NAGALAND PULP & PAPER COMPANY LIMITED

(A Subsidiary of HPC)

To ensure rapid industrial development and to wean away the people from
violence, the Govt. of India along with the declaration of respite with the Naga
insurgents in 1964, conceived of a paper mill project in Nagaland in the late 60s.
The mill was commissioned as an economic package after the Indo-Naga ceasefire
of September 6, 1964. As a result, the Nagaland Pulp and Paper Company Limited
was incorporated in 1971. The establishment of this large scale industry has
indeed generated great hope and enthusiasm. It was envisage with the following
technical specifications:
(i) Capacity: 100 Tons per day i.e. 33,000 tons per annum
(ii) Product: Writing and printing paper
(iii) Basic Raw Material: 60% Bamboo, 40% Reed
(iv) Power Requirement: 13 MW
(v) 8 MW to be generated internally from waste head of boilers,
5 MW to be supplied from State Grid.
(vi) Hindustan Paper Corporation, a Central PSU executed the
project.
(vii) Entire responsibility of management rested with HPC.

It was the first large & medium scale industrial unit to be set up in
Nagaland and the first paper mill in the Central Public Sector in the North Eastern
Region.

It may be mentioned that the Hindustan Paper Corporation Ltd. (HPC) has
two paper manufacturing units - Nagaon Paper Mills (NPM) and Cachar Paper
Mills (CPM) in Assam. It also has three subsidiaries, -- Hindustan Newsprint Ltd.
(HNL) in Kerala, Nagaland Pulp and Paper Company Ltd. (NPPC) in Nagaland
and Mandya National Paper Mills Ltd. (MNPM) in Karnataka. Of the three
subsidiaries, HNL is a profit making concern. There have been efforts to revive
the poor performing NPPC through financial restructuring. The company was
referred to BIFR and declared sick in August 1998. BIFR directed the operating
agency (i.e. Industrial Development Bank of India) to explore the possibilities of
changing the management by way of joint venture/ amalgamation/merger/sale, etc.
A final decision is yet to be taken. MNPM has been closed with effect from 20 th
October, 2000. The total liability of HPC (including those of MNPM and NPPC)
as on 31 March, 2000, to the Government of India in terms of loan and interest
stands at Rs. 926.11 crore.1

It may be noted that the local people donated 700 acres (3,04,92,000 sq.ft)
of land for the mill and housing colonies in Tuli and about 126 sq.km. of bamboo
forest land was purchased for plantation and leased to NPCC. Water from the river
Melak was harnessed for water supply to the Mill. With the anticipation of getting
huge demand from the mill, a large scale bamboo plantation in private lands was
also taken up in the adjoining areas as well.

Interestingly, the project took about 10 years to complete (1971-1981).

Paper machines for both lines of production were imported from Sweden. Boilers
were supplied by Walchand Nagar Industries. The mill started commercial
production in 1982 with defective boilers right from the start in which one of the
boilers even failed in the trial test and insufficient heat from the remaining boilers
kept the Turbine Generator (TG) set idle. The mill primarily depended on power
supply from the State which accessed power from Assam grid. Thus, the power
supply was unstable besides being costlier.

The performance of the mill was crippled due to defective boilers. As a

result, the envisaged 60% captive power from Turbine Generator set was not
1
TENTH FIVE YEAR PLAN 2002-07.
available and the capacity utilization was poor, ranging between 3% to 19%.
One of the two production lines i.e. Reed Line was never utilized. Peak capacity
utilization reached 60% on some days whenever power supply was stable. The
mill continued to make losses due to under capacity utilization and with great
effort could functioned for about ten years (1982-1992). However, the production
was abruptly suspended in 1992 as the net worth of the company was eroded and it
was declared sick. Subsequently, it was referred to BIFR in 1992. The worst was
still to come when it took more than fifteen years to decide whether to revive the
mill (1992-2007).

Now it has become a near reality that the Government of Nagaland has
officially affirmed that the mill will become fully functional within 27 months
from the date of getting clearance from BIFR, though it appears to be little
optimistic considering the gigantic renovation works involved ahead. The prospect
of a revived paper mill at Tuli has apparently gone dim. It has emerged that the
execution of work for the revival of the lone heavy industry in Nagaland, which
was supposed to be completed within 27 months, is a failure.

It may be recalled that the Board of Industrial and Financial Rehabilitation (BIFR)
has on May 29, 2007 approved to revive the sick paper mill at Tuli and had
accordingly sanctioned Rs.552.44 crore for total restructuring of the factory. It was
also decided that the revival project be completed within 27 months.
Consequently, the Union Ministry of heavy Industries had released Rs.54.60 crore
in the first phase of the revival project on September 17, 2007. Interestingly, it has
come to light that the management of Nagaland Pulp and Paper Corporation and
the Hindustan Paper Corporation under the command of its Chief Executive
officer Abdul Mannan has utilized Rs.36.76 crore only within the stipulated time
of 27 months.
 The operating agency i.e. IDBI framed a revival proposal and
recommended – (1) Capital restructuring; (2) Operation at 60 TPD; and (3) Fresh
investment of Rs. 16.5 crore. Government of India accepted the proposal as
approved by the BIFR and it was taken out of the purview of BIFR in 1996.
Government of India carried out capital restructuring but did not infuse fresh funds
except for VRS, hence production could not be resumed and it was again referred
to BIFR in 1998 for the second time. IDBI was again appointed operating agency
and a Draft Rehabilitation Scheme (DRS) was submitted that recommended
revival at 60 TPD, fresh investment of 55 crores, other relief’s and concessions
applicable to new industrial units in the North Eastern region and a marginal
viability was envisaged. Nagaland Government agreed to support DRS for its
share of relief and concessions and fresh investment. However, Government of
India declined to support this Scheme. The decision of Government of India was
conveyed to BIFR who in turn asked the IDBI to advertise for change of
management. Although IDBI advertised for change of management, no expression
of interest was received. This position was conveyed to BIFR and thereafter the
matter was taken up by Ministry of Home Affairs (MHA) who decided to take a
fresh view.

An Expert team consisting of Hindustan Paper Corporation, Central Pulp

and Paper Research Institute and State Government officers was sent to determine
the technical viability of the scheme. The team recommended revival at 120 TPD
of value added paper for technical and economic viability and an approximate
investment to the tune of Rs.150 crores. The MHA directed to carry out the
Scheme by outside consultants. Outside consultants were identified. The cost of
detailed project report was to the tune of Rs.30-35 lakhs. The Department for
Development of North Eastern Region (DONER) agreed to meet the cost of
project. However, BIFR refused to grant any further time and issued orders of
winding up.
 The management of HPC constantly informed the committee that the
company has become non-operational due to insurgency problem in Nagaland.
The Ministry of Heavy Industry also in their annual reports routinely stated that
the company, which came out of the purview of BIFR due to financial
restructuring again, became sick as the revival scheme could not be put into
operation due to law and order problem, lack of infrastructure and absence of
banking facilities. Time and again, law and order situation has been cited as a
major cause for the non-revival of the company. In view of the fact that law and
order situation appears to have improved in Nagaland, it is felt that a beginning
may be made towards reviving the mill.

However, the Government did not take the revival of NPPCL seriously.
Fair enough, even with the creation of a separate Ministry DONER for the
development of North Eastern Region, funds for NPPC could not be set aside as
their mandate is to aid only new projects. In fact, DONER could be made a model
agency for the development of the North Eastern Region, which should encompass
not only new projects but also the existing units if any meaningful role is to be
played by the newly created department. DONER could play a leading role for the
development of the North East in coordination with concerned central ministries to
usher in real development of the North East. It may be noted that out of Rs.1600
crores non-lapsable pool for North East, Rs.550 crores goes to the budget of
DONER for creation/completion of last mile projects in social infrastructure. It is
felt that the balance fund may be tapped for funding revival of the company.

It may be noted that the cost of closure is Rs.107 crores. In addition Rs.112
crores worth of investment is sunk. In the light of the views expressed by the HPC,
Central Pulp and Paper Research Institute and Economic Advisor to DHI on how
to make the company viable, excise duty exemption for 25 years coupled with
transport subsidy should be made available to the company. NPPC should also
have assured supply of bamboo for a period of 15 years. The Committee took up
the case of NPCC as the peace process in Nagaland is going on and industrial
development of Nagaland should go hand in hand with the peace process.
The immediate impact of wounding up the NPPC would be –
(i) Colossal waste of all investment made in infrastructure
(ii) Serious erosion of credibility of Central Government in sensitive
border area.
(iii) Wrong signals to ongoing peace process
(iv) Accentuate already alarming unemployment situation
(v) Nagaland would be completely wiped off from the industrial map of
of India.
Recommendation -
(i) DHI and Government of Nagaland should properly place the matter
before the AAIFR, especially with reference to the funding position.
Since Rs.250 crores is not required at one go, this can be arranged in
a phased manner.
(ii) Excise exemption for 25 years coupled with transport subsidy be
provided to NPPC as a special dispensation.
(iii) Assured supply of bamboo be made available for a period of 15
years.
(iv) Since the proposal involves financial implications, the clearance of
Union Cabinet be obtained at the earliest.

(ii) Economic development of North East Region and encouraging the

participation of ultra nationalist in the decision making process and thus
bringing them to the national mainstream would also help in national
integration. The committee noted that the President of India in his
 address to Parliament on 25th February 2002 had said “The peace
process in Nagaland has been strengthened with satisfactory progress of
talks with various militant groups. What is especially heartening in the
last one year is that people of Nagaland have come out strongly in
favour of peace, dialogue and development, often by staging
spontaneous mass activities”
(v) Infrastructure development over the years in Nagaland was favourable
for revival of the company which inter-alia included Railway line
extended to Tuli; Upgraded to broad gauge; Kohima-Mokokchung-Tuli-
Amguri road upgraded to National Highway; 66/33 HT transmission
lines extended to TULI; TULI transformer upgraded from 1.6 to 7.5
MVA; Power availability improved by commissioning 75 MW Doyang
and 24 MW Likhimro hydel projects; Substantial investment for road
connectivity of Tuli with rest of the State ; Coal and Limestone
available within a radius of 250 kilometers; Communication and
transport facilities are many times better than it was 30 years back.

(vi) Cost benefit analysis:-

(a) Wind up and spend Rs.107 crore for closure.
(b) Revive and let HPC manage with the existing arrangement
(c) Revive and privatize as a going concern
The revival is the most feasible and desirable option compatible with
Central Government policy on sick PSUs. That is because the cost of the closure
of NPPM is Rs. 107 crore in addition to Rs. 112 crore worth of investment if the
decision other than the revival of NPPM is taken, besides the threat of bellying the
hopes of the people and thus halting the peace process.

Some relatable causes for failure of the mill documented by the

management and as observed by the common man are as under –
1. High production cost due to irregular power supply.
2. Due to high production cost competing with other paper producing
countries are very bleak
3. Imported papers in the local market were found to be cheaper than what
was produced from the mill.