the Department of Energy promised it was monitoring every aspect of A123’s financial plans to make sure the American people’s interests were protected,” said Grassley. “It looks as if that effort has failed. A Chinese company could still gain access to technology supported by U.S. taxpayers and developed in part to help the Department of Defense. Since the Administration so far seems unconcerned about this possibility, this review by the Committee on Foreign Investment in the United States is the last line of defense. Without that intervention, the benefit of U.S. taxpayer dollars and military technology might go right to China. That can’t stand.”In a joint statement, the Senators demanded, “"The Department of Energy needs to answer for why it appears to put federal grants on auto-pilot to the detriment of U.S. taxpayers."

In return, the DOE has stressed that none of the government's grant would be allowed to fund facilities abroad.

For its part, A123 has said that it would expect the Committee on Foreign Investment in the United States (CFIUS) would lay out conditions to protect sensitive U.S. military data, if the company were acquired by a foreign firm.

The next move is expected shortly by the CFIUS.




Edited by Rich Steeves

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