Business Development Loan to Keystone Georgia Metal Company Inadequately Justified

CED-77-111: Published: Aug 12, 1977. Publicly Released: Oct 25, 1977.

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A business development loan to the Keystone Georgia Metal Company was approved by the Economic Development Administration without an adequate economic analysis. The company was granted a $1 million loan to establish an aluminum recycling plant. Keystone is a secondary smelter producing one product--secondary aluminum alloy ingots.

Before loans are granted, the Economic Development Administration is required to determine that such assistance will not have an adverse economic impact on existing, efficient producers. In addition, loans should be made only when financing is not available from private lenders or from other Federal agencies on terms which would permit accomplishment of the project. The Agency incorrectly based its economic study on the recovery of aluminum from scrap rather than on the production of secondary aluminum ingots. Further, the recovered aluminum figures used in the study included aluminum cans, which are generally recycled into canstock by primary producers and are not used in producing secondary aluminum ingots. At the time of the loan, the commercial secondary aluminum industry was operating at about 60 percent capacity, indicating that the loan was not economically justified. The Agency did satisfy the statutory financial requirements before approving the loan. Although a foreign corporation with considerable assets had purchased Keystone's parent company in March 1976, regional officials responsible for review of the application did not consider the feasibility of the foreign corporation's financing this project.

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