The Obama administration on Friday opted against closing a loan of up to $730 million for steelmaker Severstal North America, whose financing bid to expand a plant for auto steel production drew the attention of congressional investigators looking at Energy Department loan programs.

Congress has drawn no conclusion about the merits of Severstal's application, but the Energy Department said that after careful review it had decided that financing for the wholly owned subsidiary of Russia's OAO Severstal would not go forward.

Not every project that receives a conditional commitment closes its loan, said Damien LaVera, an Energy Department spokesman.

The agency was under a Friday deadline to determine whether it would finalize terms approved conditionally last year for financing to help it expand its Dearborn, Michigan, facility for making lighter and stronger steel for auto production.

The Energy Department's advanced vehicle initiative is caught up in congressional scrutiny of the agency's overall loan programs following a politically charged controversy linked to financing of bankrupt solar company Solyndra.

The Republican-led House Oversight Committee had sought information from DOE about the Severstal loan. The chairman of the panel, Darrell Issa, asked in October why Severstal merited a low-interest taxpayer loan of up to $730 million considering the standing of its parent as a global company.

Issa said on Friday he was pleased that the administration reconsidered the loan, but added it was deeply disconcerting to know that it would have proceeded had Congress not raised concerns.

The Energy Department said the decision to not grant a loan was made on the merits of the application, and that it conducted a thorough review. The agency hoped Severstal would be able to tap private markets to fully fund its plant expansion.

Severstal confirmed that the loan would not be going through, and said in a statement that it was deeply disappointed by the decision.

The company will be reviewing alternative financing options to continue its modernization and expansion programs, Severstal said.

Severstal North America said previously it had met all requirements of the loan program during nearly two years of due diligence.

It also noted that the steel technology being put in place with the project is absolutely critical for manufacturers to meet U.S. government fuel efficiency targets, which include an administration proposal to double average fuel efficiency of the U.S. fleet to 54.5 miles per gallon by 2025.

The Energy Department's Advanced Technology Vehicles Manufacturing loan program has advanced financing to major companies and start-ups since 2009.

Profitable Ford Motor Co is currently using proceeds from a $5.9 billion Energy Department loan to upgrade factories in five states.

Nissan <7201.T> was approved for a $1.6 billion loan to launch a battery manufacturing facility and retool U.S. assembly operations for production of its all-electric Leaf and future models.

An application by Chrysler, bailed out by taxpayers in 2009 and now run by Italy's Fiat , for up to $3 billion in loans to upgrade U.S. plants has been stalled by the congressional investigation.

The agency has also granted loans to electric car startups Fisker and Tesla .

One other conditional loan under the auto program never closed in addition to seven projects under the DOE's renewable energy financing program, the agency said.

(Editing by Bernard Orr and Carol Bishopric)

(Reporting By John Crawley)

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