January 31, 2011 | RealClear Politics.com

Steel Deal Reveals Pawlenty’s Priorities on Security, Jobs

If former Minnesota Gov. Tim Pawlenty decides, as expected, to run for president in 2012, he likely will talk about a unique national security qualification from 2007 in which he nudged an Indian company to drop its plans to invest in Iran.

The 50-year-old Republican embarked on a trade mission to India in late October of 2007 to meet executives from Essar Group, a Mumbai-based international conglomerate that had just acquired Minnesota Steel the week before. Essar was moving forward with plans to construct North America’s first mine-to-steelmaking plant in Minnesota’s Iron Range, a venture worth $1.65 billion that would create about 700 permanent jobs. The new facility is under construction now and scheduled to reach capacity in 2012; it is estimated to bring in 2,000 additional construction jobs, as well as spinoff jobs.

But there was a hitch: A U.S. Commerce Department official phoned Pawlenty during the trip to notify him of a Reuters report that had surfaced a few days earlier about Essar’s potential investment in a $10 billion oil refinery in Iran.

Had Essar pursued the investment, it likely would have meant the company was in violation of the Iran Sanctions Act.

So it was Pawlenty who delivered the message to Essar that because of terrorist activity associated with Iran, it would not be permissible for the Indian company to do business in both countries. And within four days of Pawlenty’s notice, Essar capitulated by way of a letter stating the company would abandon those interests in Iran, giving the Minnesotan a critical foreign policy line for his resume in the race for the White House.

Pawlenty’s supervision of Essar’s involvement in Minnesota was not free of hiccups or politics – he took some heat at home for jeopardizing job creation in order to score a national security victory – but the governor was careful to note in an interview last week that he didn’t see it as a stepping stone to the national stage.

“It was a matter of enforcing core principles and core values,” he explained, twice.

Yet when he threatened to pull the plug on more than $60 million in Minnesota infrastructure funding to prop up construction of the project, he helped spark a new paradigm for Iran sanctions.

“It was really trailblazing of Governor Pawlenty,” said Ilan Berman, vice president of the American Foreign Policy Council.

At the time, neither President Clinton nor President Bush had ever sanctioned a company under the Iran Sanctions Act since its original enactment in 1996, according to Mark Dubowitz, executive director of the Foundation for Defense of Democracies and director of the Iran Energy Project.

President Obama has since applied more pressure. He became the first president to sanction a company under the act, which he did in 2010 when he sanctioned Naftiran, a Switzerland-based Iranian energy company. Still, the real purpose of the law is to sanction international companies doing business with Iran’s energy sector, and Dubowitz pointed out that there are multiple companies that may be sanctioned in due course by the Obama administration.

In the Essar case, Bush had more power to act stringently than Pawlenty did as governor. Under the act, the president had the authority to prohibit Essar from investing in Minnesota, but he never made that call. Instead, by threatening to veto state funding for construction of the plant, Pawlenty took matters into his own hands.

“If it was not the first, then it was certainly the most high-profile example of the willingness of a government official to impose a choice on businesses between Iran and the United States,” Dubowitz said.

Pawlenty said that Bush administration officials did not give him guidance on how he should proceed. Representatives from the Commerce Department and the State Department simply provided him with information.

“In the end it was my decision,” he told RealClearPolitics.

So while en route to Minnesota at the end of his trade talks, Pawlenty hastily arranged a press conference to be convened in the Minneapolis-St. Paul International Airport upon his return on Oct. 27, 2007.

“I have learned that Essar companies may be engaged in discussions, plans or activities that may constitute or lead to prohibited business practices with Iran,” he said then. “Iran is a terrorist state. Actions by Iranian groups or individuals have killed American soldiers and many other innocent people. I will strongly oppose any effort to provide state financial assistance to companies or entities that engage in prohibited business practices with Iran.”

Essar Americas President Madhu Vuppuluri, the executive in charge of Essar Steel Minnesota, told RealClearPolitics in an interview that he, too, found out about the report during Pawlenty’s mission to India and was alerted by the governor’s team to the complications it could cause the Minnesota deal.

“Frankly, we were also unhappy about it because we never wanted to breach any code of conduct,” he said, adding that the timing was particularly unfortunate. In addition to it disrupting Pawlenty’s visit, Essar had acquired Minnesota Steel officially just a few days earlier.

Consequently, Vuppuluri said, when he became aware of how uncomfortable the reports of Iran connections made Pawlenty and, by association, the state of Minnesota, Essar immediately made clear that it would not continue down those avenues in Iran.

“We weren’t told we had to make a choice,” he said. “We were not [previously] aware of the significance attached, and we had not done as much as other companies in Iran before.”

He pointed out that Essar was vested in Minnesota and far along in the development of the project, whereas the petrochemical plant negotiations in Iran were in infancy.

But most important, Vuppuluri said, “We cherish and value our relationship with Gov. Pawlenty, Minnesota and the United States, and we wouldn’t want to put that at risk of any negativity.”

“I clarified to him we will in no way undertake the project that was publicized in the news with Iran,” he said. Vuppuluri sent a letter to Pawlenty on behalf of Essar making that official on October 31, 2007. “The project, per se, in Minnesota was never at risk.”

Pawlenty said his dealings with Essar executives were positive, and Vuppuluri corroborated that by calling them “exceptionally constructive.”

“I have great regard for his leadership,” Vuppuluri said of Pawlenty. “He acts with a lot of conviction and clarity of mind.”

Pawlenty’s action was in part a “grassroots response” to the federal government’s approach, AFPC’s Berman said, because there was a growing concern in many quarters at the time that the federal government was not doing enough to pressure Iran.

Another case arose in 2008 when then-state Sen. Ted Deutch, a Florida Democrat, pressed then-Gov. Charlie Crist to examine the European company, Vitol, which planned to build a $100 million fuel terminal at Port Canaveral. The company supplied approximately 60 percent of Iran’s oil imports. Deutch authored legislation in Florida addressing the issue and was elected to Congress last year.

As for Pawlenty, the Essar deal did not come together without a couple of oversights.

There was public evidence a year earlier that Essar had connections to Iran, and Minnesota Steel intended to construct the mine-to-steelmaking plant on its own before Essar announced its intentions to buy the company. Therefore, the public concern over the Iran complication just after the transaction went through could have been avoided.

As early as July 1, 2006 – 16 months before Pawlenty was made aware of Essar’s refinery possibility in Iran – Essar posted a story on its Web site announcing plans to build a steel plant in Iran. That deal may not have raised the same concerns, but it could mean a player in Pawlenty’s administration did not do proper due diligence regarding Essar’s involvement there.

A Bloomberg report from April of 2007 quotes the chief executive of Minnesota Steel at the time, John Elmore, who said: “We had every intention of developing this ourselves…. Essar decided they wanted to step up and take everything. It was not the way we had planned it.”

But as Pawlenty writes in a three-page passage about the deal in his new book, Courage to Stand, “This was about something much bigger than one project in Minnesota.”

What handed Pawlenty a security victory and foreign policy credential also landed him a few home-state enemies, who accused him of playing politics with jobs in the cash-strapped town of Nashwauk.

“He was a waving a flag towards a presidential campaign,” said Nashwauk Mayor William Hendricks, a member of the Democratic-Farmer-Labor party in the state.

Hendricks complained that he thought Pawlenty was more interested in developing a national security portfolio than he was in watching the development needs of the small town, because, he said, there do exist connections to Iran in American commerce that don’t pose threats – so why risk jobs in this case?

“This is a small, little town that was crying out for help,” he said. “He was playing politics with 2,800 jobs.”

Fellow Democratic-Farmer-Labor member Tom Anzelc, who represents the area in the state House of Representatives, said he generally agreed with Hendricks’s account. But, he said, the Iran connection was both a surprise and a concern to him, too, and the consternation over it lasted less than a week.

To him, the bigger problem has been delay, and while he credited Pawlenty for his role in helping the project go through, he faulted him for the pace.

Steve Rutherford, however, who came on as project director of Essar Steel Minnesota over the summer, had a different take.

“It [has been] a nice wrap-up to my career” in the industry, he said. Rutherford volunteered to RealClearPolitics a list of Pawlenty’s support for other projects in the Iron Range dating back to 2003, when Rutherford was managing the Mesabi Nugget operations for Steel Dynamics in the region.

American Action Network CEO Norm Coleman, a Republican senator for Minnesota at the time, said he conversed with Pawlenty and his staff while Pawlenty was handling Essar’s potential Iran investment. Coleman pointed out to RealClearPolitics how critical job creation efforts are for the northern part of the state, which, he said, made Pawlenty’s approach to the Essar episode difficult.

But remembering different trips abroad both he and Pawlenty had taken and their discussions about Iran, Coleman said there was no way Pawlenty could have brought himself to brush aside the Iran connection.

“It would have violated his ethical precepts,” he said. “Tim’s a very moral person. I think it was in his character.”

And noting the choice between jobs and national security concerns, Dubowitz said, “This was a very courageous move.” He added, “He really does stand out as a leader on this.”

Governors who seek the presidency tend to endure a campaign cycle’s worth of questions about their fitness for handling international tensions, given that many political observers assume they have less exposure to foreign matters than senators do. In part to address that potential limitation, former Massachusetts Gov. Mitt Romney, a potential rival of Pawlenty’s for the GOP nomination in 2012, traveled to the Middle East earlier this month to learn about and assess issues on the ground there.

But as Berman pointed out in Pawlenty’s maneuver with Essar, “This was an example of how states and governors can influence national security and foreign policy.”

Indeed, Pawlenty noted that the incident is an illustration of the hands-on experience he had with international issues as governor, and he stressed that he had an unusual amount of international travel and experience for a governor between his multiple trade missions and trips to Iraq and Afghanistan, among other destinations.

Vuppuluri agreed that it was a good example of Pawlenty’s handling of an important foreign issue. He said he has not yet read Pawlenty’s book but intends to, and he asked eagerly several times about what Pawlenty had written regarding his encounters with Essar.

The executive said he follows American politics closely and believes in a healthy two-party system. He intends to watch the 2012 presidential race closely, particularly if Pawlenty becomes a candidate. So far, his only personal campaign contribution that registers in FEC records was a $1,000 check to a Kansas state representative who ran unsuccessfully for Congress in 2010 – Raj Goyle, a Democrat.

Of Pawlenty, he said, “America needs more people like him leading the nation in the years to come.”

Erin McPike is a national political reporter for RealClearPolitics. She can be reached at [email protected]

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