FAO ACPWP MEETINGA PRESENTATION

ONINDIAN SCENARIO – PAPER & FORESTRY

June 06, 2006At

Rome

Indian Paper Manufacturers Association (IPMA) New Delhi, INDIA

Face of Resurgent India

The Second Fastest Growing EconomyModerate InflationEasy Credit AvailabilitySixth Highest Foreign Exchange ReservesRapid movement towards Free Market EconomyIntegrated with the Global EconomyPromising Consumer MarketsSignificant Investment in Infrastructure Creation for IndustryGrowing Market for IT & ITESGrowing Self Belief & National Pride

Face of Resurgent India

Fourth Largest Economy in terms of Purchasing Power Fourth Largest Economy in terms of Purchasing Power Parity...Parity...

Among the Top 5 Economies (PPP) 2005…Among the Top 5 Economies (PPP) 2005…

Source: CIA

12.4

8.2

3.9 3.72.5

0.0

5.0

10.0

15.0

US China Japan India Germany

Expected to be the Third Largest in GDP by 2020Expected to be the Third Largest in GDP by 2020Already Fourth Largest Contributor towards Incremental global GDAlready Fourth Largest Contributor towards Incremental global GDP P Growth (3.2%) after USA (21.6%), China (9.4%) & Japan(6.4%) in Growth (3.2%) after USA (21.6%), China (9.4%) & Japan(6.4%) in 2005 2005

Indian Economy–A Snapshot

Economic Growtho Sustained economic performance

Average since 1991 6.2%2004-05 6.9%2005-06 8% Forecast to sustain growth of over 8% p.a.

o Services account for over 50% of GDPo Manufacturing sector grew at 10% in 2005-06o Exports of USD $ 100 billiono Forex reserves of USD $162 billion (incl. Gold & SDR)

Mature Capital Markets o NSE third largest, BSE fifth largest in terms of

number of tradesThird most attractive destination for manufacturing

India among the top

reformers in 2003: World Bank’s Doing Business in

2005

Fiscal Reforms…..on fast track

Rationalisation of tax structure – both direct and indirect Progressive reduction in peak rates of duties;Direct and indirect taxes further reduced this yearo Peak Custom duty reduced to 12.5%o Corporate Tax at 30% o Tariff to be aligned with ASEAN levelsValue Added Tax introduced from 1st April 2005Rupee made fully convertible on trade account

Human Resources….a treasure trove

India’s competitive edge - its highly-skilled manpowero Over 380 universities (11200 colleges)o 1500 research institutionso Over 200,000 engineering graduateso Over 300,000 post graduates from non-engineering collegeso 2,100,000 other graduateso Around 9,000 PhDs

Knowledge workers in software industry increased from 56,000 in 1990-91 to 650,000 in 2003; o to reach 2 million by 2008

Due to its young demographic profile, India would continue to be surplus in working population for a long-time

Competitive Strengths

Ease of starting and running businesses

Increasing recognition of value of entrepreneurs

Increased entrepreneurial activity by diaspora

New business models due to penetration of technology and communications – IT, ITeS

Ease in availability of financing

Trend towards outsourcing operations and services to India has created new opportunities

Well developed judiciary

Competitive Strengths

Rank out of 102 countriesAvailability of scientist and engineers 3Quality of management schools 8State of cluster development 17Quality of scientific research institutions 20Government intervention in corporate investment 34Quality of educational system 36Sophistication of financial markets 37Foreign ownership restrictions 41

(Source: World Economic Forum’s ‘Global Competitiveness Report, 2003-04’)

Growth of Economic Potential By 2050

•(Source: Goldman Sachs)0 10 20 30 40 50

Italy

France

Germany

UK

Russia

Brazil

Japan

India

USA

China

Economic power interms of GDP (USDtril.)

Indian Paper Industry…an overview

First paper mill established in 1832Rural based industry with linkage to Agriculture/Agro-forestryForeign participation is permissibleIndustry turnover - USD 3725 MillionContributes over USD 447 Million annually to exchequerProvides employment :o More than 0.3 million people directlyo 1.0 million people indirectlyImproving export performance continuously Commands enough growth potential

Importance to National Economy

0%

2%

4%

6%

8%

10%

12%

14%

16%

Metals Paper Manmadefibres,

w ool andsilk

Apparels Bev andtobacco

Leather

Output GVA Capital Employed Labour

Strategic Importance

Generates economic wealth in the hands of the

rural population.

Paper is the most important medium of

education/communication; mirrors country’s economic

growth

Education sector set to grow exponentially

Paper as a vehicle to drive the National Literacy

Mission in the country

Strategic Importance

Contributor to Greening India project through its

social farm forestry program

Progressively increasing use of industrial paper for

packaging.

Encourages many backward and forward linkages of

ancillary industries.

Changing Paradigms

Rising customer expectation

Imports to set the quality benchmarks

Players to offer a wide range of products

Product differentiation through Functional Brand Building

Service Differentiation through wider reach and Just in Time delivery

Response time to crash

Modernization of existingassets and capital needs

Change inMarket Place

Industry size, consolidation

Standardization of Industry

Availability of raw material

Minimum efficient scale of production

Asset Quality

Quality Benchmarking

Environmental considerations and standards

Shut down of smaller, inefficient producers

Change inIndustry Structure

Indian Paper Industry-Global Standing

0 20000 40000 60000 80000 100000Vietnam

VenezuelaChile

ColombiaArgentina

South AfricaAustraliaThailandMexico

IndiaTaiwan

United KingdomRussiaBrazil

IndonesiaSweden

Korea, Rep ofFranceFinlandGermanyCanadaJapan

China, People's Rep.US

'000

tons

India ranks fifteenth among global paper producers and is nudging forward P&B Capacity

Expansion Towards the Global Scale

20,00085,000Orient

85,000115,000Seshasayee

100,000163,700West Coast120,000230,000TNPL54,75083,550Sirpur160,000180,000JK Paper200,000352,500ITC320,000465,000BILT 100,000153,500APPM

Proposed expansion(TPA) - 3 yr plan

Present Capacity(TPA)

Company

Aggressive portfolio addition comprising value-added variants.Improving quality of paper in terms of visual appeal and functional characteristics.Capacity expansion ranging between 15000-25000 tpa are taking place in numerous medium scale paper mills Quality benchmarking with international standards. Improved technology being used for cleaner and brighter paper.

Composition & Structure

Waste Paper/Secondary

Fibre Based30%

Agro-residue Based31% Wood

Based39% Production

6.55 MillionTon

Consumption7.16 MillionTon

OperatingCapacity

8.50 Million Ton

Per capita consumption 7.1 Kgs

Market Segmentation

Demand Growth Demand Growth for Paper among for Paper among Fastest in the Fastest in the WorldWorld

Share of Coated Share of Coated Woodfree in Woodfree in Printing/Writing Printing/Writing increasing increasing rapidly rapidly

Packaging Board Packaging Board demand growth demand growth is led by Highis led by High--end Bleached end Bleached BoardsBoards

Total Demand (2005Total Demand (2005--06)06)•• Paper & Paperboard 6.55 Million TonsPaper & Paperboard 6.55 Million Tons•• NewsprintNewsprint--1.45 Million Tons 1.45 Million Tons

High-End W/F (0.73 Mn T)

Coated Paper (0.26 MnT)

Splty. Paper (0.21 Mn. T)

Branded Cut-Size (0.18 Mn T)

Low-End W/F (1.51Mn. T)

Packaging Boards (1.29 Mn.T)

Packaging Papers (2.34 Mn.T)

F.Y. 2004-05

Source: JP Consulting

Total demand growth in 2000-2015 is expected to be 6.8 million tons. Supply is estimated to increase by about 6 million tons during the same period (depends on investments)

Printing and writing papers and containerboard are expected to grow most. There are less than 0.2 million tons of decided projects and about 0.4 million tons of planned project, ie. The planning gap during the next 15 years would be well over 5million tons.

Growth of Paper Supply/Demand in India

Source: JP Consulting

Growth Drivers

Economic growth mirrored in the GDP, is the primary industry driver

Expected rise in domestic demand -a CAGR of 6.1 per cent upto 2008-09 ; Capacity expansion is estimated at only 3.1 per cent over the same period.

Expected education sector growth 4%.o Budgetary provision for

F.Y. 2006-07 by GoI : $5481 million (increase of 31.5%)

Growth Drivers

The writing and printing sector growth-5.5% compounded upto 2008-09, and India has become a hub for high quality printing at competitive cost

Progressive increase in the use - Industrial Paper for packaging of consumer goods and FMCG (Duplex 7.2 per cent and Kraft 8.0 per cent CAGR upto 2008-09)

Major Deterrent to Competitiveness & Growth: Raw MaterialThe Indian Paper Industry uses a variety of raw material viz.wood/bamboo, waste paper, bagasse, wheat straw, rice husk, etc.

Consumption Pattern – Past, Present & Future

39%

31%

30 %

1970 2000 2010

7 %9%

84%42 %

28 %

30%

Wood based Recycled Fiber Agro based

Installed Capacity-0.8 M Ton Installed Capacity-6.4 M Ton Installed Capacity-10.3 M Ton

Major Deterrent to Competitiveness & Growth: Raw Material

Agro-residues, etc.-Annual availability of agro residues is large

Agro ResidueMillion Tons

Tons needed per ton of Pulp

Pulp Potential

(Million Tons)

Wheat Straw 22 2.5-3.5 7.0Rice Straw 15 2.5-3.5 5.0Bagasse 10 5.0-6.0 2.0Jute/Mesta/Kenaf 2 - -Total 49 14.0

Even though agro-residue has been one of the legs through which Industry has grown in the past yet, this may not be able to sustain the future growth of the Industry, taking due account of quality of paper required, environmental issues involved, logistics etc.Bagasse is increasingly used by Sugar Mills for co-generation of power Existing mills based on agro residues under threat of closure

Major Deterrent: Raw Material

In India only about 20% waste paper is being currently recoveredannually; low recovery is on account of alternate use of paper in wrapping, packing, etc.

45

49

56

60

69

73

Italy

USA

Western Europe

Japan

Sweden

Germany

World 46%

Source: PPI, CEPI, Swedish Forest Industries Federation. Figures refer to 2002

Waste Paper - based units account for about one third of Indian paper capacity

Major Deterrent: Raw Material

Waste paper :

50% of industry’s requirement is met through import

which is on increase.

Import : 2 million tons valuing USD 500 million.

India lacks collection, sorting and grading system of

waste paper for proper utilization.

Major Deterrent: Raw Material

Wood:Raw Material choice depends primarily on final paper quality.

Absence of sound raw material base deprives mills to grow in sizes to achieve economies of scale and attain global benchmarks.

India’s current forest policy does not allow industrial plantation by private sector on degraded forestland.

Wood (Contd…)

Industry uses varied species of hard wood material due to limited availability.

Raw material constitutes 40% – 50% variable cost of sales and is one of the highest in the world.

India is still to resolve this issue effectively through industrial plantation policy and leverage it to become a major global player.

Wood Demand

Fuel Wood:

Demand: 280 Million MT CumulativeShortfall:80 Million MT & growing

Pulpable Wood:

The paper industry’s needs for wood is expected to grow from 5.2 million tons in 2000 to 13.2 million tons by 2020/annum

Wood demand scenario for Industry & Community

Apprehended Shortfall for Paper Industry : 93 Million MT cumulative by 2020(assuming that part of fibre needs are covered by increasing use of waste paper &

agro residues)

Wood Sourcing

Current requirement of virgin wood raw material is met by Industry – Government source 20% (mostly Bamboo) and non-Government source 80%.Industry’s main anxiety is about sustainability and competitiveness

in absence of a proactive Industrial Plantation Policy; many major mills have embarked on Agro-forestry :–The industry planted : 25432 ha (2001-02)pulpable varieties for : 30343 ha (2002-03)sustenance : 39019 ha (2003-04)

: 50302 ha (2004-05): 58281 ha (2005-06)

Imports of Wood & Wood ProductsImports of Wood & Wood Products20042004--05 USD 666.32 Million }05 USD 666.32 Million }20052005--06 USD 708.73 Million } Growth 6.37%06 USD 708.73 Million } Growth 6.37%

Forestry Sector – A Realty Check

Land Status : Total geographical area : 328 Mn Hectare40 Mn Hectare dense forest (>40% crown density)

64 Mn Hectare wasteland (Min. Of Rural Development)

29 Mn Hectare degraded forest land

35 Mn Hectare non-forest degraded land (fragmented)

160 Mn Hectare urban/agriculture/non-areable

Source : FSI/WDB

48% 12%20%

9%11%

National Objective

Source : CII Study

To achieve by 2012 a total of additional 31.46

million Ha forest and tree cover (33%)

Monitorable targets set by Govt. of India

Increasing forest and tree cover by 4.36

million Ha by 2007.

By another 27.10 million Ha between 2007-

2012.

Forests…. Policy directions

Forest Policies of 1894 and 1952(emphasised increase in forest cover, sustained yield management,

meeting the needs of domestic and industrial forest raw material

and earning revenue)

National Commission on Agriculture (Report 1976) (promote tree cultivation outside forest to bridge gap between

supply-demand)

Forest (Conservation) Act, 1980(curtailment of powers of the State to de-reserve forestlands or

assignment for non-forest purpose)

National Forest Policy 1988

(conservation of bio-diversity, liberalised wood import,

encouragement to social/farm forestry for industrial needs)

Scheduled Tribes (Recognition of Forests Right)

Bill 2005

(to formulate a comprehensive legislation to address the rights of

forests dwelling Scheduled Tribes inhabiting the forests for

generations and are in occupation of forestland)

Forests…… Policy directions

Environment Protection - Major Statutes

Mines & Mineral (Dev. & Regulation) Act, 1957

Mineral Consessional (Consession) Rules, 1960

Environment (Protection) Act, 1986

Hazardous Wastes (Management & Handling)

Amendment Rules, 2003

Charter on Corporate Responsibility for

Environmental Protection

International Protocols That Forced Changes in the Last Decade

CBD 1992 : REDUCED PROSPECTING FROM

FOREST

Planted Forests Code (draft under discussion)

KYOTO 1997 : REDUCE LEVEL OF GHG

EMISSIONS

WTO 1994 : GLOBAL COMPETITION

(WEAKNESS)

(THREAT)

(OPPORTUNITY)

Key Drivers to Public Policy

Balancing development aspirations with conservation imperatives

Multi-criteria optimizationo Acceptable minimum standard

o Acceptable trade-offs

o Market models for efficiency

Rule of Law & Equality before Lawo Satisfaction of societal needs, values or

preferences

Public Private Partnership

o Government, industry and local community

o State to create enabling environment, enforce

negotiated terms of exchange

Public Private Council

o Civil society and NGO participation

Global integration of governance norms;

networked environment

Key Drivers to Public Policy

Important Developments in Indian Forestry

Containment of loss of forest cover

Protected area conservation

Sustainable forest management

Extensive plantations

Community forestry and stakeholders participation

Industry-farmer linkages through social/farm forestry

Impact of international instruments

Path Forward

Changes in forest management objectiveso Bio-diversity, local livelihoods, environmental services,

forest services, wildlife protection and high value –multi-species timber & NTFPs

Balancing traditional and technical knowledgeScience based resource conservationDecentralization and devolvementMarket development for medicinal plants, NTFPsand eco-tourismMandatory and voluntary standards

Greening India

To meet the national target Annual accretion

needed in forest and tree cover – 4 million ha

until 2012

Current Status : 23% of forest cover (as quoted

officially)

Investment required to meet the target –USD

11045 million approx.

New Mechanism for Resource Mobilisation - MSP

Multi-stakeholder partnership (MSP) is being evolved for augmentation of existing resourcesMSP framework -o Not a lease documento Legally enforceable MoU partnership between

Company/user group, public or privateLocal communityForest department/land owning agencies

Stands at an advance stage of Government’s consideration and approval

Industrial Plantation-Industry’s Pitch

Hope for Paper Industry’s sustenance and growth cannot be pinned on Social/Farm forestry aloneIndustry’s needs 1.2 – 1.5 million ha. of plantablearea i.e. 4 - 5% of total degraded forestland to derive socio-economic value.Industrial plantation policy will attract private sector investment in development of high-yielding sustainable plantation.

Development of approx. 1.2 million ha. will bridge the shortfall on raw material front in the immediate future.

Win-win proposition

Employment Generation

Agro-forestry facilitated by industry is generating sustained rural employmentThrough nursery operations for plant production and distribution to farmers — 0.50 million mandays/yrThrough harvesting operations — 11.25 million mandays/yrIndustrial Plantation…gains to accrue (feasibility study)

120.4 million mandaysTotal employment potential per annum

43 million mandaysAnnual mandays required for harvesting 250x0.172

77.4 million mandaysTherefore, annual mandays required (450x0.172)

450 mandaysAverage mandays over one rotation

0.172 million haArea of plantation in one year (12/7)

1.2 million haArea of Plantation

Carbon Sequestration

Paper Industry – only large scale industrial sector capable of realising a low carbon energy self-sustaining trajectory avoiding major changes to its primary production processAdoption of more effective organisation of its existing bio-mass supply, improved energy efficiency and more sustainable waste management practices could yield hundreds of millions carbon credits through CDMOn average production of 1ADT of paper results in 0.67 ton CO2 --Source:CEPI

CDM Projects

Two significant projects submitted by IPMA MembersITC Ltd. – 42000 ha. of plantation with a potential to sequester 10.7 million tons of carbon, reducing 39.3 million tons of CO2 having a carbon credit value of USD 106 million in the first commitment period. Available on UNFCCC websiteTNPL – its bio-methanation project is first CDM project implemented in the paper industry to generate 37000 CERs a year. TNPL has about 82,955 CERs to its credit

Forest Governance – Latest Study Reports

Cost Benefit Analysis Study By CII on “Public

Private Partnership In Regreening of Degraded

Revenue/Private/Forest Land”

Forest Survey of India’s “State of Forests

Report, 2003”

World Bank’s Report “Unlocking Opportunities for

Forest-dependent People in India”

Options Available to Industry

Option 1 : Indian Industry imports paper pulp to

manufacture paper

Option 2 : Indian paper industry shuts down and India

becomes net importer of finished paper products

Option 3 : The government makes enabling policy

amendments for EMPLOYMENT GENERATION &

SUSTAINABLE SUPPLY OF RAW MATERIAL

THROUGH INDUSTRIAL PLANTATIONS.

The Triple Bottom Line

ENVIRONMENTGREEN COVER, CONSERVATION

SOCIALEMPLOYMENT, FIREWOOD

ECONOMICGLOBAL COMPETITIVENESS, IMPORT REDUCTION & EXPORTS

SIZE OF TRAINGLE = INDICATOR OF SUSTAINABILITY

Rajeev R. VederahPresident

R. Narayan MoorthySecretary General

Thank You