The Overseas Private Investment Corporation (OPIC), a U.S. government agency, issued a $9 million loan to Cinepax Corporation to expand its movie theater chain in Pakistan. In its description of the loan, OPIC stated “the project will help grow Pakistan’s services industry and in turn facilitate further economic growth.” This week, the Karachi Cinepax will be showing summer blockbusters Godzilla, How to Train your Dragon 2, and X-Men: Days of Future Past. OPIC describes its mission as mobilizing “private capital to help solve critical development challenges.” Typically, this means helping developing countries build infrastructure projects such as roads, power plants, or telecommunications. It now appears that movie theaters fall into the definition of “critical development challenges” as well.
According to a report by The Augusta Chronicle, an $8.3 million loan from the Department of Energy to upgrade a nuclear power plant in Georgia has yet to be finalized, despite being proposed three years ago. When the project started the loan seemed vital to reaching the estimated $14 billion costs of upgrading the plant. Now however, the cost projections have dropped and the company managed to privately borrow $4.3 billion last year alone. This is not an isolated incident of unnecessary loans being offered. Two other nuclear plants in Maryland and South Carolina both applied for loans that neither company view as essential.
“Can the company benefit from the program? In our view, yes,” said Dimitri Nikas, an analyst who studies regulated utilities for the Standard and Poor’s credit rating agency. “Is it absolutely critical? Probably not.”
Caterpillar, a company with a market cap of nearly $55 billion and 125,000 employees, wasn’t sure if it wanted to stay in York County, PA, an agricultural county in southern PA. Faced with the threat of losing such a prestigious firm, PA decided to give Caterpillar a host of economic incentives to entice them to stay. When faced with the prospect of real job loss, it’s hard for states and counties to just let them leave:
That package, Frank said, includes a $350,000 Pennsylvania First Grant and a $88,650 Guaranteed Free Training Grant. In addition, the company has been “encouraged” to apply for a $2 million Pennsylvania Industrial Development Authority Loan and a $4 million loan from the state’s Machine and Equipment Loan Fund, Frank said.
The news comes days after DOE announced that it would restart the loan program responsible for lending taxpayer funds to the struggling company.
The department loaned $50 million to the Vehicle Production Group in March 2011. It announced this week that, after recouping a small amount of that loan, it will sell the remaining $45 million debt to AM General for $3 million.
A few weeks ago we highlighted the Canadian government’s willingness to give millions of dollars to a single company — Bombardier. This program was highlighted by Mark Milke whose article was followed up by a response from Bombardier. Well, in this post Milke returns the volley:
In his 1946 essay, Politics and the English Language, George Orwell argued that, “political speech and writing are largely the defence of the indefensible.” Orwell’s quip came to mind again recently after reading Bombardier’s defence of taxpayer subsidies to business, this in response to my recent study on the matter.
The Department of Energy is selling one of its loan awards to minimize losses. The $50 million loan was awarded to the Vehicle Production Group LLC which shut down in May. The Chicago Tribune reports:
“The loan is presently not performing,” the DOE said of the VPG loan in its auction notice.
Molly Young at The Oregonian writes about a solar panel maker in Oregon who has defaulted on a state loan:
SoloPower has defaulted on a $10 million loan, state officials confirmed late Wednesday, the same day that executives at the struggling solar panel maker announced they were near a deal to restructure debt and reorganize in Portland.
Chief executive Robert Campbell said major creditors have agreed to terms that focus on rebuilding the organization in Portland, where the company originally planned to build a $340 million factory and employ hundreds.
Mercatus Scholar Veronique de Rugy has written the following opinion piece concerning Tesla Motors and the repayment of their loan to the Department of Energy (DOE). Tesla repaid their loan before schedule, which is a good thing for the taxpayers; however, Tesla should have never received money from the government in the first place.
“I believe that the government shouldn’t be in the business of lending money to private companies or encouraging banks to lend money to companies – whether the money will be repaid or not. That’s absolutely not the role of the federal government. Besides, there is something unseemly when so much in government subsidies goes to produce a car that only a few Americans can afford. (So far, Tesla’s main product ranges in price from $62,400 to $87,400 — including a $7,500 federal tax credit, and depending on the states other tax credits can apply).
But more important, the government meddling in the lending business introduce serious distortions and also destroys the level playing field by creating unfair competition for the companies that are not getting a federal guarantee.”
Andrew Evans from Free Beacon has recently covered the current state of policies that the Ex-Im bank is undertaking. The Export-Import Bank is a government agency that gives credit to companies, often companies with big political connections. This week the president of the Ex-Im bank announced that their effort to “support” the economy will not diminish if or when the U.S. economy improves, which means that they will still support their crony friends indefinitely.
Congress reauthorized the bank after a bitter fight in the House of Representatives last year. Part of the deal that won the bank reauthorization required the treasury secretary to initiate negotiations with other countries to reduce and ultimately eliminate export subsidies. The Treasury Department did not return a request for comment on the status of these negotiations.
Committee ranking member Mike Crapo (R., Idaho) raised several objections to the bank in his opening statement, including that the bank offers “corporate welfare” to businesses and some of its financing hurts domestic companies. The three Democrats who attended the hearing praised Hochberg’s work at the bank.
Angela Greiling Keane at Bloomberg writes an article about the numbers behind an automaker that the government has given millions of taxpayer dollars:
Fisker Automotive Inc. spent more than six times as much U.S. taxpayer and investor money to produce each luxury plug-in car it sold than the company received from customers, according to a research report.
The Anaheim, California-based company made about 2,500 of its $103,000 Karmas before halting production last year, disrupting its plans to use a $529 million U.S. loan to restart a shuttered Delaware factory owned by the predecessor of General Motors Co. (GM) The Karma was assembled in Finland.