INDIANOLA — A billionaire may owe you and me money that he’s balking at paying back.
Fortune magazine this month ran a lengthy feature profiling the rise and fall of KiOR, a startup that attempted to turn wood chips into ethanol at a Columbus plant, and now Mississippi Attorney General Jim Hood’s attempts to sue to collect on a $75 million state loan approved in 2010 that KiOR defaulted on.
Stories always get more interesting when you’re talking about your own money —and this is about ours as Mississippi taxpayers.
I’d really like to see Hood get it back for us from KiOR’s main backer, Vinod Khosla, a 60-year-old technology investor with a net worth estimated at $1.7 billion. Bill Gates of Microsoft fame also poured millions into the project, but the company went bankrupt last year.
The lawsuit filed by the state, one of several legal challenges KiOR faces, is pending a decision about whether it will be heard in Mississippi or Delaware.
The Fortune story identified a lot of problems that got the biofuel company to this point: Too many brains with Ph.D.s and not enough people who knew how to actually run an energy facility, rushing into an initial public offering before it had even produced anything and, most importantly, an inability to get as much energy out of its biofuel as it anticipated.
The company said in documents when it went public that it had “achieved yields of renewable fuel products of approximately 67 gallons per bone dry ton of biomass, or BDT, in our demonstration unit that we believe would allow us to produce gasoline and diesel blendstocks today at a per-unit unsubsidized production cost below $1.80 per gallon.”
That would have been a huge deal if it had worked. Just think about the benefits of being able to make fuel for $1.80 when gasoline hits $3 per gallon. KiOR wasn’t the only company trying to do it.
All over the world investors are pouring money into finding an efficient way to convert plants into fuel for cars. The idea is that fossil fuels are finite: Even though we currently have massive supplies of them, it’s inevitable that they’ll run out some time in the future.
To keep powering the world, we’ll eventually need alternatives that grow back. Corn, which is used now in gasoline, is not ideal because it’s primarily a food product and using it for fuel drives up the cost of eating and feeding livestock.
Scientists are testing different plants and processes for creating the fuel, but getting enough energy per gallon to compete with other fuel sources has proven difficult.
KiOR chose Mississippi because its huge forestry industry (a $1.28 billion production value in 2014) has a large amount of woody material left over after cutting trees that can’t be used for lumber. If you can convert that into ethanol, you’ve got a plentiful, inexpensive fuel source. But it just never quite worked out.
In KiOR’s case, its actual yields ended up far below estimates, about 22 gallons per ton in 2013, Fortune reported. At issue is whether the company intentionally fudged the numbers when coming to the state with its hands out. In the suit, Hood called it “one of the largest frauds ever perpetrated on the state of Mississippi.”
The snafu is another black eye for former Gov. Haley Barbour, the main proponent of the state investing in the project, who in 2011 said of KiOR, “It’s almost like making gold out of straw,” according to a story from The Commercial Dispatch in Columbus. I bet Barbour wishes he could take that statement back.
I’m going to take note that any investment that is compared to alchemy — turning something that’s not valuable into gold — may be too good to be true. Watchdog.org quipped that the state actually turned gold into straw by giving away its money and not getting anything in return.
Receiving the state’s $75 million loan — 20 years, no interest nonetheless — was supposed to be contingent on KiOR investing $500 million itself in the project by the end of 2015 and creating 1,000 jobs. It only ended up paying back $6 million of the debt; those so-called “clawback provisions” intended to mitigate the state’s risk don’t do much good when the company’s broke.
Now an outfit called Georgia Renewable Power has bought the Columbus plant and has much less ambitious plans: using it to simply make wood chips, not process them into fuel.
Despite its failure, KiOR actually did about as well as anybody from a biofuel production standpoint, the Fortune story pointed out. KiOR made nearly a million gallons of biofuel in a year; less than two million gallons were produced in the entire United States in 2015. So nobody’s figured this out yet.
Clearly, the biofuels market is a huge risk, but eventually somebody’s going to get it right and make billions. Those investors should just be using their own money instead of the public’s.
Maybe KiOR’s officials overstated their abilities to make biofuel or maybe they really thought they could do it, but a bigger point is that we shouldn’t have been putting taxpayer funds into a very risky private venture.
Maybe this can be a lesson for our Republican overlords who control the state Capitol. They are, after all, supposed to be the fiscal conservatives protecting taxpayer money from wasteful spending.
I’m as hopeful for that to happen as I am about getting a check in the mail from KiOR.
