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Sherman proposal marked by questions, promises



Published: Mon, July 19, 2010 @ 7:04 a.m.

By GRACE WYLER

gwyler@vindy.com

CAMPBELL

When a Pitts-

burgh company announced its intention to build a multimillion-dollar steel mill where Youngstown Sheet & Tube’s Campbell Works once stood, some local and state officials were quick to laud steelmaking’s return to the Valley.

The company announced in June its plans to build a cold-rolling mill on 40 acres of industrial property it owns in Campbell. The company claims to have a four-phase plan to expand the mill on

70 acres of adjacent property in Youngstown.

The initial project would employ 700 people, and if subsequent phases are completed, the mill would employ 3,500, the company said.

“This will revitalize Campbell,” Campbell Mayor George Krinos said when the plans were announced.

Struthers Mayor Terry Stocker echoed that enthusiasm.

“Obviously there would be jobs available for everyone, like back in the old days,” Stocker said.

However, few of the elected representatives involved in the project appear to have investigated the background of Sherman International and its owners.

The company – and its owners, Krishna Sharma and her husband, Om Sharma – have legal and financial difficulties that date back several years, including:

Federal charges of criminal conspiracy with another Sharma-owned company related to the international shipment of potential nuclear materials.

Defaults on nearly

$3.5 million in commercial loans.

$130,000 in unpaid penalties to the Occupational Safety and Health Administration.

$22,000 in delinquent taxes owed on Sherman property in Youngstown.

Multiple citations from the Ohio Environmental Protection Agency for contamination on its property in Campbell.

The company has not revealed many details of its business plan, whether the company has potential investors or partners or if it has the financial ability to move forward with the project.

The Sharmas initially declined to comment on their legal and financial troubles, referring questions to former Struthers City Council President Robert Carcelli, the company’s spokesman for the project.

Though he provided no documentation, Carcelli said the initial phase of the plan could cost about $400 million, and the completed project could top $1.5 billion.

Carcelli, who has long sought redevelopment projects for the Mahoning River corridor, said he approached the Sharmas about the project in 2008.

“This is the first person in 33 years that has come up with a business proposal along that river,” Carcelli said. “What’s at stake here are jobs — jobs that the city of Campbell badly needs. People have said that now there might be hope.”

In a series of interviews with The Vindicator Friday and Saturday, after he became aware of the impending story, Om Sharma reaffirmed Sherman International’s commitment to the project.

“We want to put a steel mill to create jobs there,” he said. “We are a business, that’s what we do.”

THE PLAN

Though some officials are already discussing employment numbers, nothing will get under way until the company secures government funding for an environmental study and cleanup, Carcelli said.

Carcelli approached Krinos and state Sen. Joe Schiavoni of Canfield, D-33rd, about the project in January. The three have been working with Gov. Ted Strickland’s office and the Ohio Department of Development to secure state funds to clean up and redevelop the land.

The city of Campbell, on behalf of Sherman, applied for a Clean Ohio grant last month, which would provide up to $300,000 to assess the extent of environmental contamination on the property. If the grant is approved, the city would ask Clean Ohio for $3 million to clean up the site.

A new project, such as Sherman’s steel mill project, is not required to secure funding for a cleanup study. But such a project must be in place for the city to receive the $3 million cleanup grant, officials said.

After the land has been cleaned up, the company will begin construction on the first phase of the steel mill, Krinos said. He added that Sherman appears to be serious in its intentions to move forward with the project.

“This is a large, international company with a good reputation,” Krinos said. “The goal, if Sherman International comes in and if this does happen the way we anticipate they would, is for them to build a state-of-the-art steel mill.”

Sherman is currently in the business of refurbishing and supplying equipment for steel mills, and also does engineering and design consulting for mills.

Sherman’s sales fluctuated between $5 million and $23 million, and net income hovered between $1 million and $2 million from 2002 to 2006, according to the business plan Carcelli provided to The Vindicator. That plan offers no financial information for the years after 2006.

The steel mill would be a “renewable energy facility,” the plan states. Carcelli said Sherman plans to use solar and wind energy to power the plant.

The mill’s first phase, the plan says, would produce sheet-steel products for the automotive and construction industries, as well as for appliances and heating and cooling systems. The second phase would be a rebar mill that would make the reinforcements used in construction, and the third complex would be a plate mill to make “armor and other plates for defense.” The final stage would be a melt facility that would make the steel used in the other mills.

“This is not just an ordinary mill,” Carcelli said. “It will be one of the first of its kind in the United States.”

The plan does not include a time line or estimated costs for the project, nor does it review the company’s capability to execute the proposal or the market demand for the products the mill would make.

The company chose the Youngstown area for the project, the plan states, because of the region’s location and workforce, and “to take advantage of incentives provided in an economically depressed area.”

RECENT HISTORY

Krishna Sharma and Om Sharma, chief executive of Sherman International, have been affiliated with several other companies.

They are the former owners of Riverview Steel Corp., a mill in Glassport, Pa., that the couple bought out of bankruptcy in 1997.

During the five years that the Sharmas operated Riverview, the company was cited for numerous health and safety violations by the Occupational Safety and Health Administration. The company was fined $129,812 in penalties for the violations, which included open pits, unsafe forklifts and overhead cranes, wet floor conditions and failure to provide a rail stop where employees loaded and unloaded material near a natural gas pipe. The latter is considered a “serious violation” by OSHA.

In 2001, Riverview filed for Chapter 11 bankruptcy and ceased mill production. The bankruptcy case was dismissed and the company turned the mill over to the bank.

Om Sharma, in an interview Saturday, said that he was not aware of the OSHA violations. Riverview failed to pay the OSHA fine and in 2006 was exempted because the company was considered insolvent.

In 2001, Sherman International defaulted on two commercial loans. The loans, one for $2.5 million and a Small Business Administration loan for $978,853, were granted by First International Bank, a Connecticut-based chartered bank.

In October 2007, Spares Global, another company owned by the Sharmas based at the same Pittsburgh address as Sherman, was charged with conspiracy to commit federal violations related to the shipment of graphite, a material that can be used in nuclear reactors and missile nose cones.

The graphite was shipped to a trading company in the United Arab Emirates and was later found in Pakistan. Om Sharma was president of Spares Global when the company pleaded guilty to conspiracy in U.S. District Court in the Western District of Pennsylvania and was ordered to pay a $40,000 criminal fine.

Spare Global was not aware that it needed a special license to ship graphite, Om Sharma said Saturday. He claimed that there was no conspiracy to falsely represent where the graphite came from. But the company agreed to plead guilty to avoid a legal battle with the federal government.

Spares Global had failed to pay the fine as of September 2009, according to court documents. In court testimony during a hearing regarding the company’s failure to pay the fine, Om Sharma said that Spares Global “owed $351,000 to various vendors” and no longer had an accountant.

In the court transcript, a lawyer for the U.S. Attorney’s office accused Om Sharma of transferring Spares Global’s assets to Sherman in order to avoid paying the fine.

Locally, Sherman owes $22,281.13 in taxes on a 71-acre parcel in Youngstown that is taxed at about $9,600 per year. The taxes on the Campbell property targeted for the steel mill are current.

Om Sharma said the company had “made a deal” with the county after tax assessments continued to reflect property values that went unchanged after buildings on the property were demolished. Sherman is making payments on the back taxes, and has not been in default on its taxes for the last year, he said.

Although he is aware of the Sharmas’ legal troubles, Carcelli said Sherman’s history is not relevant to its plans in Campbell.

EPA TROUBLES

Since 2004, Sherman has been cited numerous times for Ohio EPA violations related to an oil spill on its Campbell property.

The company has allowed oil to seep unabated into the Mahoning River and the storm sewer since 2008, said John Kwolek, district engineer for the Ohio EPA’s regional office.

In a 2010 investigation, Kwolek found that the site’s ground-water recovery system, which had contained the oil since it was first identified in the 1990s, is now “totally inoperable as a result of activities in 2008-09 to recover scrap metal from the soil.”

The agency’s repeated attempts to contact Sherman about the violations have been “largely ineffective,” Kwolek said.

Om Sharma sent one letter to the EPA, stating that no manufacturing has taken place on the property since 1983.

The state EPA was considering enforcement action against Sherman, but stopped that procedure in light of the city of Campbell’s Clean Ohio grant application, according to agency spokesman Mike Settles.

Sherman has hired a company that is now in the process of fixing the ground water recovery system, Om Sharma said Saturday.

WHO KNEW WHAT

Krinos admitted that Campbell has not done a thorough background check on Sherman. But when presented with details of the company’s past, Krinos was steadfast in his support: “This company is clean as a whistle.”

“I don’t believe that the senator [Schiavoni] or the governor would be involved in this project if there were any concerns,” he said.

Schiavoni said he recently learned that the company might not have the financial ability to execute the project, but said he remains focused on ensuring that the city gets state funding to clean up the land. He was not aware of Om Sharma’s involvement in the federal fine.

“I don’t really care who the owner is,” he said. “I was excited about the possibilities down the road, but first things first: We have to get this property cleaned up.”

He added it is too early to tell whether plans for a new steel mill will come to fruition, or how many jobs would be created. “It was a little bit upsetting to me that people started giving out job numbers,” Schiavoni said. “I don’t want to give people a false sense of hope.”

Schiavoni said he had done limited background research on the company because the project is in its early stages. He added that initial background checks will be done by the Ohio Department of Development and a more extensive investigation will likely be done after the environmental assessment is completed.

The DOD is aware of the Sharmas’ companies’ legal troubles, including the federal fine, said Mark Barbash, chief economic development officer for the agency. It will continue to investigate the company’s background as the project moves forward.

The department’s investigation – and how the findings might affect funding for the project – are confidential, Barbash said.

“At the end of this, we will know everything we need to know,” Barbash said. “All of it will be taken into consideration.”

FOCUS ON JOBS

Gov. Strickland’s economic development team has been “very involved” in the Sherman project and has done “extensive background checks” on the company, said Amanda Wurst, the governor’s press secretary.

“Job creation is Gov. Strickland’s No. 1 priority,” Wurst said. “The governor’s economic development team is always going to pursue new jobs, especially if those are jobs coming over here from China.”

Although there is no evidence that Sherman will move any jobs from China to Campbell, the company has said it will produce the same type of steel products imported from China at a competitive cost, Barbash clarified.

“We are always looking to increase domestic production,” he said.

But industry experts raised questions about the economic viability of another cold-rolling mill in the current North American market. Cold-rolling mills, like the one Sherman has proposed, make the sheet steel products used in the automotive and construction industries, as well as in appliances and heating and cooling systems.

Another U.S. cold-rolling sheet mill could be met with some skepticism in the U.S. steel industry, said Christopher Davis, managing editor of the North American edition of Steel Business Briefing, a trade publication.

“There are concerns about whether there is enough demand in the steel-sheet market to match domestic capacity,” Davis said. “A lot of people in the industry are pushing for mills to take production off line.”

While there is opportunity for mills making the steel pipe and tube products used in natural gas drilling in the Marcellus Shale and similar formations, steel industry experts believe that there may be too much sheet capacity in the North American market, he said.

DESPERATE TIMES

Others have been more tepid in their response to the Campbell/Sherman International steel mill proposal.

State Rep. Robert Hagan of Youngstown, D-60th, said he has not participated in the planning.

And despite Sherman International’s plans to expand the mill into Youngstown, Mayor Jay Williams said the city has not been involved in the company’s plans, but that Youngstown “stands ready” if the project comes to fruition.

In the absence of more specific details about those plans, residents should be wary to accept the proposal as a fait accompli, warned John Russo, co-director of the Center for Working Class Studies at Youngstown State University.

“These types of projects that have been historically suggested are representative of the politics and economics of desperation,” Russo said.

Local politicians have often attached themselves to economic development proposals that promise job creation without looking into the long-term viability of the projects, he said.

“These ideas get some traction because there has been a long period of decline in this area,” Russo said. “If there is any possibility that can promote a couple of jobs, people might be willing to suspend their disbelief.”


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