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Canton ethanol plant facing bankruptcy court

Posted December 13, 2007 10:00 pm

Brenda Rothert

Bankruptcy court is the next step for a Canton ethanol plant that has been more than five years in the making after advisers filed for Chapter 11 reorganization late Thursday, an attorney overseeing the process confirmed.

The filing by Central Illinois Energy confirms what many of the farmer investors in the project already suspected -- they've lost their money.

The only two remaining board of directors members, Suzanne Ginger and Jay Sutor, authorized the filing Thursday, Galesburg attorney Barry Barash told the Journal Star.

The action creates a federal injunction, which prohibits creditors from taking action against the plant and allows for reorganization.

CIE is under construction three miles south of Canton. Proposed in 2001, the plant took five years to get off the ground. Ground was broken in October 2006, and subcontractors who have worked on the project say it's about a month from completion.

But work on the plant came to a standstill in recent weeks when Lurgi PSI, the main contractor, left the job site and canceled contracts because it wasn't being paid. More than $30 million in liens have been filed at the Fulton County Clerk's Office for unpaid invoices by contractors.

What actually contributed to the company's downfall is a matter of opinion. There were re-engineering issues with Lurgi PS that created extra cost, Barash said.

But another factor that led to the bankruptcy, he said, was that Lurgi was allowed to spend on the project without limit.

"I think it was a management issue," Barash said. "They (CIE) just let (Lurgi) go."

Lurgi officials have not returned repeated calls seeking comment.

Another obstacle is the plant's size - significantly smaller than other plants in the state, Barash said. Other plants can produce 100 million gallons annually, and CIE's capacity is 37 million gallons.

Now the plant is unfinished, with around $130 million invested. Barash said it will take around $25 million more to finish it, which he and the rest of the management team are working on borrowing.

"They're too far along," Barash said. "They're going to have to complete it."

But the finished value will not be $155 million, and Barash said the losers will be the farmers who invested in the project, those who extended lines of credit and the banks that provided financial backing.

The value may be roughly $2 per gallon of ethanol the plant produces annually, Barash said, which is less than half the ultimate construction cost.

"I believe in looking at things realistically," he said. The coal generation plant which will power the plant is an asset that may increase the value, Barash added.

Nearly all of the plant's staff of around 50 were laid off earlier this week, Barash said. Plant manager Joe Werth and security staff remain. General Manager Mike Smith resigned last weekend at the board's request.

Moglia Advisors President Alex Moglia, another member of the new management team, said Thursday he is working with bankers to bring a limited number of the employees back. He said the decision to have the plant fully staffed before it was even making ethanol "does not make economic sense."

Earlier this week, the Illinois Department of Agriculture suspended the license of Central Illinois Grain, which is on the Central Illinois Energy site. The suspension prohibits the company from receiving or shipping grain. Around $6 million worth of grain delivered in the fall by farmer shareholders is stored there now.

Next week the department is seeking to have the license revoked. The farmers will be paid for their grain, as state law provides for, an Illinois Department of Agriculture spokesman said.

Illinois Farm Bureau spokesman John Hawkins said the current economic climate just doesn't make it a good time to build or propose building an ethanol plant.

"We're seeing companies postponing or outright canceling their operations nationwide," he said.

Hawkins said the farmer-owned cooperative model was popular in the early stages of ethanol production, but it has since waned.

"They may have gotten the cart before the horse," he said of Central Illinois Energy. "There was a lot of exuberance in the early days."

Barash said the farmer investors could organize, hire counsel and buy the plant back, though they would lose all their original investments. He said it's a tough time to be in the ethanol business, for any potential buyer.

"Corn is at $4 (a bushel) and ethanol is $1.80 (per gallon)," he said. "I know those numbers are nasty."

Reach Journal Star reporter Brenda Rothert at (309) 686-3041 or state@pjstar.com.

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