Sinar Mas: Pulp fiction or paper tiger?

Sinar Mas: Pulp fiction or paper tiger?

By John Zubrzycki

NEW DELHI (JP): For a while it looked as though Southeast
Asia's largest paper maker, Sinar Mas, would replace the Houston-
based power giant, Enron, as public enemy number one in the
western Indian State of Maharashtra.

Soon after its victory over the US$ 2.8 billion Enron power
project in July, the state's ruling Shiv Sena party took the side
of local farmers and called for the scrapping of the US$ 200
million Sinar Mas paper project near Pune, 120 km west of India's
financial capital Bombay.

As in the case of Enron, the ultra-nationalist Shiv Sena
refused to honor the agreement signed by Sinar Mas Pulp and Paper
(India) with the previous Congress state government just days
before it was thrown out of power in state elections last March.
Sinar Mas is Indonesia's fourth largest business group with a
turn over of US$ 5 billion.

Although political imperatives were high on Shiv Sena's
agenda, the main grounds for scrapping the project were
environmental.

In August an action committee comprising political parties,
farmer's groups and NGOs began an agitation against the project.
The project's opponents claimed the effluent from the plant would
have a high pollution potential and its heavy consumption of
water would make less available for irrigation.

Now, after a tense stand-off lasting nearly three months,
Sinar Mas appears to have silenced its critics and the company is
once again confident of meeting its May 16, 1996 deadline for
completing construction of the plant.

Rather than allow the issue to become a political cause for
the anti-multinational brigade, Sinar Mas decided to embark on an
education campaign targeting those farmers, politicians and local
residents opposed to the project.

In September it took 35 farmers and village leaders to the
Southern Indian state of Tamil Nadu where an integrated paper
mill has been in operation.

The farmers were shown 2000 hectares of cane fields irrigated
with effluent water from the plant. Sinar Mas India's managing
director, M.K. Raina, explained to the farmers that the new mill
near Pune would be even cleaner than the one they were seeing
because it used already bleached imported pulp and therefore did
not involve producing pulp and then converting it into paper.

For villagers in the parched surrounds of Pune, water is a
central concern. Having convinced most farmers that the 2.2
million liters of effluent discharged daily would be not affect
animals or crops, the company had to convince farmers that the
2.5 million liters being drawn daily from the Ujjani reservoir
would still leave enough for irrigation.

"We are using only 0.5 percent of the daily inflow into the
reservoir," says Raina.

The Pune-based general manager of Sinar Mas, D.V. Anand, also
denies that the project will cause any water scarcity. Anand says
the project will use only around 20 percent of the water required
by other paper mills.

While there is still some skepticism among farmers about the
effects of the project, there is a growing lobby in favor of the
mill with village leaders even starting to insist that effluent
from the project be channeled through their areas for irrigation.

Sinar Mas may have silenced its local critics, but Indian
paper manufacturers are afraid that the company's access to
abundant sources of cheap pulp from Indonesia will introduce
unfair competition.

Although the plant is expected to start production in June
1996 with an initial capacity of 200,000 tons a year, Sinar Mas
plans to invest another US$ 800 million and increase production
to 1 million tons making it the largest plant of its kind in
India. The plant will be manufacturing paper for the publishing
and stationary markets.

That the plant will find a ready market is borne out by a
recent study by the Industrial Credit and Investment Corporation
of India which forecast a paper shortage in India this year of
210,000 tons rising to one million tons by the end of the
century.

Another factor favoring Sinar Mas was the outrage among local
and foreign investors following the decision to scrap Enron power
plant even though an agreement had been finalized by the previous
Congress government of chief minister Sharad Pawar.

As in the case of Enron, the Shiv Sena smelled favoritism in
the Sinar Mas deal. Pawar's son-in-law was a top executive in
Sinar Mas's oil division when the agreement was finalized.

The fact that the plant was coming up next to the former chief
minister's constituency only added weight to the conspiracy
theory, which Sinar Mas has been quick to deny. "There were no
favors given and no favors taken," says Raina.

Although the Shiv Sena was determined to review the project,
the party's coalition partner in government, the Bharatiya Janata
Party, was in favor of allowing construction to proceed. The fear
of frightening investors away from what is considered India's
most economically advanced state has weighed heavily on the state
government's mind in the post-Enron period.