Mitsubishi to ‘mothball’ Fort Smith plant (Updated)

Mitsubishi has decided to “mothball” its Fort Smith wind-turbine manufacturing that was expected to employ 400 at full production.

Officials with Mitsubishi Heavy Industries said the demand for wind turbines in North America had stagnated, with new contracts difficult to obtain. The company is also in an ongoing legal battle with General Electric related to patent claims on wind-turbine equipment.

“Since the 2008 banking crisis, demand for wind turbines in the North American market has stagnated, and the commercialization of cheap oil-shale gas and other matters have had a further dampening effect, making it more difficult for MHI to win new contracts,” the company noted in its statement. “In this market environment, the company has continued to promote the development of new and more competitive wind turbines, but in view of few signs of recovery in the North American wind turbine market, it was decided to take steps that include write-down of related inventory and to build a solid foundation for this business.”

The company is also in an ongoing legal battle with General Electric related to patent claims on wind-turbine equipment.

“The GE litigation is one of the reasons for MHI's decision,” Mitsubishi spokeswoman Sonia Williams told The City Wire. “As a result of GE's serial litigation against Mitsubishi, wind turbine developers in the US are hesitant to purchase Mitsubishi wind turbines and banks are loathe to provide funding for projects that use Mitsubishi wind turbines.”

Williams also said: “Mitsubishi plans to mothball the plant for the time being.”

Mitsubishi officials said they will post a fiscal year 2011 loss of about $240 million (20 billion yen) for the “write-down of wind-turbine inventory and related measures.”

HISTORY
Questions about the plant becoming operational were raised less than 90 days after it was announced the plant would be built at Chaffee Crossing.

Mitsubishi announced Oct. 16, 2009, plans to build the $100 million, 200,000-square foot wind-turbine manufacturing plant on 90 acres at Fort Chaffee. Construction is finished on the plant. The plant could employ up to 400 once fully operational, and Mitsubishi officials initially said full production and the 400 jobs could be in place within the first quarter of 2012.

In December 2009 it was learned that legal and trade disputes between Mitsubishi and GE would delay the opening of the Chaffee Crossing plant.

There were concerns that Congressional delays on extending the Production Tax Credit (PTC) to January 2014 was a factor in the decision to make operational the Fort Smith plant. The (PTC) establishes an income tax credit of 2.2 cents per kilowatt hour of energy produced by utility-scale wind turbines. The credit was first established in 1992, and is set to expire at the end of 2012. But Mitsubishi officials have said a PTC extension does not factor into when or if they will operate the newly construction Fort Smith plant.

REACTION
Gov. Mike Beebe issued this statement: “While this decision is a setback, it does not mean that Mitsubishi is leaving Arkansas. Mitsubishi has invested tens of millions of dollars in its state-of-the-art Fort Smith facility.  We will continue working with the company to be ready if the opportunity returns to open that plant.

“Mitsubishi is dealing with patent litigation and energy markets altered by inexpensive natural gas. However, the complication I find the most frustrating is the inability of Congress to adopt a stable, long-term national energy policy. Wind-energy companies need to know if incentives will or won’t be available to them long-term. Having to wait every year to find out the fate of federal support for this emerging industry does not help innovation or economic development.”

Paul Harvel, president and CEO of the Fort Smith Regional Chamber of Commerce, and Fort Smith City Administrator Ray Gosack are confident the modern building will be used by Mitsubishi or another operator.

“We have no idea when they will start. We just do not know. Their intent, I believe, is to open the plant and operate it,” Harvel said. “I do think it will be a long time.”

Continuing, he noted: “At some point in time, there will be jobs in that building. There is no doubt in my mind about that, because that building is such a big asset.”

Gosack said the news is unfortunate, but not a surprise.

“They’ve formalized what we’ve been observing for the last few months,” he said.

However, Gosack believes wind energy is not a fad.

“Looking to the future, wind energy is going to be a part of the American energy solution. Looking at the wind-energy market, the (market) winds have gone calm right now, but I expect in the future the winds will become more favorable,” Gosack said.

That future might be wind turbines unlike those planned for assembly in Fort Smith. Mitsubishi said in the statement announcing its Fort Smith decision that it “intends to speed up its development of large offshore wind turbines, which require a particularly high level of technological sophistication, and to expand its onshore wind turbine business in Japan, where demand is expected to grow as a result of the government's "feed-in tariff" policy to promote renewable energy, as well as in overseas markets.”

Officials with the Fort Chaffee Redevelopment Authority (FCRA) said they talked with Mitsubishi about the decision. The FCRA issued the following statement Monday afternoon: “We believe that MPSA’s decision to delay operation of the wind turbine facility at Chaffee Crossing is not an indication that the plant will never open. The FCRA board respects that MPSA executives have to make responsible financial decisions for the sake of their overall operation. We will continue to maintain open communication with all parties involved and feel very confident that the investment will eventually become a major jobs engine for the greater Fort Smith region. Our relationship remains strong and we will welcome them with open arms, no matter how long it takes to begin production in this first-class facility.”

INCENTIVES
To date, the Fort Smith chamber has paid a little more than $240,000 of a $585,000 incentive package used to recruit Mitsubishi. The chamber incentives have four components. They are:
• Mitsubishi is paid $166,667 upon groundbreaking;
• Mitsubishi is paid $166,667 when the plant opens;
• Mitsubishi is paid $166,666 upon hiring 300 employees; and,

It was initially estimated that Mitsubishi would receive $85,000 for support of temporary office space for “key employees to begin typical start-up activities,” temporary housing for key employees for re-location and a corporate Hardscrabble County Club membership for one year.

“I will tell you that if had it to do it all over again, we would do it the same way,” Harvel said.

In addition to the chamber incentives, federal stimulus funds were plan to be used to support $3.7 million in tax-exempt bonds as part of the Mitsubishi incentive package. The bonds, issued by the state, will be paid back by Mitsubishi but at a lower interest rate than traditional bond proceeds.

The city of Fort Smith spent about $1.6 million in road and water/sewer infrastructure support for the plant.

Gosack said the infrastructure support was for more than just the Mitsubishi plant.

“Any time we have done infrastructure at Chaffee Crossing, we don’t do it for just one industry. We do it for the benefit also of other properties and other purposes,” Gosack explained, noting that road work related to the Mitsubishi work has opened up new areas of Chaffee Crossing for future development.

The city will also issue $75 million in Industrial Revenue Bonds of which Mitsubishi will make payments in lieu of taxes equal to 50% of the normal property taxes for the first 20 years on building improvements and 12 years equipment. The repayment of the bonds are the full responsibility of Mitsubishi, Gosack said.

Gov. Mike Beebe authorized an undisclosed amount from his Quick Action Closing Fund, but the monies are not released until the plant becomes operational.