* Prosecutors seek judicial order to shut down furnace
* Comes as ThyssenKrupp seeks to sell money-losing CSA
By Sabrina Lorenzi
RIO DE JANEIRO, Jan 18 (Reuters) - Brazilian prosecutors are seeking to shut down one of two blast furnaces at ThyssenKrupp AG's CSA unit over alleged irregularities, presenting a new challenge for the German steelmaker as it tries to sell the money-losing mill.
The investigation centers on allegations that CSA was improperly awarded an operating license for the facility about two years ago, and could result in a series of lawsuits against the company, Leonardo Kataoka, a state prosecutor in Rio de Janeiro, told Reuters in an interview.
CSA, formally known as Companhia Siderúrgica do Atlántico SA, is already facing two separate lawsuits over alleged pollution offenses that took place in December 2010. And last week, the city of Rio de Janeiro ordered CSA to halt operations, alleging it does not have an operating license.
ThyssenKrupp said this week that the mill is still operating and that it had provided all the necessary documents to renew its operating license.
The new legal challenge could complicate ThyssenKrupp's plans to sell CSA, Brazil's biggest foreign investment project to date. Germany's No. 1 steelmaker invested over $8 billion in its Brazilian foray, which has been plagued by a weak global economy, growing operating losses and poor management.
Brazilian rival Companhia Siderúrgica Nacional SA, known as CSN, and ArcelorMittal SA have emerged as leading bidders for the two steel mills that ThyssenKrupp is trying to sell in the United States and Brazil, a source told Reuters on Thursday.
Whoever wins the bidding process will also inherit the lawsuits, said Kataoka.
"All the company's legal responsibilities will be transferred to whoever buys it," he said.
CSA declined to comment on the investigation into the operating license, which, according to Kataoka, was granted in December 2010 even though Rio de Janeiro's environmental agency Inea recommended otherwise. The state government awarded the permit based on a report by an independent consulting firm that was commissioned and paid for by ThyssenKrupp, the prosecutor added.
"There are indications that the report contained false and misleading data," Kataoka said. "The start-up of the blast furnace was approved without hearing Inea's recommendations and contradicting its technical guidelines."
ThyssenKrupp has struggled with delays and cost overruns at CSA that led the former to report losses in 2011 and 2012. The German steelmaker has also been unable to escape from the bleak outlook for steelmakers in Brazil, as rising raw materials costs and a gl ut of slab hav e sapped margins and hindered factory usage.
According to Kataoka, CSA's second blast furnace should never have started operation because the furnace hood was smaller than required. An ingot pouring facility that was closed for similar reasons meant that pig iron had to be deposited in an emergency well.
The problem, he said, is that the well also had poor emission controls. The situation could have caused damages to the population living in the CSA mill area, Kataoka said.
Despite agreeing with Inea to straighten up environmental controls and improve the quality of its facilities, CSA's operations are still not safe enough to minimize emissions and pollution, according to the prosecutor.
The company denied those accusations, saying that its blast furnaces are in compliance with environmental codes.
CSA, which has total production capacity of 5 million tonnes a year, began operating in 2010 and was meant to export slabs that could be further processed in the United States.
CSA is 73 percent-owned by ThyssenKrupp, with the remaining stake belonging to Brazil's Vale SA, the world's No. 1 producer of iron ore.