The Hindu Business Line : Mini paper mills fiasco

In 1974 the country faced an unprecedented paper demand. Prices spiralled and the situation was thought to be alarming; the sudden thirst for paper was inexplicable though. Paper, as a commodity, thus caught the fancy of speculators early on and more than any other product.

The soaring prices caught the attention of planners who thought that the price rise was due to paper shortage; they appear not to have thought of speculation.

Thus every State sought to increase paper production, especially writing and printing, through mini-mills as this was seen as the only way to making paper available in a short time.

To quote from the biography of Mr S. Viswanathan (Founder chairman of Seshasayee Paper and Boards Ltd): "... However, at the Tamil Nadu Secretariat, there were talks on mini-paper mills investing Rs 5-10 crore.

Industries and Finance Secretaries considered it wiser to spend the money meant for Tamil Nadu News Print Ltd (TNPL) on ten mini-paper mills to generate more employment if not more paper... "

It was the advice of Mr S. Viswanathan and his mentor Mr Gopalratnam, Chairman and Managing Director of Seshasayee Paper, that prevented the idea of setting up mini-paper mills, instead of Tamil Nadu News Print Ltd., since it would have been a virtual disaster.

However, in the rest of the country more than 150 mills all with production capacities of 10-40 tonnes per day of make writing and printing paper were set up between 1974 and 1980. Another 100 mills came up in the packaging sector, with capacities of 5-20 tonnes per day.

But, now, more than 100 mills making writing and printing paper, and 75 in the packaging segment have been closed.

Ironically, financial institutions still fund small paper mills despite such adversities.

It can be argued that the small mills contributed to easing the supply of paper, whatever be their cost and quality.

But this argument is not valid for various reasons. The production figure from 1980-2000 by small paper mills on a 20-year cycle, at an average of one million tonnes per year of writing and printing paper, works out to 20 million tonnes, and packing grade papers, at an average of 1.5 million tonnes per year, works out to 30 million tonnes.

Even assuming that the entire quantity is imported at an average price of $500 a tonne for writing and printing and $350 a tonne for the packaging grade paper, the total bill would be $20.5 billion. The import of waste paper, pulp, chemical, and so on, by the mini mills costs $600 million per year, working out to $12 billion over 20 years. Export by these mills is practically nil.

Since most paper plants were imported from Europe and elsewhere, the cost in terms of foreign exchange worked out to more than $1.5 billion. This still leaves a shortage of $7 billion over 20 years in foreign exchange.

However, it must be noted that, primarily, imported paper has high strength and quality finish.

For example, a mini mill's 200 gsm kraft paper would be as strong as 100 gsm imported kraft paper. Therefore, the tonnage in imports automatically drops down for the same quantity.

Second, most mini mills were commissioned based on agricultural inputs such as rice/wheat straw, and so on, which is unusual. Quality paper is produced using long fibre pulp, which is abundantly available in Europe and Indonesia. By using agricultural wastes, only inferior grade paper can be produced. Long fibres run smooth on the machine consuming less energy and steam, whereas short fibre consume a lot of electricity, water, steam, and cause frequent breakages in the machine.

Moreover, the effluent problem can be serious. The black liquor scorches the fields or the rivers where it is let into. An effluent treatment plant, which may cost as much as the paper mill itself, has to be set up.

As a result, the selling price of the paper would have to be raised from the present Rs 35 per kg to Rs 70. The customer would have to shell out more for inferior grade paper, under protective imports.

It is true that the country may have lost foreign exchange, of $6-7 billion over 20 years, in the import of paper machinery/layout/fees, in the absence of production by these paper mills. But one should consider that being economically unviable, these mini-mills have been closed down.

The capital, labour, natural resources, water and electricity consumed by these mini mills is very high..

At the rate of 2.0 lakh litres of water per tonne of paper, these mills have used 100 trillion litres of potable water during these 20 years, enough to give drinking water to all the villages and cities in India for several years.

Besides, had they not polluted the rivers, food from improved marine life would have fed a large section of the population. The diesel/coal and wood they had consumed would have lit several villages.

It is ironical that in the 1960s several mini mills were installed in Udumalpet, Tamil Nadu. None fared well even in 1974 when it was decided to encourage these mini mills.

If any one gained from the mini-mill policy, it was Europe, whose paper-makersdisposed of their junk to India, since the policy makers were not sure what they were doing.

Ultimately, Europe had its last laugh.

(The author is a former President of the Madras Paper Merchants Association and a former management committee member of the Federation of Paper Traders Association of India.)

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