May 25
May 21, 2007Sheila Boudreaux
May 23, 2007
Louisiana may have lost the $3.7 billion ThyssenKrupp AG steel mill project to Alabama, but Louisiana Department of Economic Development secretary Michael J. Oliver sees the loss as a win.
The secretary also remarked on the state’s economic progress, citing the state acquiring about 100 new projects worth $13 billion, while pointing out possible pitfalls.
“When the world found out that, wow, Louisiana bid a billion dollars for a project that got the attention of some of folks that Louisiana meant business,” said Olivier at the Bayou Region Day at the Louisiana Legislature. “With that we have at least five projects that have gained interest in Louisiana.”
Olivier explained the loss of the steel mill contract could be attributed to two main factors. And a third perhaps being the tendency of the German company to want to over-engineer everything.
“Logistically, we had the best site,” said Olivier.
But Louisiana’s power cost is currently higher than Alabama said Olivier.
Not only that, Olivier said the state put in a 23 and a half mile long power line, which could have served the mill functionality with a $100 million radial line, but the German company wanted to have a $230 million redundant line.
And while other companies, like Shell, who have plants near the site, were built for a 100-year flood plain, the German company wanted a 500-year flood plain.
“Do you know what the cost is to raise an area of a plant site, a 4,000 acre plant site, eight and a half feet? That’s a lot of dirt. In fact, it was almost $300 million worth of dirt,” said Olivier.
The German company was also concerned about labor costs, but Olivier explained the labor market in Alabama is basically the same as the market in Louisiana.
“When you look at it and think about it. We were pretty much on a level playing field in everything else. That’s interesting,” he said. “We’re not doing that bad even though we lost the ThyssenKrupp deal.”
Olivier cited other projects the state has picked up, starting with the $3.2 billion Marathon Oil Corp. refinery expansion.
“It’s really a new refinery right next door to the old refinery,” he said.
And he said Formosa Plastics to invest $100 million in its East Baton Rouge Parish plant.
But Entergy’s expansion could be crucial, not only for reducing the state’s electricity costs, but for Louisiana getting the last laugh over Alabama.
Olivier said Entergy planning to build a billion dollar new solid fuel plant using petroleum coke, a by-product of the oil refining process, as the solid fuel.
“We’ve been trying to find ways to get rid of that stuff, paying people to take it away,” he explained. “Now, we have somebody that’s going to build a billion dollar plant to burn that solid fuel. And guess what? That helps us stabilize our electric rates for a long time to come.”
Olivier also said Entergy will probably have to build a new nuclear plant. And the investment will be made in the same site as its aging nuclear power plant, which is already licensed and permitted for another plant.
The last laugh, as it were, comes from the fact clean air standards will force all of Alabama Power’s nine plants to construct expensive scrubbing towers.
The local Shaw Group inc. got the contract to build the first of the scrubber towers at a whopping $300 million. And the tower will be the largest of its kind in the world.
Olivier said the state recorded the nation’s largest growth in per capita income in 2006 with a 3.07 percent increase, but he also said the state could be facing a potential $3 billion shortfall in the Road Home Program, courtesy of a FEMA miscalculation.
“There still are some tough times ahead of us. We got some surplus going for us right now. We don’t know how long that’s going to last,” he said.
Olivier explained FEMA undercut Louisiana’s Road Home Program by 22,000 homes, equating to about $3 billion. While at the same time, FEMA overestimated Mississippi’s need for home by awarding enough funds for 56,000 homes, when the neighbor state only needed 21,000.
“They started a $330 million economic development infrastructure fund. And they are kicking our rear,” he said. “They are offering companies grants, $3 million, $5 million. No interest loans, $5 million, $10 million. It’s tough.”
With $300 million set aside $300 million last session by the state legislature and another $100 million proposed for economic development projects this session Olivier thinks the state can compete with Mississippi despite the shortfall.
“We want to see $100 million go to our ports,” he said. “It needs to go to ports, because we’re way behind in terms of port development.”
Olivier also said the state needs to treat its gambling industry as a corporate partner as the state’s gaming industry generates $2.6 billion in revenue.
The state taxes its gaming industry at a rate of about 30 percent, whereas Mississippi taxes them at a rate of 12 percent.
“Indiana, Louisiana and Mississippi tie for third after Nevada and New Jersey in gaming revenue. But we don’t treat our gaming industry as partners as a part of our corporate community. I don’t know why,” said Olivier. “And I propose that we start doing it, because what’s going to happen is, Mississippi is about to kick our rear, because they have land-based gaming now.”
Olivier also warned Texas plans to introduce gaming, which poses a threat to Shreveport and Lake Charles gaming industries.
