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.