Future remains uncertain for Mitsubishi’s Fort Smith plant

by The City Wire staff (info@thecitywire.com) 52 views 

The city of Fort Smith and the Fort Smith Regional Chamber of Commerce bet almost $1.8 million in 2010 that Mitsubishi would open and operate a wind-turbine assembly plant at Chaffee Crossing. While a safe bet at the time when the U.S. wind energy market was on the upswing, few now are willing to bet Mitsubishi will operate the facility that has been mothballed since April 2012.

Mitsubishi Heavy Industries announced Oct. 16, 2009, plans to build the $100 million, 200,000-square foot wind-turbine manufacturing plant on 90 acres at Fort Chaffee. The plant could employ up to 400 once fully operational, and Mitsubishi officials initially said full production of nacelles for the 2.4MW wind turbine 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. The GE legal dispute, concerns about the long-term availability of a federal tax credit and a slowing economy caused the company to idle the plant before a screw was turned on the assembly floor.

“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 the April 2012 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.”

Hopes the plant would open emerged in mid-December when Mitsubishi and GE announced a settlement of a long-standing legal dispute. The deal included GE and Mitsubishi agreeing to the cross-licensing of products – a surprisingly friendly deal considering the tone of both parties during the proceedings.

“We respectfully decline to expand upon our previous statement,” replied Mitsubishi spokeswoman Sonia Williams when asked if the company would open the plant considering the less than ideal North American wind energy market. “We are, in fact, considering all of our options for the future use of the facility and are not prepared to discuss publicly at this time.”

Williams declined to comment when asked if the plant would open for wind energy work only, or if it could be used to handle other Mitsubishi production.

News and industry reports suggest a slowing in the North American market, which may be more pronounced after the Jan. 1 federal tax credit expiration. That credit was 2.2 cents per kilowatt for 10 years of electricity production. The credit ended Jan. 1. Also, a joint venture with Vestas seems to be moving Mitsubishi more toward development of offshore wind turbine technology and systems.

Mitsubishi is not the only company facing tough market conditions. Nordex USA announced in June 2013 it would shutter its Jonesboro, Ark., production facility that once promised to employ 750 workers. The plant, which manufactured nacelles for large wind turbines said it will complete the orders in its pipeline and then shut the $40 million factory down. The German-based company said the decision was driven by the wind industry’s “global overcapacity” and the “continued uncertainty and instability of the U.S. market.”

Some market reports suggest offshore activity (around Europe, Japan, China) is the new growth area. Bloomberg New Energy estimates offshore could grow from 1.9 GW in 2012 to 8 GW by 2020.

Also, the North American market is not expected to soon see expansion at levels seen prior to 2012. Bloomberg predicts 8,000 MW expansion in 2014 and 3,200 in 2015. Navigant estimates 9,000 MW expansion in 2014 and 3,500 MW in 2015. Both estimates are well below the 13,131 MW in 2012.

Ivy Owen, executive director of the Fort Chaffee Redevelopment Authority, has said Mitsubishi has had several offers to sell or lease the building but have refused. To Owen, that’s a sign Mitsubishi officials are interested in using the building.

Tim Allen, president and CEO of the Fort Smith Regional Chamber of Commerce, is neither optimistic or pessimistic. He realizes market conditions are tough in the wind energy, but said “having the Mitsubishi name and having a working plant” in Fort Smith would be good for the region’s image.

“That’s a global brand. … A lot of towns out there would love to have them, so yes, having the plant open would obviously be good from a jobs perspective and would help us from an image perspective,” Allen said.

The deal to recruit Mitsubishi to Fort Smith included $585,000 in incentive payments from the Fort Smith Regional Chamber of Commerce. The chamber incentives had 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,
• Mitsubishi will 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.

The chamber has paid Mitsubishi the groundbreaking incentive.

In addition to the chamber incentives, federal stimulus funds were available 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.

Also, the city of Fort Smith committed about $1.626 million in road and water/sewer infrastructure support for the plant. The city also issued $40 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. Fort Smith City Administrator Ray Gosack said Mitsubishi is solely responsible to pay off the bonds – and the payments could be an advantage for Fort Smith.

“I think that it’s important to realize that Mitsubishi is having to make bond payments and pay property taxes on a facility that is producing no income. So Mitsubishi has the greatest motivation to make something happen,” Gosack said, adding that that the tax payment made by Mitsubishi in 2012 was $160,000.

Gov. Mike Beebe made available an undisclosed amount to Mitsubishi through the Governor’s Quick Action Closing Fund. But those incentives are paid only when the company hires workers and begins plant operations. Some state incentives also have “clawback” provisions which allow for recovery of incentives.

But clawbacks are not feasible for the $1.6 million in infrastructure work made by the city to support the Mitsubishi plant, Gosack said. He said the state has an advantage because many incentives are performance oriented, where cities have to do the infrastructure work to make the project happen.

“I’m not sure how you can issue a clawback on public infrastructure. While the road (Chad Colley Boulevard) was built for Mitsubishi, it serves many other users,” Gosack explained.