North Prairie Productions board voted to end the biodiesel plant project in Evansville. Construction was halted in November.
EVANSVILLE — Rock County took another economic hit this week as investors in the $42 million biodiesel plant proposed for Evansville learned the project will not continue.
North Prairie Productions board chairman John Sheehy said the company will honor its commitments to the city, but investors will lose about 50 percent of their money. The board voted in late May to end the project and released the news to shareholders this week, Sheehy said.
The developer in November halted construction at the site on the city’s east side because of “rapidly rising commodity prices and the decision by a key lender to withdraw from its loan commitment,” Sheehy wrote in a letter to investors.
Commodity price increases continue “to outstrip the ability to produce and market biodiesel fuel at a profit,” he said.
Given the commodity market conditions, banks were no longer interested in financing the project as planned, which would have required North Prairie to raise more money from investors, he said.
Tuesday’s news is not expected to affect plans for a soybean crushing facility to be built next to the biodiesel plant location.
Investor loss
About 900 people invested a minimum of $10,000 each in the project, Sheehy said, and they can expect to see about half of that returned. The equity drive sought investors from throughout Wisconsin, and many of them came from Rock, Dane and Jefferson counties, he said.
North Prairie anticipates returning about 50 percent of investor money in coming months. Investors will receive 35 percent of their money in the next few weeks, while the remainder will be disbursed after assets are liquidated.
“Although this was not our intended outcome,” Sheehy said, “we believe it represents a more positive resolution than the recent series of plant shutdowns that have left investors with little or nothing to show for their support of biodiesel development in Iowa, Minnesota and other states.”
While Sheehy said the board could have waited longer to see if prices would change, it didn’t make sense given all the variables.
“To hold people’s money with no return just didn’t seem a like a financially responsible thing to do,” he said.
City impact
The city entered a development agreement with Landmark Services Cooperative and North Prairie in April 2007 that called for the city to provide construction assistance through a tax incremental financing district and state grants. City Administrator Dan Wietecha detailed the plant’s financial impact on the city in a memo to the city council:
-- Development incentive to Landmark: The city was to pay $200,000 to Landmark to cover the co-op’s payment of five years of taxes for the annexed property and other costs. The city has not paid any of the money to Landmark, but the city is statutorily obligated to pay the town of Union about $7,200 per year for five years—totaling $36,000—for annexation of the property. That cost still could be recoverable through a separate November 2006 pre-annexation agreement that passes the expense on to Landmark.
-- Development incentive to North Prairie: The city was to pay $1.7 million to North Prairie to offset expenses such as improvements to the rail spur, a fire suppression system, electrical service and the developer’s share of County M improvements. Most of the money was to be paid during construction of the biodiesel plant, but the city already has spent money for road improvements, electrical service and interest.
Two state grants totaling $250,000 had been awarded to the project, but the city had not received that money. State officials recognize the County M improvements directly benefit and are necessary for the crush plant, Wietecha said, so state officials are willing to transfer the grants to the crush project.
-- Soft costs: The city spent $43,954 directly attributable to the biodiesel plant in soft costs, such as review of the project, execution of the development agreement and administration of the state grants.
About $410,000 is owed to the city from North Prairie and Landmark, who said they are committed to fulfilling their financial obligations to the city, Wietecha said.
“We’ve already worked through all that … North Prairie is honoring its commitments to the city of Evansville,” Sheehy said.
Crush moves along
The news will not affect Landmark’s plans to build an $80 million to $100 million soybean crushing plant next to the biodiesel site, officials said.
“It should have no impact,” Landmark board president John Blaska said.
A crush plant processes soybeans, and much of the soy oil extracted would have been pumped next door to the biodiesel plant.
While it would have been nice to have a customer for the oil that close, Blaska said it would have minimal impact on the crush plant’s business plan.
“Everything looks very promising at this point,” he said.
Landmark is interviewing potential partners and working on final details of its business plan, which should be unveiled to its board Wednesday, June 25. Construction on the crush plant, which would be the state’s first such facility, could start in June 2009, Blaska said.
“It’s unfortunate the biodiesel went, but the good news is North Prairie was smart enough to halt production and preserved a fair amount of investor equity,” he said.
At the site
Construction started last summer on the biodiesel plant, which was expected to produce 45 million gallons of soy biodiesel a year. Following the official groundbreaking ceremony in March, the project was delayed while financing and construction plans were finalized.
Construction was halted in November, after underground piping and wiring had been installed, along with a fire suppression system, fire hydrants and a foundation and some footings had been built. One storage building also was built, Sheehy said.
The plant was expected to employ about 25 and operate 24 hours a day. Economic impact studies estimated the plant would pump $127.5 million in annual revenue to the area.
The site along Union Pacific’s railroad east of County M was set up for a biodiesel plant and isn’t ideal for the crush facility, said Randy Kyle, a representative for North Prairie and Landmark. Kyle described North Prairie’s decision to the city council at its meeting Tuesday night.
North Prairie never closed on the land, so Landmark still owns it, Sheehy said. North Prairie, however, made improvements to the property that will increase its value, he said.
Landmark has agreed to pay special assessments levied by the city on the property and reimburse the city for other costs. In exchange, Landmark gets the value of improvements North Prairie contributed to the site that may have future use or value.
About $268,000 will be specially assessed against the biodiesel property, Wietecha said.
Alderman Tony Wyse questioned whether a plant using something other than high-priced soy oil could be built.
Kyle said North Prairie studied that option but estimated it would cost an additional $7 million to adjust plans to build a plant that could use oils other than soybean oil. That also brought concerns about changing the nature of the business in which shareholders had invested, he said.