At the Thabaung paper mill boondoggle, land grabs, a dead river and a budget black hole
Thursday, March 15, 2018
The military junta’s dream of a paper industry built on bamboo plantations has turned into an expensive nightmare for the current government.
By HEIN KO SOE | FRONTIER
“Thabaung, Thabaung tan hnayar… setku pyaw phat set yone.”
No, it’s not the lyrics to a hit pop song – it’s a propaganda tune from the State Peace and Development Council period that will be familiar to anyone who had the misfortune of watching MRTV in the mid-2000s.
The military regime loved to trumpet its industrial and development projects – in this case, the Thabaung paper mill in Ayeyarwady Region (the lyrics say, “Thabaung, Thabaung 200 tonnes… pulp factory”). But like so many other state enterprises from that era, the mill is today more of an advertisement for incompetence and mismanagement than the modern developed nation that the generals envisaged.
Built at a total cost of US$144.5 million, it’s actually three plants. There’s a 200-tonne pulp mill and 50-tonne high-grade paper mill, which were both built by China Metallurgical Construction (Group) Corporation and opened in 2005 and 2008, respectively, and a 60-tonne newsprint mill installed by Tianjin Machinery Import and Export Corporation in 2016-17.
When the pulp plant opened in May 2005, Prime Minister General Soe Win was quoted in state media as saying that three quarters of production would be exported, and the rest would go towards meeting domestic demand of 160,000 tonnes a year and reducing reliance on imports. He declared that Thabaung “will become a region of paper and chemical zone creating a lot of job opportunities, and modern technologies will be disseminated”, adding that “such a gigantic project is beyond the reach of national entrepreneurs and paper industry is the one necessary for the state”.
It’s a vision that has never been fulfilled: the plants haven’t operated for at least five years due to a lack of fuel. When Frontier visited the factory site, near Hlaygyi Tat village, in January, vehicles could be seen rusting away in the huge compound. Piles of weathered bamboo sat next to signs warning staff to be careful of fire. Frontier wasn’t able to enter the factory, but Pyithu Hluttw Public Accounts Committee chairman U Aung Min said that some of the machinery was damaged and would need repairing if the factory was to resume operations.
“Because operations at the factory was stopped so many times, some of the chemicals that they were using have caused damage to the machinery,” he said.
In 2014, Amyotha Hluttaw representative U Khin Shwe – the owner of Zaykabar Company – complained in parliament that the factory had not only been a waste of money, but it had also damaged the environment. ““Because of the mill, the bamboo trees in the surrounding areas are almost gone … and masses of fishes in the Nga Won river have been killed by the plant’s wastewater,” the Myanmar Times quoted him as saying. He suggested it might be better off privatised.
Although it has been looking for partners to revitalise the Thabaung plants, the ministry hasn’t had much success to date. Several foreign companies have been linked with Thabaung. One of these, an Indian company called JK Paper, signed an agreement with the Ministry of Industry in May 2012 “to cooperate for technical know-how and production” at Thabaung and begin discussions on a potential public-private partnership deal. The following November, the ministry said a Thai company, Double A, had won a tender to run the factory under a 30-year contract. Media reports said the company would lease the plant for $2 million a year and invest $300 million to expand production to 300,000 tonnes of paper a year. About three years ago, Hlaygyi Tat residents heard that a Chinese company was going to repair the machinery. Although a group of Chinese officials visited the mill, nothing appears to have come from any of these plans.
In a presentation to Japanese officials in September 2016, No 3 Heavy Industries Enterprise managing director Dr Soe Naing said the ministry had sought expressions of interest from companies to redevelop Thabaung, including upgrading the capacity of the paper mill, establishing a tree plantation for raw materials, installing a biomass power plant and manufacturing value-added paper products.
Then, in March 2017, the national parliament decided to cut funding to dozens of loss-making factories, including Thabaung, in an effort to trim the budget deficit. Although it was already shut, Thabaung was included in the factories that had their budget cut because the ministry had requested funding to enable operations to resume.
The measure was expected to save in excess of K100 billion (US$73 million) in 2017-18, even though staff continued to receive their salaries while the factories were closed. At the time, Aung Min told reporters that the committee would study whether the factories should be tendered to the private sector or continue as government enterprises, a move that was welcomed by Minister for Industry U Khin Maung Cho.
Aung Min told Frontier in a recent interview that when lawmakers visited the Thabaung factory in December 2016 they had been surprised to discover that operations had halted in 2013.
“We were examining the factories on paper – how much they were losing – and we saw Thabaung was losing a lot of money, so we decided to stop operations,” he said. “But when we went there, we found it had already stopped a long time ago.
“Before 2013 the government provided gas to mill but then onshore gas production declined and the gas that was being produced went to fertiliser factories instead.”
He said MCC, which built the pulp and high-quality paper factories, had provided a loan to the government that was repaid over six years. The newsprint factory was built later through a tendering process.
In his presentation, the director-general, Soe Naing, said there were a number of problems with the Thabaung factory. The lack of raw materials and energy meant production was neither stable nor economical. The regular stoppages also increased maintenance costs and stopped the mill from developing regular customers, he added. The location, in an area of the delta with poor infrastructure, was also a disadvantage as it increased transport costs.
Hlaygyi Tat residents said that the plants initially ran on fuel oil but operations began to wind down from 2011, once the loan for the machinery was repaid.
Even though work stopped five years ago, more than 1,000 staff – who live in apartments next to the factory site – have continued to report for duty. Some have second jobs that they do during office hours – when this reporter hired a motorcycle taxi to go back to Pathein, the driver was a factory employee.
“I’m getting a salary and apartment here but we are just doing some office-based work,” said Ko Myat Min Ko, who is supposed to be an electrical power supervisor. “I’ve been trying to transfer to the Environmental Conservation Department in Pathein but I’m not sure when I’ll be allowed.”
Because of this farcical situation it’s common to hear residents in Hlaygyi Tat remark, “Ma lae yin tamat, lae yin ta kyat” – that is, if we don’t run the mill we lose a quarter of a kyat, if we run the mill we lose one kyat.
As well as the huge financial losses that the project incurred, locals are also furious about the thousands of acres of the land that was taken from them.
They recalled how U Aung Thaung, who then headed the Ministry of Industry-1, came once to the village to explain about the project and the great benefits it would bring for the country. Nothing was mentioned about land confiscations, but soon the ministry had taken 3,800 acres from villagers, including farmland, plantations – even some homes. This was just the start, though. Ministry of Industry figures show that in total more than 35,650 acres was taken for the project, mostly for the bamboo plantation.
After operations stopped, residents who lost land lobbied the ministry several times for the land to be returned if it wasn’t needed for the factory, but the requests were ignored.
Instead, the head of the plant recently proposed renting out the unused land to the
highest bidder. However, the plan was dropped after residents objected in January.
“It is our land and he wants to make money from it – we can’t accept it,” said U Kyaw Lwin Oo, a Hlaygyi Tat resident who lost 16 acres. “When they took our land, they didn’t even pay any compensation.”
Residents are also angry that all of the jobs went to civil servants who were brought in from other parts of the country, and that waste from the plants polluted the nearby Nga Won River, turning the water black and killing the fish.
“The mills brought nothing but problems for us, even when they were running,” said administrator U Aung Myint. “We lost our land, we didn’t get any jobs and the plants polluted the water.”
Minister for Industry U Khin Maung Cho responds to Frontier’s questions on the Thabaung paper plants:
What is the present status of the mills – pulp, high-quality paper and newsprint – at Thabaung?
Production at the high-quality paper mill has been suspended for four years, starting from December 2013.
In May 2017 a test run was conducted at the newsprint mill in order to issue the final acceptance certificate. The FAC has not yet been issued and production has not started.
Why was production suspended?
Production at the high-quality paper mill was suspended because natural gas delivery from the Myanma Oil and Gas Enterprise has stopped.
When the mill was running, was it profitable? How much of its production was given to the Chinese contractor to pay back the loan for the machinery?
The mill was profitable in the years when it received at least 50 percent of its gas needs. In years the mill got less than 50 percent, it lost money. From 2004-05 to 2017-18, gas supply was available for a total of 1,704 days, or about four years. During that period, the value of production was K87.623 billion.
The cost of constructing the 200-tonne pulp mill, both capital and interest, was $127.979 million, and for building the 50-tonne high-quality paper mill it was $19.43 million. A total of $147.409 million was paid to China Metallurgical Construction Group Corporation. Out of this total, $26.999 million was in the form of pulp produced by the mill and $120.410 million was paid in cash.
Are operations likely to restart at the mill and if so when?
The high-quality paper mill uses chemicals – chlorine alkali and chlorine dioxide – to make bleached pulp. The sections of the plant producing these chemicals have been damaged due to chemical corrosion during the four years of non-production. Other areas of the mills would also need at least one year of repairs before they can operate again.
Is there any plan to return the land that is not being used by the mill back to the farmers from whom it was taken?
For the long-term survival of the mills, we plan to build more mills to produce value-added products. So we have no land to spare on the 1107.37-acre mill site.
Paper and pulp mills use steam and electricity. At the moment, natural gas is not available so we need a joint venture company with necessary technology and investment to produce electricity from biomass and coal without adversely affecting the environment. Only when that happens we will be able to restart production. We have to grow bamboo and trees to get raw materials for the mills and that will also require investment from a private company.
For revitalisation of the mills, we are talking with interested parties from Myanmar and abroad for a win-win partnership. We will submit a proposal to the government. If we get approval, we will try to restart the mill in a year.