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Feds: No product to show for $150M LG Chem grants

10:06 PM, Feb 13, 2013   |    comments
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 PDF Document: OAS RA 13 10 - U.S. Department of Energy Report on LG Chem Grant Management  PDF Document: LG Chem DOE IG Audit Statement - Response from LG Chem to DOE report

UPDATE AT 4:10 P.M. (WZZM) -- LG Chem is releasing a statement in the wake of a U.S. Department of Energy report on the management of the company's $150 million federal grant for battery production at its plant in Holland.

In the statement, the company says it is reimbursing $842,000 in labor costs to the federal government for wages paid to workers who were watching movies, playing cards, and volunteering at community organizations on company time.  The company says it is taking steps to prevent such actions in the future and to comply with rules for use of federal grant money.

According to the statement, LG Chem says it is aware of concerns that the Holland plant has not produced batteries, but it is still committed to the future of the facility.

HOLLAND, Mich. (Detroit Free Press) -- LG Chem Michigan, which received a $150-million federal grant in 2009 and more than $175 million in state and local tax relief, has not manufactured any battery cells but was reimbursed for more than $1.6 million that was paid to workers who volunteered for animal shelters, charitable groups and spent many hours watching movies and playing video games or cards, according to a report released Wednesday by an inspector general for the U.S. Department of Energy.

"We found that work performed under the grant to LG Chem Michigan had not been managed effectively," wrote Gregory Friedman, the DOE inspector general. "Our review revealed that LG Chem Michigan inappropriately claimed and was reimbursed for labor charges incurred by a
variety of supervisory and staff employees for activities that did not benefit the project."

The department reimbursed the company for questionable labor costs incurred in the third quarter of 2012, but Friedman was unable to calculate the exact loss to the government because LG Chem Michigan did not track labor
activities in detail.

"However, based on LG Chem Michigan employee revelations, we believe it is likely that the total amount of charges that included at least some non-productive work exceeded $1.6 million, about $842,000 of which was reimbursed in accordance with its cost-sharing arrangement for the project," the report stated.

Other findings included:

• The plant has not yet made battery cells that could be used in electric vehicles sold to the public.

• Only about 60% of the capacity agreed to when the grant was received was constructed even though nearly $142 million of $151 million of the Energy Department's share of the project's funding had been spent.

• LG Chem Michigan officials estimated the government would need to spend $22 million more to complete the five production lines called for in the agreement, an amount that would significantly exceed the remaining funds available.

• LG Chem Michigan had significantly underestimated labor costs.

• Documentation to support the grant indicated that production of battery cells would transition from LG Chem's South Korean facility to the Michigan plant beginning in 2012, but that didn't happen.

• Less than half of the 440 expected jobs had been created to support the project.

• The period of performance for the grant runs through May 2013. Yet, the expected benefits of the project are not likely to be realized within the originally anticipated timeframes.

Phone calls to the company's headquarters in Holland reached repeated busy signals.

LG Chem Michigan was supposed to be a cornerstone of the Obama administration's push to get American automakers to sell 1 million plug-in electric and hybrid vehicles in the U.S. by 2015, a goal that now appears unlikely to be reached.

Both President Barack Obama and then-Gov. Jennifer Granholm attended the July 15, 2010, groundbreaking for the 650,000-square-foot building where the company had promised to produce enough battery packs to power 60,000 electric vehicles by the end of 2013.

GM has been buying LG Chem lithium-ion batteries made in South Korea instead of Michigan for the Chevolet Volt. Consequently, the company's workers in Holland have been on rotating furloughs. At its peak, there were 215 jobs there, and by the time of the inspector general's review there were only 200.

The Energy Department defended its performance overall. In a memorandum to the inspector general's office, Kathleen Hogan, deputy assistant secretary for energy efficiency, said that the questionable labor spent on community groups represented less than 1% of the grant for the project. She said that "emerging technologies and industries often face struggles early on."

By greg Gardner, Detroit Free Press Business Writer

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