By Susan Guyett
INDIANAPOLIS (Reuters) - Indiana has canceled subsidies for a planned $1.8 billion fertilizer plant in the state because of concerns that a Pakistani company involved in the project makes products used in improvised explosives that kill and injure U.S. troops in Afghanistan.
Midwest Fertilizer Corp, which has sought to build the plant in southern Indiana, is 48 percent owned by Fatima Group, which produces a calcium ammonium nitrate fertilizer in Pakistan known to have been used in improvised explosives in Afghanistan.
Indiana Governor Mike Pence, a Republican, had put a $1.3 billion incentive package for the fertilizer manufacturing plant on hold in January pending a review. He said Friday that the incentives would be withdrawn.
"Without assurances from our Defense Department that the materials which have been misused by the enemy in Afghanistan will be permanently removed from production by Fatima Group in Pakistan, I cannot in good conscience tell our soldiers and their families that this deal should move forward," he said.
Midwest Fertilizer said it would pursue other options to continue the project in the area.
The Indiana Economic Development Corporation made the offer to Midwest Fertilizer Corp in November 2012 under former Governor Mitch Daniels.
The Indiana Finance Authority had issued $1.3 billion of bonds in December and the funds have been held in escrow and will be used to repay the bond holders.
Fatima Group has reformulated the fertilizer to make it less explosive and the product is to be tested with the U.S. government in June, Midwest Fertilizer said in a statement. Fatima Group also has stopped selling the fertilizer in areas of Pakistan that border Afghanistan, Midwest Fertilizer said.
The border with Afghanistan is where Taliban and al Qaeda fighters have been battling U.S. and allied forces since the shortly after the September 11, 2001, attacks on New York and Washington.
Midwest said the project would bring 2,500 construction jobs and 309 permanent jobs to the region.
U.S. Senator Joe Donnelly, an Indiana Democrat, said the state's first responsibility was to the safety and security of troops.
"My concern with this project has been our service members overseas who face the threat of improvised weapons made from fertilizer and other products," Donnelly said in a statement.
John Taylor, who heads the Posey County Economic Development Partnership, where the plant would be located, said he had not given up hope for the project.
"The decision the governor made today does nothing to make it safer for our service people anywhere in the world," he said.
(Reporting by Susan Guyett; Editing by David Bailey, Greg McCune and Bill Trott)