Batteries
made in America for America and backed by America. That's how
politicians hailed Ener1.
The
company tapped the country's top scientists at Argonne National Lab
in Illinois, and U.S. taxpayers pledged up to $118 million in
federal stimulus funds and $80 million in state and local incentives
to help Ener1 produce cutting-edge battery technology for electric
cars and the U.S.
military.
"This
is about the future. And the question is which nation is going to
seize the future. Some nation is going to grab it by the throat. One
of the nations of the world is going to lead the world in green
energy and technology," Vice President Joe Biden said
in January 2011 in a speech praising federal support for Ener1 at
its facility in Indiana.
That
nation, it turns out, is Russia.
A
little more than a year after Biden's visit to Ener1's Indiana
manufacturing plant, the company's technology is owned outright by Boris Zingarevich,
a Russian businessman with ties to Russian President Dmitry
Medvedev, a fact that concerns some technology experts in the
U.S.
Zingarevich
acquired Ener1 out of bankruptcy March 30 with an agreement to
infuse $81 million in financing, giving him a sophisticated line of
batteries that can power electric cars, store electricity for power
grids and supply portable power for soldiers. His plans for Ener1
aren't known. A company spokesman declined to comment, saying Ener1
is privately held. Zingarevich couldn't be reached for comment.
The
deal for Ener1 shows how the global economy can blur the lines
between private business and national interest.
While
there have been instances of Russian nationals accused of using
illegal means to acquire U.S. technology, U.S. government officials
said there is no law that bans transferring technology paid for by
U.S. taxpayers to foreigners.
Wealthy
Russians are major investors in the U.S., owning stakes in companies
such as Facebook and Twitter,
and Zingarevich was Ener1's largest shareholder from the beginning
in 2002. Yet there is a big difference between being a shareholder
and gaining control of a company.
"In
a company whose ownership is connected to Medvedev, you have a
golden opportunity for a military technology transfer and, perhaps,
civil transfer from the U.S. to Russia at no cost," said Stephen
Blank, an expert on Russia and a research professor of national
security affairs for the Strategic Studies Institute at the United
States Army War College.
Under
Prime Minister Vladimir
Putin, Blank said, Russia has expanded efforts to obtain
high-tech energy-related technology from the U.S. through both
illicit and legal means as Russia tries to reduce its reliance on
hydrocarbons. Russia is second only to China in
trying to gain high-tech information related to military uses,
energy generation and manufacturing, according to the U.S. Office of
the National Counterintelligence Executive.
In
the case of Ener1, neither the Department of Energy nor the Navy
checked on foreign ownership before awarding the company grants and
research and development contracts. The Army, which also awarded
contracts, said individual employees underwent routine background
checks as contractors, but scrutinizing the company's ownership
structure was not part of its purview.
The
Department of Energy, in an email, said it was only interested in
whether the company could successfully produce and sell its
batteries. The Navy said it didn't place restrictions on foreign
access to the company's work on unmanned aerial vehicles, a highly
sought-after technology, according to the intelligence community, or
to battery technology that could be used to track U.S. military
personnel.
Despite
the fact that the company's Russian investment didn't worry the DOE
or Pentagon,
others in the U.S. government were concerned about Russian
participation for some time.
Citing
national security concerns, U.S. Rep. Cliff
Stearns, R-Fla., chairman of the Energy and Commerce
Committee's Subcommittee on Oversight and Investigations, is seeking
internal documents from the White
House, Department of Energy, Ener1 and its EnerDel battery
unit, his office confirmed.
"There
is definitely a growing concern about a foreign-controlled or owned
company attempting to gain a foothold into our supply chain in the
United States," said Stearns, whose subcommittee held a hearing
March 27 about such threats. "We need to make sure the federal
government isn't an unwitting accomplice to the theft of our own
national secrets by providing them with multimillion-dollar
government grants,'' he said in a statement, referring to battery
technology produced in concert with U.S. scientists.
The
U.S. has been leery of foreign control of U.S. energy companies in
the past. In 2005, a bid by a Chinese government-owned firm to
purchase Unocal, then the ninth-largest U.S. oil and gas producer,
set off a firestorm of political controversy. CNOOC Ltd. had outbid Chevron
Corp. by about $1.5 billion for Unocal. But
after concerns were raised that the transaction was little more than
a thinly masked move by China to corner oil supplies, CNOOC withdrew
its bid.
Ener1
marks the second major case of the U.S. losing control of a stimulus
project. The Department of Energy's $535 million loan guarantee to Solyndra to
produce solar panels was aimed at spurring alternative energy growth
in the U.S. and to lessen dependence on fossil fuels. Instead,
competition from China felled Solyndra last year, which left the
U.S. to pay the bill.
"Instead
of producing thousands of 'clean energy' jobs, the administration's
loan guarantee and grant programs are yielding bankruptcies and the
squandering of taxpayer dollars," Stearns said. "Only two days after
President Obama highlighted federal investments in high-tech
batteries in his State of the Union address earlier this year, Ener1
joined Solyndra, Beacon Power, Evergreen
Solar, SpectraWatt and AES in bankruptcy — all recipients of
taxpayer dollars."
Biden's
office declined to comment and referred questions to the Energy
Department.
Mary
Anne Sullivan, who previously served as DOE general counsel and now
heads law firm Hogan Lovells' energy regulatory practice in
Washington, D.C., said: "You want the government to be where the
private sector sees a risk they won't take. But it calls for
judgment. There is no formula that tells you, "Yes, this will
succeed,' or, 'No, this won't.'''
Ener1,
based in New York City but with manufacturing operations in Indiana,
began working on batteries for hybrid electric vehicles in June
2009. With the promise of creating manufacturing jobs, the company
received access to Argonne scientists and DOE funding.
Theodore
O'Neill, senior vice president of alternative energy for Wunderlich
Securities, said it is unlikely the battery technology Ener1
developed was any more high-tech than what Russia had already
acquired or developed.
Ilias
Belharouak, an Argonne researcher who worked on the battery project,
said the company didn't move forward with battery production because
by then the auto industry had introduced plug-in vehicles, and the
company's batteries were too heavy.
The
technology, however, is ideally suited to storing energy for the
electrical grid, said Belharouak. Such batteries can provide backup
power as well as store energy produced by the wind and sun. "It has
the safety, it has the power, and the cost of the technology is
very, very attractive," Belharouak said.
In
its March 31, 2011, filing, Ener1 listed the Russian electric grid
as its largest battery customer. The company first agreed to supply
lithium-ion battery units in 2010. Last fall, Charles Gassenheimer,
then CEO, said the company was negotiating a second "substantially
large order" from the Russians. That same year a Russian state-owned
bank accepted 40 percent of Ener1's common stock as collateral for
$24 million in loans, with an option to go up to $100 million total,
according to filings.
Ener1
stood to reap $118.5 million from the DOE to produce batteries for
electric vehicles. So far it has collected $55 million and could
receive more if it adds to its U.S. workforce of 275 under its
contract, according to the DOE.
In
an emailed statement, the Energy Department said Ener1's project was
selected "based on the merit and commercialization potential of its
batteries.''
"We
need to invent them here, make them here and sell them around the
world. That's just what (the) battery manufacturing facility is
doing, and that's why both the company and the project have received
strong bipartisan support," Jen Stutsman, spokeswoman for the Energy
Department, said last month.
The
DOE added that during a financial due diligence check it did not
find any issues requiring further investigation.
Michael
Grosberg, chief operating officer of Global Technology Systems Inc.,
a Massachusetts-based maker of industrial and military batteries and
energy control systems, said, "The U.S. government should act
immediately to ensure more taxpayer dollars are not lost and U.S.
security is not compromised.''
Technology
experts are raising concerns about nearly $8 million in military
contracts the company received, including a Navy contract for
research and development related to unmanned aerial vehicles.
In
2006, according to filings, Ener1 also was awarded a $1 million
Department of Defense contract for so-called asset tracking, a
technology used to track people carrying battery-powered devices.
The
tracking systems in military battery packs are designed to protect
personnel. For instance, if a soldier stops moving, falls down or is
running out of battery power, technology inside his or her radio
automatically alerts a command center. The Navy said prototype
batteries were produced but not used and do not pose a threat to
U.S. military personnel or civilians.
But
some believe the technology could pose a threat to national
security, as it can be used to track troop movements or anyone who
has devices that contain those batteries.
"I
live in that world," said Daniel Engels, a chief technology officer
for Revere Security, a technology security firm. "We need to stop
thinking about batteries as just a battery. As soon as they become
intelligent, they become a potential entry point into your system.''
Through
such batteries, he said, an enemy could even remotely turn off lines
of communication.
Russia
ranks second to China in spying in the U.S., according to a 2011
report from the Office of National Counterintelligence Executive.
The case that made the biggest splash occurred two years ago, when
10 agents of the Russian Foreign Intelligence Office were arrested
after collecting information related to U.S. technology and
intelligence. Other cases have involved bribes for automotive and
helicopter technology, the report said.
Ener1's
filings with the Securities and Exchange Commission indicate
steadily widening losses since 2008. In 2010, losses totaled $68.8
million on sales of $77.4 million.
The
company's plans for those DOE-backed batteries were tied to Think
Global, an Elkhart, Ind., maker of electric vehicles with the same
Russian backers. When Think Global didn't find a market for its
buglike vehicles, Ener1 in May 2011 wrote off its $73 million stake
in the company.
The
following month, Think Global filed for bankruptcy in Norway,
listing $32 million it owed Ener1. Zingarevich bought the company at
auction in July for an undisclosed sum.
The
ramifications for Ener1 were profound. Ener1's share price tumbled
to pennies, and its shares were delisted from the Nasdaq stock
exchange.
Ener1,
too, filed for bankruptcy in January, but it emerged March 30 in a
transaction that canceled its shares and ceded control to
Zingarevich.
Separately,
the enforcement division of the SEC is
investigating Ener1 for securities fraud after it failed to report
its financial condition and business dealings. The company said in
February that it was ordered to produce information as part of the
investigation.
"We
have emerged from bankruptcy with significantly less debt, more
working capital and a stronger financial position to enable us to
compete more effectively in pursuing business opportunities to
provide energy storage solutions for electric grid, transportation
and industrial applications," the company's interim CEO, Alex
Sorokin, said in an announcement.
Indiana
Gov. Mitch
Daniels, whose goal was to make his state the capital of the
electric car industry, has backed the company. His office Friday
said Daniels "remains hopeful Ener1 will be successful.''
Bald
and stocky with piercing blue eyes, the 52-year-old Zingarevich now
controls Ener1. He is one of an elite group of Russian "oligarchs"
whose resources are significant enough to influence national
politics, according to a 2005 study in the Journal of Economic
Perspectives.
In
1992, he co-founded Ilim Pulp, one of Russia's largest pulp and
paper companies. He remains on its board. In 1993, Ilim Pulp hired
Medvedev as its legal affairs director. Medvedev, who at one point
owned 20 percent of the company, helped it grow significantly. He
sold his stake in 1999, the same year he took a central government
post.
At
about that same time period, several of Ilim Pulp's competitors were
attacked or murdered under mysterious circumstances. Dimitry
Varvarin, director general of Orimi, Ilim Pulp's major rival, was
shot to death in St. Petersburg in March 2000. Later that month,
another founder of Orimi, Sergei Krizhan, was also murdered, along
with his son, according to news reports.
Later
that year, a lumber exporter was attacked, and a hotel owned by
another player in the timber market was set on fire. And in 2001 the
external manager of another competitor was also attacked, according
to Russian media.
None
of the murders or attacks were tied to Zingarevich or Ilim Pulp.
While
Zingarevich has kept a fairly low profile, his son, Anton
Zingarevich, 29, hasn't been as publicity shy. In 2007, a year after
he graduated with his bachelor's degree from Regents Business School
in London, his father installed him as vice president of operations
at Ener1 and CEO of a subsidiary, NanoEner.
Stories
about Anton Zingarevich began to appear recently in publications
such as the Daily Mail and the Reading Chronicle in England when he
purchased a stake in a British football club for nearly $40 million.
He also was in the limelight a little more than two years ago when
he married Belarusian supermodel Yekaterina Domankova when she was
20 years old.
jwernau@tribune.com
Twitter
@littlewern