Conflict of Interest Discovered in $80 Billion Deal with China

Possible conflict of interest clouds West Virginia’s natural gas deal with China

From an Article by Ken Ward, Jr., Charleston Gazette-Mail, June 15, 2018

PHOTO: Then-West Virginia Commerce Secretary Woody Thrasher (seated at left of table) meets last November in Beijing with China Energy President Ling Wen (seated at right of table) in front of President Donald Trump and Chinese President Xi Jinping. From: W.Va. Department of Commerce

A member of West Virginia’s negotiating team on the $80 billion natural gas investment deal with China was asked to repay $23,000 in travel expenses after the Justice administration raised questions about a potential conflict of interest, the governor revealed Friday.

Last November, President Donald Trump and Chinese President Xi Jinping looked on in Beijing as officials from the Mountain State and a Chinese energy company signed what was hailed as a landmark deal for West Virginia.

Under the deal, China Energy Investment Corp. would invest more than $80 billion over the next 20 years in West Virginia’s natural gas industry.

Gov. Jim Justice and other state leaders have been banking on the China deal, predicting it will create tens of thousands of additional jobs in the state. It also was described as a victory for Trump, the largest in a series of Chinese investments in the United States that totaled $250 billion.

But on Friday, Justice revealed an ethical cloud over the China deal: At least one member of the state’s trade delegation — an industry executive — was also working to help his private company.

Brian Abraham, the governor’s general counsel, said the state was “using someone who probably shouldn’t have been involved in the negotiations” as part of its trade delegation.

“People that were there in China maybe representing their own special interests, we didn’t think was right,” the governor added.

West Virginia officials are eager to see the fruits of the China Energy investment, as a cornerstone to the natural gas industry’s continued growth in the state. But along the way, some lawmakers and watchdogs are questioning whether the state is putting the industry’s interests ahead of the public concerns about broadening the state’s economic base. This year, ProPublica is partnering with the Charleston Gazette-Mail to examine those issues.

At a news conference Friday, neither Justice nor Abraham would name the individual or his company. In an interview later, Abraham confirmed that the man was Steven B. Hedrick, who is CEO of Appalachia Development Group LLC and also CEO of the Mid-Atlantic Technology, Research and Innovation Center, or MATRIC, a nonprofit that partners with industry on various research and development efforts.

Appalachia Development Group has been seeking a loan guarantee from the U.S. Department of Energy as part of an effort to build a natural gas “storage hub” for various natural gas liquid byproducts that can be used in a wide variety of manufacturing.

Abraham said the state Commerce Department paid for Hedrick’s travel for the China negotiations because it considered him acting as a state official, part of a special Commerce Department program in which certain executives are “loaned” to the state.

The Governor’s Office, though, discovered later that Hedrick had not joined the program and when asked to do so after the trip, he declined, Abraham said. Had he joined the program, Hedrick would have been required to sign an agreement to abide by the state ethics law’s prohibition on using public office for private gain.

“Why is this person behind the curtain at Commerce if they’re an individual on the outside?” Abraham said. “That created an ethical dilemma.”

Also, Abraham cited an incident in which state officials were later told that Hedrick asked China Energy officials to specifically target some of their investment in his company’s natural gas storage hub. Abraham said that, on one trip, Hedrick stayed an extra day to pitch his project.

Abraham said Hedrick was asked to repay the state $23,000 in travel expenses and that the repayment had been made.

A spokeswoman for Hedrick said he was not available for comment, but she issued a short email statement that said Hedrick was “grateful to respond to the request of the state of West Virginia to support the Commerce Department’s mission to attract business to the state.”

The statement said MATRIC “promptly paid any expenses invoiced by the state.”

Although officials signed a memorandum of understanding in China, the state has refused to release the text of the agreement and few details have been made public. The China deal and the natural gas storage hub are considered by many state officials as key and related economic development projects for West Virginia’s future.

The state’s natural gas industry has already greatly expanded, and backers of the China deal say it will provide huge amounts of capital that could fund processing plants, pipelines and other facilities that will turn natural gas byproducts into crucial ingredients for a wide variety of plastics manufacturers. These kinds of “downstream” developments will allow West Virginia to capture far more jobs and economic growth than just drilling for gas and shipping it out of state.

The revelations about the China deal came just one day after Justice asked for and received the resignation of Commerce Secretary Woody Thrasher, whose agency bungled the state’s implementation of a federally funded flood-relief program.

Thrasher was the top state official who traveled to China last November as part of the trade delegation.

Justice said Friday that discussions toward realizing the Chinese natural gas investments are ongoing, and repeated his earlier statements that the deal “came into being” because of his personal friendship with Trump.

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Tagged as: China, conflict of interest, Memo Of Understanding, MOU, Secretary of Commerce, west virginia