Valaichchenai paper mill to break even soon- Competent Authority

By Gamini Warushamana

The Valaichchenai paper mill will be able to break even next month and make profits thereafter, the Competent Authority (CA) Mangala Senarath told the Sunday Observer.

Mangala Senarath

Senarath, a prominent businessmen with vast experience in the production industry said that he did not know anything about the paper industry at the time he assumed duties as CA of this government owned abandoned factory that was depending on Treasury funds to pay workers.

"With my knowledge and experience I applied general management practices of the production industry and it is working now and bringing results," he said.

During the past six months the factory has achieved success and the whole production process has turned out to be positive. "When I assumed duties as the CA six months ago, the factory produced only 38 tonnes of paper a month, production increased gradually and in September we produced 255 tonnes."

"We will be able to break even by manufacturing 350 tonnes this month and will reach 500 tonnes per month soon," he said.

During the golden era of the factory, it produced 1,600-1,700 tonnes of paper and board per month.

According to Senerath, Sri Lanka only produces 4 percent of the paper and board demand in the country and marketing of its products is not an issue. The quality of the paper and board produced at the Valaichchenai factory is as good as any imported product.

The company owes Rs 33 million to government institutions.

Board production machinery

The CA has the power to take decisions and implement them breaking all bureaucratic barriers. According to the practice that prevailed earlier it took several months to repair a motor, because they had to follow many procedures and had get many approvals. This cannot be done in a production line.

On one occasion, the production process was stopped for six days as the boiler broke down, he said.

Business has now improved and allocations for the welfare of workers has been increased. Workers get their salaries on time time and facilities for managers and workers have been improved.

Machinery has been repaired and as a result of a continuous production process, the cost of production has come down sharply. For instance the electricity bill of the mill has decreased from Rs. 2.5 m to Rs. 2 m a month while production has increased.

There are two machines in the factory, one to manufacture paper and the other to manufacture board. However, both machines cannot be run simultaneously as the boiler capacity is not sufficient and is the biggest obstacle to increase production. Immediate investment is needed to get a new boiler.

The existing boiler runs on paddy husk. If the boiler is replaced, both machines can be operated at the same time and production can continue without interruption. The buildings are in a dilapidated condition and need renovation, he said.

There are 18 tractor trailers but only one tractor is in working condition. The factory need a new fleet of vehicles. This is a recycling industry and it uses waste paper, mainly off cuts from the printing industry as raw material and paddy husk as energy for the boiler.

Dilapidated buildings that are being demolished.

The administrative building after renovation

The machines are over five decades old but still in good condition. TheVoith machines made in Germany have a lifetime warranty and can be upgraded and could be run without trouble with proper maintenance.

"We only need credit to modernise production facilities and recruit new workers. There is a shortage of workers and the majority of the existing workers are close to retirement.

In the 1990s there were 3,200 employees in the factory and after 1980 there was no recruitment. Today there are only 175 workers," Senarath said.

The Ceylon Paper Corporation was set up in 1951. The mill was started in 1955 and commercial production was started in 1956. From 1956-1960 the factory ran at a loss and after 1960 it began making profits. From 1960-1997 the factory earned huge profits and over Rs.100 m was paid to Treasury coffers as tax. During this golden era, in 1993 and 1994 the factory won national productivity awards and was recognised as one of the best industries in the country. Today the factory belongs to the National Paper Company Limited which is government owned.

The downturn began after the Government decided to get out of businesses leaving it to the private sector. Under the neoliberal policies followed by the Government, profit making industries such as this paper mill were neglected. Thirty years of terrorism was another blow to the operation of the factory.

All other large scale factories owned by the Government such as the Paranthan chemical factory, the Kankesanthurai cement factory and the Kantale sugar factory were closed due to security concerns or were ruined by the terrorists. However, operation of the Valaichchnenai paper mill continued even under terrorist threat. Senarath said that credit for this should go to the courageous employees who protected the factory under extremely difficult conditions.

From 1997, the governments in power were in a dilemma as to whether this factory should be privatised or not. The present Government is against privatisation and seeks alternative models to make them profit-making ventures. No doubt, the Valaichchenai paper mill will earn profits soon.

But in the long run, a sustainable model for state- owned ventures have to be found. Senarath said that public-private partnership was one option and privatisation was not the solution.