Rocky Barker: Creditors antsy over idle Pocatello plant’s future, getting paid

rbarker@idahostatesman.comAugust 6, 2013 

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Hoku’s Pocatello plant. Hoku and its subsidiaries filed for bankruptcy July 2 under Chapter 7 of the U.S. Bankruptcy Code, which often leads to liquidation


Jim Harten had to mortgage his house when Chinese-owned Hoku Materials failed to pay him nearly $600,000 for special ladders and platforms he built for the company’s $700 million polysilicon plant in Pocatello.

Harten and other debtors were led to believe Hoku’s commitment to pay them was solid, since the Baoding Tianwei Group, which took over Hoku in 2011, was backed by the Chinese government. Tianwei officials told contractors they could expect to get paid, because “the full faith of the Chinese government is behind us,” said Mark Fleischauer, senior vice president of JH Kelly, the plant’s main construction contractor.

“I had the same impression as well,” Harten said.

The bankruptcy of the plant leads city and state leaders to wonder about its fate. It also raises new questions about Chinese investment in the United States.

Pocatello and Idaho hope that bankruptcy proceedings that have begun over the $1 billion Hoku owes its creditors will lead to a buyer who won’t dismantle the plant, which was designed to make silicon for solar photovoltaic panels.

Kelly, of Vancouver, Wash., paid off its debts to Harten and found him other work that has helped keep him afloat. Kelly wants the $25 million it believes Tianwei owes the company.

Kelly’s president, Mason Evans, wrote in a guest opinion in the Idaho State Journal last weekend that it is continuing discussions with Tianwei to settle its claims and “to establish a fund to help the Pocatello community rebound from the Hoku/Tianwei failure.”

Tianwei wants money, too. The company says Hoku owes it more than $270 million it invested in the company it took over.

An attorney representing Tianwei in Boise did not return a phone call Monday.

The Hoku issue is the latest minefield the world’s second-largest economy faces with investment in this country. In the heady days of 2011, Chinese President Hu Jintao visited the United States. Later that year, Baoding Tianwei Group and Wells Fargo cut a financing deal.

Ding Qiang, vice chairman and president of Tianwei, holds a post in the Chinese government. He visited Pocatello and met with local and state officials.

“We often had high-ranking (China) officials touring the plant and inspecting the work,” Harten said.

Harten worries that Tianwei may decide that selling the plant in pieces offers the best chance to simply move polysilicon production to China. “I would definitely be wound up about that,” Harten said.

If that happens, states and communities may think differently the next time Chinese companies come calling with offers to invest. But if the Hoku bankruptcy is a one-time event, it may not be significant, said Jared Anderson, managing editor of Breaking Energy, a newsletter that follows the energy industry.

“If a pattern of this kind of thing was to emerge, it could be problematic,” Anderson said.

China has become more sensitive to U.S. concerns since the China National Offshore Oil Corp. was forced to withdraw its bid to buy Unocal Oil in 2005 because of concerns about a Chinese company owning a major U.S. oil producer, Anderson said.

U.S. Bankruptcy Trustee Gary Rainsdon wants to raise money fast to pay for the mounting costs of maintaining the Hoku plant, which was nearly complete before it closed. The sooner the maintenance issue is resolved, the more value will remain for the debtors.

JCF Funding of Henderson, Nev., a financial and development consulting group, made an informal offer on the plant Thursday that it said exceeded the $25 million expected value of scrapping the plant. JCF has on its team former Hoku Plant Manager Ed Church, who had been seeking a deal to save the plant.

JCF said it would submit a formal written offer Monday. Nothing had been filed by 3 p.m. Monday with the bankruptcy court in Pocatello.

In a news release, JCF said it has been working with Idaho Falls-based AHSCO Trust and Arco Hills Silica Co., which is prepared to run the plant. JCF said it would employ 200 people in Pocatello and the surrounding communities and has plans for an additional 1,500 jobs during the next two to three years.

The company hopes to buy the plant and sell polysilicon for solar panels on the world market, the same goal Hoku had. The difference, JCF said, is that three-quarters of China’s solar-grade polysilicon producers face closure as the Chinese government overhauls what JCF called “a bloated and inefficient industry.”

JCF said the plant would need to be completed with upgrades — including a new rail spur, a silicon grinding operation and some rewiring of the control system — for production to start and for the plant to be competitive. While JCF has Church and other members of Hoku’s Pocatello management team behind it, it’s not clear JCF has the money to pull off its risky venture.

“The first thing a bankruptcy judge asks is: ‘Show me the money,’ ” JH Kelly attorney Ford Elsaesser told The Associated Press last week.

Fleischauer said JH Kelly would prefer the plant remain intact.

“It’s a painful thing for a contractor to disassemble a plant you built,” he said.

© 2013 Idaho Statesman

Rocky Barker: 377-6484

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