The steel mill project, which would be the single-largest investment ever in Northeastern Minnesota, was held hostage by an Oct. 24 Reuters news service report that suggested India-based Essar Global Ltd. was considering, or already had decided to jointly develop an oil refinery with the Iranian government, bid for oil exploration rights in Iran, and possibly build a steel mill there. Reuters cited unidentified sources.

Such infrastructure investment in Iran is prohibited by the federal Iran Country Sanctions Act, enacted to punish the Middle East nation for supporting terrorist activities.

Upon his Oct. 27 return from the state trade mission he led to India, Pawlenty said he was ready to block up to $67 million in state financing pledged to the slab steel mill project slated for an inactive iron ore body near Nashwauk, MN.

Ironically, Pawlenty learned of the Reuters report in India two days after he had met with Essar executives. He dined with them after the company closed its purchase of Minnesota Steel assets on Oct. 22 for an undisclosed price.

At his news conference today (Oct. 31), Pawlenty produced a letter from Essar Global promising it will not go forward with investment in Iran “unless or until (that investment) is in full compliance with the Sanctions Act. Essar has been extraordinarily constructive,” Pawlenty said.

“They hope to start as soon as possible. This is very good news for Minnesota, and I will support the project. It’s good for the region, and for the state,” he said.

The plan for the first U.S. mine-to-steel mill emerged more than a decade ago. The first attempt failed amid a steel industry downturn in the late 1990s. A second investor group revived the plan and has secured all necessary permits for the project. The scripted asset sale to a player with deep pockets like Essar was the last remaining hurdle, or so it was thought until the report of its Iran investment plans surfaced.

Pawlenty said the firm’s top executives told him it hopes to begin at least minimal construction in spring 2008. The massive project would employ about 2,000 construction workers over two years. When operational, the plant would have a permanent payroll of about 700, and create an estimated 1,400 secondary jobs with vendors, other service firms and retailers.