Monday, October 01, 2012

President's Order Stops Oregon Chinese Wind Energy Project

Sep 28: The President issued an order prohibiting the acquisition and ownership of four wind farm project companies by Ralls Corporation, its owners, its subsidiaries, and its affiliates.  The order directs Ralls Corporation to divest its interest in the wind farm project companies that it acquired earlier this year, and to take other actions related to the divestment.  Ralls Corporation is owned by Chinese nationals, and is affiliated with a Chinese construction equipment company that manufactures wind turbines.  The wind farm sites are all within or in the vicinity of restricted air space at Naval Weapons Systems Training Facility Boardman in Oregon.

The President took this action pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (section 721). Section 721 authorizes the President to suspend or prohibit certain acquisitions of U.S. businesses by foreign persons where he finds that there is credible evidence that the foreign interest exercising control might take action that threatens to impair national security, and where provisions of law other than section 721 and the International Emergency Economic Powers Act do not provide adequate and appropriate authority to protect national security in the matter under review.

    The Order states in part, "There is credible evidence that leads me to believe that Ralls Corporation (Ralls), a corporation organized under the laws of Delaware, and its subsidiaries, and the Sany Group (which includes Sany Electric and Sany Heavy Industries), a Chinese company affiliated with Ralls (together, the Companies); and, Mr. Dawei Duan (Mr. Duan) and Mr. Jialing Wu (Mr. Wu), citizens of the People's Republic of China and senior executives of the Sany Group, who together own Ralls; through exercising control of Lower Ridge Windfarm, LLC, High Plateau Windfarm, LLC, Mule Hollow Windfarm, LLC, and Pine City Windfarm, LLC (collectively, the Project Companies), all limited liability companies organized under the laws of Oregon, might take action that threatens to impair the national security of the United States. . ."

    A release from the Treasury Department indicates that, "The President's action demonstrates the Administration's commitment to protecting national security while maintaining the United States' longstanding policy on open investment. The President exercises his authority under section 721 with a focus on national security concerns and is committed to ensuring the fair and equitable treatment of all foreign investors. The Administration will continue to ensure that the United States remains the most attractive place for businesses to locate, invest, grow, and create jobs. The President's decision is specific to this transaction and is not a precedent with regard to any other foreign direct investment from China or any other country.

The President's decision took into consideration the factors described in subsection 721(f), as appropriate, and the recommendation by the Committee on Foreign Investment in the United States (CFIUS) that he issue an order prohibiting this transaction. CFIUS is an interagency committee whose purpose is to review transactions that could result in the control of a U.S. business by a foreign person in order to determine the effect of such transactions on the national security of the United States.  In assessing the transaction's impact on national security, CFIUS conducted both a 30-day, first-stage review, and an additional 45-day, second-stage investigation. CFIUS's detailed analysis took into account all relevant national security factors, including those elements enumerated in section 721.  CFIUS also received a thorough analysis of the threat posed by this transaction from the Office of the Director of National Intelligence, as required by section 721.

    CFIUS is chaired by the Secretary of the Treasury and includes as members the Secretaries of State, Defense, Commerce, Energy, and Homeland Security, the Attorney General, the Director of the White House Office of Science and Technology Policy, and the U.S. Trade Representative. The Director of National Intelligence and the Secretary of Labor participate as non-voting, ex-officio members.   

     An article in China Daily included a comment from Zhou Qing, a legal affairs chief of the international development planning department of Sany Group, from which the two founders of Ralls come indicating, "The move probably served Obama's campaign for another presidential term." The article indicates that it is the first time in 22 years that a U.S. president has blocked such a foreign business deal. Qing contended that there are some other wind farms with foreign investment backgrounds near the naval training facility, but they have never been accused of threatening the United States' national security.

    A posting from the bipartisan Governor's Wind Energy Coalition (GWEC) cites a comment by Josh Zive, a Washington-based lawyer and lobbyist with Bracewell & Giuliani who is an expert on CIFUS issues, saying the decision likely will be closely watched by foreign investors, especially those in China who feel they have faced undue scrutiny for years. He also noted that the decision will allow Obama to deliver a tough-on-China message on the campaign trail, whatever the underlying reason for the decision. He said, "Even if it didn't have political motivation, it certainly has a political utility."

    Access a release from the Treasury Department (click here). Access the President's Order (click here). Access the China Daily (click here). Access the GWEC posting (click here). [Energy/Wind]
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