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Steel company’s Russian ties complicate bid to change ‘Buy America’ provisions

A campaign to loosen the rules on steel products that can be sold to the U.S. government for bridges, railways and other big projects has run into a huge public relations headache: A Russian oligarch stands to benefit.

The quiet push to rewrite provisions buried deep within several key federal programs up for debate in the coming months is being waged by two companies that argue that the rules unfairly lock them — and their workers in three states — out of hundreds of millions of dollars in government spending.

But opponents of their effort, including much of the struggling domestic steel industry, say the proposed changes would reward businesses that shift a large portion of the money and jobs involved in the steelmaking process to facilities outside the country.

The critics have broadened their talking points in recent weeks to tap into fresh geopolitical concerns, warning that loosening what’s known as “ America” standards would benefit Vladimir Lisin, a steel magnate who is one of Russia’s wealthiest men, at a time when the United States has been imposing sanctions on Russian officials and oligarchs in response to the country’s intervention in Ukraine.

Lisin, who has not been included in any sanctions list, is chairman and owner of Novolipetsk Steel or NLMK, a top Russian steel producer. The company’s American subsidiary, NLMK USA, has facilities in Pennsylvania and Indiana and is one of the companies pushing for the revisions.

“Why would you want to, through the legislative process — whether intended or unintended — do something for a Russian oligarch at a time like this?” asked Scott Paul of the Alliance for American Manufacturing, a partnership between manufacturers and the United Steelworkers union. “It just doesn’t make sense.”

NLMK and California Steel Industries have recently intensified their fight. The two companies paid Patton Boggs, the lobbying powerhouse, nearly $800,000 in 2013 and have spent $270,000 in the first quarter of 2014, about evenly split between them. In doing so, they have set their sights on several pieces of legislation moving through Congress.

“Our ability to grow and compete depends on this,” said Robert Miller, president of NLMK USA.

The key issue in the industry dispute isn’t the foreign ownership of NLMK or of CSI, which is jointly owned by Vale, a Brazilian mining company, and JFE Steel Corp. of Japan. Indeed, foreign investment has played a key role in rejuvenating the U.S. steel industry, and other Russian-owned companies, including Severstal, have plants in Michigan and Mississippi whose steel can be used in big-ticket government projects.

The problem for NLMK and CSI is that they rely on roughly 20-ton imported slabs of steel that they reheat and convert into finished rolls of steel and other products. That means they don’t meet the standard, first used in a 1982 transportation bill, that has been interpreted by federal officials to require products that get government funding be made with steel that has been melted and poured in the United States.

The companies’ latest effort— to insert favorable language in a water infrastructure bill that would fund ports and other projects — was unsuccessful. But the companies plan to keep pushing their case in the coming weeks as Congress considers two other big spending measures: One that had tougher America standards added to it last year funds the Interior Department, the Environmental Protection Agency and other agencies, and a massive surface transportation bill that provides billions of dollars to rebuild airports, bridges, railways and roads. House and Senate committees started working on the transportation billthis month.

Attempts to influence the water infrastructure bill failed despite support from Sen. Dianne Feinstein (D-Calif.), Rep. Janice Hahn (D-Calif.) and other lawmakers.

Feinstein had urged her colleagues working on a House-Senate compromise version of the measure to change the Buy America provision to require that steel products manufactured in the United States be considered “produced in the United States,” even if they were made from imported slab. Aides for Feinstein said “her focus was entirely on the California company.”

Hahn said much the same, noting that her district includes the Port of Los Angeles, through which CSI imports its steel slabs.

“With the economy continuing to recover, this region cannot afford to lose the 1,200 jobs at CSI nor the 15,000 good paying jobs that could be impacted nationally,” Hahn said in a statement. After studying the issue for almost two years, Hahn said she concluded that “This waiver is a jobs issue.”

But the final version of the water infrastructure bill, released Thursday and set for debate in the House this week, instead makes the ports and other water-related projects it funds subject to the same domestic preference standard that apply to roads, bridges and rail projects. That language, put forward by Sen. Sherrod Brown (D-Ohio) and Sen. Jeff Merkley (D-Ore.), was adopted by the Senate during its debate on the legislation.

“American tax dollars for American infrastructure projects should support American jobs, rather than enrich a Russian oligarch,” Brown, an outspoken supporter of the U.S. steel industry, said in a statement.

NLMK and CSI argue that the industry has evolved in the three decades since the “melted and poured” standard was adopted, including the introduction of their processing method. And, they say, they typically use imported slab because they can’t get enough that is produced in the United States. NLMK, which employs about 1,100 at its two locations, brings most of its slab from Russia. CSI imports most of its slab from Japan, Mexico and Brazil.

In the current fights, NLMK USA and CSI find themselves at odds with much of the U.S. steel industry, which argues that domestic slabs are available but that the companies prefer to buy them from abroad where workplace and environmental standards are lower.

“If you’re going to have U.S. infrastructure projects that use taxpayer dollars, why on earth wouldn’t you want to use steel that is melted and poured in the U.S.,” said Philip Bell, president of the Steel Manufacturers Association, which has spoken out in favor of existing Buy America rules.

CSI is not a member of the industry group. Miller, NLMK USA’s president, said his company is in the process of dropping out of the trade association because of the disagreement on the issue.

Lisin, the NLMK owner, has not been on any sanctions lists to date, and Miller rejected any connection between the crisis in Ukraine and his company’s Russian ownership and reliance on Russia steel. “The Buy America issue started a long time before the current Ukraine situation,” he said.

Indeed, signs of the industry split first emerged during debate over the 2009 American Reinvestment and Recovery Act, better known as the economic stimulus plan, as companies hard-hit by the recession scrambled to reap the benefits of federal spending. While products made from imported steel slab can be used in many federal programs, the same standard used for transportation projects — and set to be applied to water infrastructure projects — was eventually applied to the stimulus program.

“All we’re asking for is to be treated on a level playing field with the other suppliers,” Miller said.

“I don’t see us giving up on this,” said CSI’s Brett Guge. “We’re doing this for our employees and our customers.”

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