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Russian's purchase of U.S.-backed battery firm sparks anxiety

April 25, 2012|By Julie Wernau

CHICAGO — 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, in this case, is Russia.

A little more than a year after Biden's visit to Ener1's Indiana manufacturing plant, the company 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.

Although 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 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 Energy Department 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 Energy Department, 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.

Although the company's Russian investment didn't worry the Energy Department or Pentagon, others in the U.S. government were concerned about Russian participation for some time.

Citing national security concerns, 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, Energy Department, 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.

Biden's office declined to comment and referred questions to the Energy Department.

Mary Anne Sullivan, who previously served as the department's general counsel and now heads law firm Hogan Lovells' energy regulatory practice in Washington, 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 Energy Department 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.

jwernau@tribune.com

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