Bloomberg News

U.S. Grant to Korean Battery Firm Paid Workers to Play

February 14, 2013

U.S. Grant to Korean Battery Maker Paid Workers’ Down Time

The Energy Department cash was to cover about half of the costs to build a manufacturing plant in Holland, Michigan, for lithium batteries to supply General Motors Co.’s plug-in hybrid Chevy Volt. Photographer: Jin Lee/Bloomberg

Part of $142 million in U.S. Energy Department grant money given to a South Korean battery maker paid Michigan factory workers as they spent hours playing board games and watching movies, according to an agency report.

The work at LG Chem Michigan, a U.S. unit of Seoul-based LG Chem Ltd., has “not been managed effectively,” Energy Department Inspector General Gregory Friedman said in a report released yesterday.

The Energy Department cash was to cover about half of the costs to build a manufacturing plant in Holland, Michigan, for lithium batteries to supply General Motors Co. (GM:US)’s plug-in hybrid Chevy Volt. The goal was to create more than 440 jobs and to produce enough batteries for 60,000 electric cars and trucks by the end of 2013, according to the report.

LG Chem’s troubles at the Holland factory mark another stumble in President Barack Obama’s effort to promote clean energy manufacturing with government funds. Solyndra LLC, a solar-panel maker, collapsed just two years after it received a $535 million U.S. loan guarantee. Battery maker A123 Systems Inc. (AONEQ:US) declared bankruptcy in October and has since been sold to a Chinese company after also receiving federal funds.

While the LG Chem facility has produced test batteries, it has yet to make any for commercial use, and employment there was less than half of projections at the time the inspector general’s review was conducted, according to the report.

‘Video Games’

Lacking work, “employees spent time volunteering at local non-profit organizations, playing video games and watching movies during regular hours,” the inspector general said in the report. The department may have paid about $842,000 to employees who weren’t working, the inspector general said. The company has reimbursed the government.

LG Chem attributed the delay of commercial operations at the battery factory to smaller-than-expected demand from the second half of last year, the company said in an e-mailed statement today. It denied the inspector general’s claim that U.S. taxpayer money helped pay employees to play games.

Some employees volunteered at outside organizations to help the community, while others performed “necessary maintenance” to keep the plant ready for production, LG Chem, South Korea’s largest chemical manufacturer, said in the statement.

LG Chem, which continues to make batteries for the U.S. at a facility in South Korea, is “developing” plans for the start of production at the Holland facility but hasn’t set a date, the company said. At the moment, 150 employees are working at the Michigan plant, LG Chem said.

Republican Criticism

Energy Department officials told the inspector general that “language requiring the shift in production had not been incorporated into the grant.”

Friedman’s report prompted new criticism from Republicans about the department’s clean-energy efforts under the 2009 economic stimulus program, which also funded Fremont, California-based Solyndra.

“It is an outrage that American taxpayer dollars were given to a company that failed to reach basic project goals and paid employees to watch movies and play board games during work hours,” said Representative Lamar Smith, a Texas Republican and chairman of the House Science committee.

Despite the Solyndra and A123 setbacks, Obama reiterated his commitment to clean energy in his Feb. 12 State of the Union speech by calling for the creation of a fund paid for with oil and gas revenue to research alternatives to gasoline, including the development of electric-car batteries.

Not Sufficient

LG Chem said the U.S. government funded half of the $300 million investment in the battery plant with the company funding the rest on condition that it will recoup as much as $130 million through tax breaks from the government.

“There has not been sufficient market demand to make production at LG Chem Michigan financially feasible,” LG Chem said in the statement. “The cost of filling limited demand from two separate facilities would not make economic sense.”

The company’s rechargeable battery business, which produces batteries for electric cars and notebook computers, shifted to an operating loss of 14.8 billion won ($13.7 million) in the fourth quarter from an operating profit of 45.7 billion won ($42.2 million) a year earlier.

“Employment and production at LG Chem Michigan will be determined by market demand, and we have great confidence in the future of the market,” LG Chem said in the statement.

LG Chem shares rose 0.2 percent to close at 302,500 won today in Seoul, marking the highest close since Feb. 4. Korea’s benchmark Kospi index gained 0.2 percent.

To contact the reporters on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net; Sangim Han in Seoul at sihan@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net


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