Exclusive: Senators question A123's Chinese deal

WASHINGTON (Reuters) - Two Republican senators on Tuesday questioned whether the battery-maker A123 Systems Inc should continue to receive U.S. government funds in light of a deal with a Chinese firm to invest hundreds of millions of dollars in the faltering company.

A123 announced last week that China's Wanxiang Group Corp would invest $450 million to help keep A123 afloat and would have an opportunity to take a controlling stake in the U.S. green tech company.

A123 was awarded a $249 million grant by the Energy Department in 2009 under a program to expand U.S. battery manufacturing for electric and hybrid cars. The company so far has received about half of the funds.

The Chinese investment sparked an outcry from Republicans who said the Obama administration was allowing the transfer of government money and sensitive American technology to a country that is often seen as chief trade rival.

Senators John Thune and Chuck Grassley sent a letter on Tuesday to Energy Secretary Steven Chu questioning the continued investment in A123, the first official congressional inquiry into the company's tie-up with a Chinese company.

"Billions of U.S. taxpayer dollars have flowed to foreign companies through the Recovery Act, and we are concerned that the recent announcement could lead to even more taxpayer dollars going overseas," Thune and Grassley wrote in the letter.

They asked the Energy Department how it would handle the remainder of A123's grant and whether the company would need those funds if the Wanxiang deal came to fruition.

The lawmakers also asked whether there were any assurances that U.S. government-backed intellectual property would not go to the Chinese company and if manufacturing jobs would remain in the United States.

A123 declined to comment on the letter.

In an emailed response to a request for comment, the Energy Department said it was reviewing the letter. The agency, which had hailed A123 as a model for revitalizing the U.S. manufacturing sector, reiterated comments it made last week stressing that none of A123's grant would be allowed to fund facilities abroad.

A123, which reported a second-quarter loss of $83 million, said in July that it had about five months of cash left.

CLEAN ENERGY RACE

With the failure of alternative energy companies that received government grants, including Solyndra LLC and Abound Solar Inc, the administration has been on the defensive in the run-up to the November elections over investments in green energy, funded largely by the stimulus act of 2009.

China has poured money into clean energy and flooded the market with cheap solar panels that undercut U.S. solar manufacturers.

Earlier this year, Thune and Grassley questioned the Energy Department's decision to award a $529 million loan to Fisker Automotive Corp, which manufactured its Karma plug-in sports car in Finland.

The agency said the funds would support operations in the United States, such as developing the tools and processes for manufacturing the Karma.

A123 makes batteries for the Fisker Karma, the BMW hybrid 3-Series and 5-Series cars, and General Motors Corp's all-electric Chevy Spark due in 2013.

(Editing by John Wallace)