Delusions of Economic Grandeur Deep in Brazil's Interior
By LARRY ROHTER
MONTE DOURADO,
Brazil -- Two decades ago, the American
billionaire
Daniel K. Ludwig took a bold but very expensive
gamble here.
After buying a piece of the Amazon jungle larger than the
state of Connecticut,
the shipping magnate spent a large chunk of his
fortune building
an industrial, mining and agricultural complex that he
imagined would
prosper as a result of the world's growing appetite for
products like
paper, aluminum, porcelain, rice, beef and pork.
Today, Jari Celulose,
as a scaled-down version of the project is known,
is for sale,
available to any bidder -- for one dollar. Better yet, the
current owners,
a Brazilian consortium that has seen only one profitable
year since taking
over after Ludwig gave up in 1982, may even throw in
a bonus of up
to $20 million to the buyer who will take the venture off
their hands.
There is a catch
to the largely symbolic sale price, of course. Jari comes
with $354 million
in debt, its attractive bauxite and clay mines have
already been
spun off, and the project will require several hundred million
dollars in new
investment, including $100 million to build an electric
power plant,
if it is to continue to manufacture high-quality cellulose, the
fiber used to
make paper.
Like the big
hopes for the China market, the notion that there are
unlimited riches
to be had from the Amazon is one of those dreams that
never seems
to die. Since the first Spanish colonizers in the New World
fell under the
spell of the legend of El Dorado, adventurers have arrived
with the conviction
they can build empires in places such as this, only to
run afoul of
one of the most hostile natural and business environments on
the planet.
Jari may be an
object lesson in such hazards, but it has fared better than
most previous
efforts, like Fordlandia, Henry Ford's failed effort to grow
rubber 200 miles
southwest of here. More than 30 years after Ludwig
bought 6,301
square miles of inhospitable jungle for $3.1 million, the
project is still
a going concern and remains the focus of controversy and a
symbol of both
sovereignty and tenacity.
From the start, Ludwig invited scrutiny by thinking in grandiose terms.
When construction
of a 17-story paper mill and power plant on the site
he had selected
proved impossible, he spent more than $269 million to
have them built
at his favorite shipyard in Japan and then towed 17,800
miles across
the Indian and Atlantic Oceans.
He also installed
3,000 miles of road, 37 miles of railway, a deep-water
port and a company
town that now has 9,500 inhabitants. More than
260,000 acres
were planted with Burmese melina and Caribbean pine
trees, which
did not flourish in this harsh equatorial climate, and,
eventually after
much costly experimentation, eucalyptus, which did.
"I always wanted
to plant rows of trees like corn," Ludwig, who died in
1992 at the
age of 95, said in a rare interview, published in 1980 in
National Geographic
magazine.
But the very
scale of Ludwig's ambitions aroused suspicion among
Brazilians,
who have been distrustful of any foreign presence in the
Amazon since
the British destroyed Brazil's rubber industry a century ago
by spiriting
seeds away to Malaysia. Books with titles like "Jari: The
American Invasion,"
and press reports suggested that Ludwig was
creating his
own nation with its own armed forces, using slave labor,
destroying the
jungle and smuggling gold abroad.
Though Brazilians
are taught in school that the Amazon is a natural
wonder, and
can recite the names of the river's tributaries with ease,
relatively few
from the big cities 1,500 miles to the south have ever set
foot in the
region or have a desire to visit. This distance fuels nationalistic
slogans like
"the Amazon is ours," but produces very little knowledge of
or sympathy
for the obstacles faced by any undertaking in the jungle.
In part because
Brazilians regard the Amazon as a place of quick and
easy riches,
"the state has not played its proper role" in the region, said
Erton Sesquim
Sánchez, Jari's current operations director. "They have
not come in
to build schools and basic sewage systems, pave roads,
install electric
power. We're here 20 years, and we still have to confront
ourselves those
and other problems that are really the responsibility of the
state."
Despite the social
role that companies like Jari are forced to play, calls
for these companies
to be expelled persist today. The October edition of
Amazon Agenda,
a monthly newsletter published by Lucio Flavio Pinto,
author of a
critical history of Jari and the region's best-known
investigative
reporter, describes Jari and projects like it as "Trojan
Horses in the
Amazon" that enrich foreigners at the expense of ordinary
Brazilians.
In Ludwig's case,
after he could not get government approval for a dam
he wanted and
walked away from Jari, the nationalists got their wish,
though not quite
in the form they had anticipated. Since the early 1980's,
two government-owned
banks, the National Bank for Economic and
Social Development
and Banco do Brasil, have poured at least $350
million into
the effort to keep Jari going and together now hold a
one-third stake
in the cellulose project.
Over the years,
the ambitions originally envisioned by Ludwig have also
been pared down.
Plans to raise cattle and pigs were shelved. A project
to grow rice
along the banks of the Amazon River, intended to turn Brazil
into a rice
exporter, was abandoned. That area has since been turned
over to an entrepreneur
who is trying to turn it into a fish farm.
"Our focus these
days is immensely different from what it was back in
those early
days," said José Ricardo Cordeiro, president of Jarcel
Celulose, the
project's holding company. "Before, everything was on a
large scale.
But we are aware we are not a big company, that Jari will
never be the
mega-enterprise it was projected to be, and we act
accordingly."
Now, however,
the process has come full circle: Jari's current owners are
once again actively
seeking a foreign partner. "We are in a global market,
and so there
are no restrictions," Sánchez said during an interview at his
office at the
paper mill. "The most important thing is not the origin of the
capital, but
the capacity to carry this undertaking ahead."
Israel H. Coslovsky,
chairman of Jari's board, said in an interview in Rio
de Janeiro that
preliminary talks with an American and a Canadian
company, which
he declined to identify, are already under way. But
Brazilian market
analysts are skeptical of the company's ability to attract
significant
foreign or domestic investment.
"Jari is the
ugly duckling of the paper industry, a project in which no
serious player
has an interest," said Thomas Mello Souza, who follows
the Brazil pulp
and steel industries for Merrill Lynch's office in São Paulo.
"Despite being
close to the American and European markets, it is in an
isolated area
of difficult access, and that complicates the operation of the
business, adds
to operational costs and makes for a very high turnover."
Though Jari's
cash flow is now positive, to expand and modernize its
plant for an
increasingly finicky international market will require an
additional $400
million in investment, Souza estimated. "They are looking
for a white
knight, but I think it is a mission impossible," he said,
"especially
at a time when there are properties in Brazil that are more
attractive,
with better economies of scale, and which can't find buyers."
Coslovsky and
Cordeiro, however, contend that the company has turned
the corner.
Production is at 295,000 tons of cellulose this year,
two-thirds exported
to Europe and another 10 percent to North
America. Production
is expected to rise to 330,000 tons next year. The
price of Jari-made
pulp has also risen, from $320 a ton in 1998 to $580
this year.
"For the first
time, I am optimistic" Coslovsky said. "Two years ago we
had not one
cent of working capital" after a fire that forced the project to
shut down for
several months, but "conditions today have never been
more propitious
than in the entire history of Jari, with a market that is
stable and a
government that has shown good will to resolve our
problems."
Jari's debt,
70 percent of it in dollars, is owed to nearly a score of
Brazilian and
foreign banks, including, Coslovsky said, the Citibank unit
of Citigroup
and J. P. Morgan. But the 40 percent devaluation of
Brazil's currency,
the real, this year has had minimal effect on the
company for
two reasons: Jari earns dollars exporting its products, and
"the debt was
unpayable before, and it is unpayable now," as Sánchez
put it.
Though some nationalist
groups have argued that Jari should simply be
closed, that
seems unlikely, since the social and political cost to the
Brazilian government
would be so high. Though the project itself has only
1,050 employees,
more than 70,000 people now live here or in
ramshackle communities
along the Jari River, and would be left without a
livelihood if
strictly economic logic were applied.
"The economy
of this entire region revolves around the Jari projects,"
João
Firmino Rafael, manager of the local branch of the Hongkong
Shanghai Banking
Corporation, said, referring to the cellulose, bauxite
and kaolin plants
as a whole. "They can't shut down. If they were to do
that, a lot
of other businesses would have to close, too, and we would
have no reason
to be here."
Near the center
of this tidy little town, named Gilded Mountain in
Portuguese,
the simple wooden house where Ludwig stayed during his
frequent visits
here in the 1970's is now a museum that describes him as a
visionary. The
museum and a similar display at the pulp mill offer plenty
of data about
the history and functioning of the project, but make no
explicit mention
of the main lesson to be learned from Jari's experience.
"The Amazon has
advantages but it also has disadvantages," Coslovsky
said. "You have
to be very much aware of them before you do anything
in the region."