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Indiana Halts Support of Fertilizer Plant on U.S. Bomb Concerns

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Indiana Governor Mike Pence
Indiana Governor Mike Pence said, "While we have been encouraged by promises made by Fatima Group to replace production of their current fertilizer with a more inert and less explosive formula in Pakistan, at this point in time, U.S. officials have not been able to independently confirm this fact and, as such, Indiana will not be moving forward with this project." Photographer: Andrew Harrer/Bloomberg

May 17 (Bloomberg) -- Indiana Governor Mike Pence pulled his support of a plan by a Pakistani company to build a fertilizer plant after the Pentagon raised concerns that its products were being used to make bombs.

Pence said today he withdrew state incentives for the project near the Illinois border because the Defense Department said it needs more time to evaluate whether the Lahore-based Fatima Group has created a less-explosive fertilizer. The Pentagon’s task force on improvised explosive devices has focused on Fatima’s production of calcium ammonium nitrate, an ingredient in bombs used against U.S. soldiers in Afghanistan.

“I did not take this decision lightly,” Pence, a 53-year-old Republican, said in a statement. “Economic development is important, but the safety and security of our soldiers in harm’s way is more important.”

The state will withhold incentives unless it gets “absolute assurances” the fertilizer won’t be misused, Eric R. Doden, president of the Indiana Economic Development Corp., wrote in a letter to Fatima.

“While we have been encouraged by promises made by Fatima Group to replace production of their current fertilizer with a more inert and less explosive formula in Pakistan, at this point in time, U.S. officials have not been able to independently confirm this fact and, as such, Indiana will not be moving forward with this project,” Pence said.

Bond Deal

The plant was to be financed with tax-exempt debt. The Indiana Finance Authority in December sold about $1.3 billion of notes for the initial phase of the facility. The proceeds are in escrow until July 1, after which they would convert into bonds if the project were to proceed. If the project doesn’t go forward, funds will be returned to investors.

Municipal bond investors have said the Indiana securities would probably be speculative grade. That would make the offering a bigger high-yield muni deal than a $1.2 billion sale by an Iowa agency last month for a fertilizer plant. That debt was rated three levels below investment grade by Standard & Poor’s, and priced two weeks after an explosion at a Texas distributor of crop nutrients killed 14 people.

Improvised explosive devices are the “leading cause” of civilian, military and law-enforcement casualties in Afghanistan and Pakistan, according to U.S. Lieutenant General Michael Barbero.

In 2012, the devices caused 1,874 U.S. casualties, with about 60 percent of the explosives used against military forces made from calcium ammonium nitrate, according to testimony Barbero made to the Senate Committee on Foreign Relations.

Fatima is among the investors in the Midwest Fertilizer Corp. The group said in a statement that it is “optimistic” and will work with the local officials to “explore the full range of options to try and advance this critical project.”

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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