The "Hawaii Free Press" reports that Senate Majority Leader Harry Reid (Democrat Nevada) has "meaningful ties" with Ormat Industries Ltd. (TASE: ORMT), which benefited from a possibly illegal bailout for its geothermal plants in his state. The paper cites a report of US House Committee on Oversight and Government Reform, dated March 20, 2012.
Ormat is also Hawaii's largest geothermal company, owning Puna Geothermal Ventures, and is drilling for geothermal resources on Haleakala.
The Congressional report states, "Senate Majority Leader Harry Reid announced on September 23, 2011, that the Department of Energy finalized a $350 million partial loan guarantee for three geothermal power plants owned by Ormat Nevada, Inc. Ormat also benefitted from the $98.5 million loan guarantee to Nevada Geothermal as Ormat received an almost $80 million engineering, procurement, and construction contract to build Nevada Geothermal’s Blue Mountain plant."
The report adds, "Meaningful ties exist between the Senator and Ormat. Two of Ormat’s federal lobbyists previously worked for Senator Reid. Ormat’s outside lobbyist, Kai Anderson of Cassidy and Associates, served as Senator Reid’s Deputy Chief of Staff up until 2005. Anderson lobbies both the House of Representatives and the Senate for Ormat. Anderson has given close to $90,000 to Democratic candidates and campaign committees over the past three cycles, including thousands to Senator Reid. Ormat’s company lobbyist, Director of Policy and Business Development Paul Thomsen, served as a “Regional Representative” for Senator Reid through 2005. Thomsen gave thousands in political contributions to Senator Reid. During Senator Reid’s 2010 reelection campaign, Thomsen starred in a campaign ad for Senator Reid to advertise the benefits of Ormat’s loan guarantee for Nevada. In addition to Anderson and Thomsen, Ormat’s President, Yoram Bronicki, gave thousands in political contributions to Senator Reid. The strong ties between the company and the Senate Majority leader raise questions about whether the Department of Energy acted in the best interests of the American people when it approved the loan guarantee."
The report also states, "Nevada Geothermal has a well documented history of major financial problems. By the time Department of Energy conditionally approved the loan guarantee, Nevada Geothermal had already violated contract terms and debt covenants relating to financing from its primary lender, TCW. According to Nevada Geothermal’s financial statements, the firm would not avoid default without the benefit of a loan guarantee.
"On October 2, 2011, "The New York Times" ran a story about the financial difficulties of Nevada Geothermal, relying partially on a September 2011 Deloitte & Touche audit of the company which stated “significant doubt about the company’s ability to continue as a going concern.” In response, the Department of Energy dismissed the financial problems of Nevada Geothermal and instead pointed to the alleged financial health of Blue Mountain to argue that the loan guarantee would be repaid. Given that Nevada Geothermal’s principal operation is Blue Mountain’s Faulkner I Power Plant, such a distinction has questionable merit."
It adds that the Department of Energy bailout of Nevada Geothermal was planned out in advance, as made clear by Nevada Geothermal’s March 31, 2010 financial statement: "The Company has engaged John Hancock to provide long term debt up to $95 million which will be used to pay down the TCW loan and to fund additional drilling. However, this potential John Hancock loan is subject to due diligence and final credit committee approval by John Hancock. There is no certainty that the anticipated debt financing through John Hancock will be obtained. Failure to obtain the John Hancock loan, or a similar loan from another lender, and/or unsuccessful drilling may result in a default under the terms of the TCW loan agreement. In the event of a default TCW may elect to call the loan and execute upon the security, which would result in a material adverse effect on the Company, including delay or indefinite postponement of operations and further exploration and development of our projects with the possible loss of such assets."
The Congressional report concludes, "Not only does it appear that Department of Energy purposely directed taxpayer funds to a failing enterprise, Department of Energy’s action robbed taxpayers of genuine investment toward renewable energy. This loan guarantee bailed out lenders (TCW) and provided no assurance that TCW would apply the money that it recovered toward the economy or jobs as required by the American Recovery and Reinvestment Act of 2009. Title XVI, Section 1602 of the American Recovery and Reinvestment Act of 2009, requires that “recipients shall also use grant funds in a manner that maximizes job creation and economic benefit.” Paying off a creditor clearly does not maximize job creation and economic benefits. Rather, it provides an opportunity for private industry to exit an investment, deleverage and transfer the extraordinarily high default risk to taxpayers.
"For this reason, it appears the Department of Energy, in its very first FIPP section1705-based loan guarantee, violated the spirit and, quite possibly, the letter of the law."
Ormat Industries Ltd. (TASE: ORMT) owns Ormat Nevada through Ormat Technologies Inc. (NYSE: ORA). Ormat's share price fell 2% on the TASE today to NIS 17.90, giving a market cap of NIS 2.1 billion, and Ormat Technologies fell 1.5% in early trading on the New York Stock Exchange to $19.93, giving a market cap of $905 million.
Published by Globes [online], Israel business news - www.globes-online.com - on April 4, 2012
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