Karnaphuli Paper Mill set for Tk36,000cr revival plan

It was for the last time in FY09 that Karnaphuli Paper Mill (KPM) in Kaptai made some profit, earning Tk6.38 crore by producing 24,200 tonnes of paper. Since then, it has been a tale of stubborn losses growing over the years.

Over the past decade and a half, outdated machinery, a lack of skilled manpower, mismanagement, and internal issues – such as a corrupt syndicate of officials – have led to a significant decline in production capacity and massive financial losses.

Now, the mill is set for revival under a Tk36,000 crore project that aims to fully repair the facility and establish six new plants within five years.

The planned facilities include an integrated paper mill, afforestation projects, a paper-based chemical plant, factories for various basic chemicals and a synthetic polyester fibre plant.

According to KPM's General Manager (Operations) Md Mahidul Islam, the Bangladesh Chemical Industries Corporation (BCIC), under which the mill operates, has already submitted the investment proposal to the Ministry of Industry.

Additionally, BCIC has formed a high-level committee to reopen the forest reproductive material plant, which produces paper from bamboo and pulpwood. The plant has been closed for the past eight years.

"The initiative will make KPM self-sufficient and profitable. Once the new plants are running, the factory will not only meet its own needs but also export raw materials," Mahidul Islam said.

The proposal to inject fresh investment into the paper mill, established in 1953, comes at a time when the paper industry is struggling due to rising raw material prices in the global market and increased costs of gas and electricity.

Industry insiders say many private sector companies, which once met domestic demand and exported abroad, are now in crisis.

Revival plan formulated after appointment of new MD

After the change in government in August, Mohammad Shahid Ullah, a bamboo and pulpwood expert, was appointed managing director of the paper mill. Earlier, he worked as the general manager (chemical) at the Chittagong Urea Fertilizer Limited (CUFL).

Officials say following his appointment, workers and employees demanded the mill's revival under new management, calling for an end to the syndicate linked to the previous administration.

Shahid Ullah said, "KPM is a very old and traditional mill. Since I joined, I found that much of the old machinery is nearly unusable, with some already beyond repair. To resume full-scale production, KPM has submitted a proposal to the Ministry of Industry through BCIC."

"This includes plans for the mill's complete revival, the establishment of six new plants, and the implementation of seven projects," he said.

"If the necessary funds are allocated, the factory will be able to produce 1 lakh tonnes of paper annually," he added.

According to officials, due to a lack of modern technology and skilled manpower, the paper mill's production has now dropped to just 2,000 to 6,000 tonnes annually.

Currently, KPM employs 41 officers, 39 staff members, and 180 workers. However, a decade ago, the workforce totaled 5,000.

Due to the mill's dire condition, many workers have been transferred to other BCIC facilities.

Cutting high production costs a challenge

Currently, KPM incurs a loss of Tk35,000 to Tk40,000 for every tonne of paper produced.

This is because the production cost per tonne is Tk1.4 lakh, while the selling price ranges from Tk95,000 to Tk1 lakh.

Officials say production costs remain high because the collection of local bamboo and trees has been halted, forcing reliance on old paper and costly imported pulp.

They say that under Shahid Ullah's leadership, a seven-phase tender was introduced to source foreign pulp for the mill. The lowest bidder was contracted at Tk85,000 per tonne, compared to the previous cost of Tk105,000 per tonne.

Currently, the factory has no pulp in stock. To keep operations running temporarily, domestic waste paper and pulp from the open market have been used.

Under the new revival project, the mill plans to produce its own raw materials, which is expected to lower production costs. Additionally, the mill aims to sell the raw materials produced in its facilities to private paper mills.

Tk45 crore loss per year

Officials at KPM said the factory spends about Tk1 crore per month on salaries and allowances for employees.

Factoring in salaries, maintenance, production, and other expenses, the factory faces an average annual loss of Tk45 crore.

According to BCIC's annual report, KPM has incurred a loss of Tk453.68 crore over the past 10 years.

Currently, it owes nearly Tk500 crore to BCIC.

Decline of a profitable mill

In 1953, the Pakistan Industrial Development Corporation established the Karnaphuli Paper Mill on 1.27 lakh acres of land in Chandraghona, Kaptai upazila, on the banks of the Karnaphuli River. The factory had an annual production capacity of 30,000 tonnes of paper.

For 25 to 30 years, KPM operated efficiently, producing quality paper and earning significant profits.

Mill officials say that over time, it faced numerous problems, including corruption and political interference, which led to its decline. From 2016 to 2023, the mill suffered heavy losses.

In 2016, the mill's chemical plant was shut down, and by 2017, all paper production plants had stopped operating due to various challenges.

At times, the mill had to shut down operations for half of the fiscal year due to a lack of pulp, mechanical failures, and other challenges.

A 2018 report by the Implementation Monitoring and Evaluation Division (IMED) of the Planning Ministry highlighted that KPM's machinery is outdated, with no major repairs carried out in the last three decades. Maintenance work has also been neglected, frequently disrupting production activities.

Officials blame the mill's deteriorating condition on the negligence of the management. They point out that necessary repairs were delayed for years, leaving the machinery idle and worsening its condition.

Former managing director of the paper mill MMA Kader told TBS that KPM's downfall is not solely due to outdated machinery. A shortage of skilled manpower has also contributed to the crisis, which he attributed to mismanagement by the administration.

According to the IMED, the annual demand for paper in the country is between 15 lakh to 16 lakh tonnes. Of this, 10 lakh to 12 lakh tonnes is produced domestically, while the remaining paper must be imported from various countries.

Private paper mills struggling

Industry insiders say many private sector companies, which previously met domestic demand and exported abroad, are now in crisis.

They explain that many banks are unable to open LCs because of the lack of dollars, which is disrupting production as raw materials cannot be imported.

Currently, there are nearly a hundred companies in the country's paper industry, involved in the production of paper products, tissue, and other diverse goods. Over 300 linkage businesses are associated with this sector.

The Bangladesh Paper Mills Association has 128 members. According to the association, private sector investment in this industry is nearly Tk1 lakh crore, providing employment for about 25 lakh people.

The association's secretary general, Mostafa Kamal Mohiuddin, told TBS, "The condition of the paper industry is extremely poor – something we haven't seen in the last 30-40 years. The price of pulp, the primary raw material for the paper industry, has increased abnormally. Even at the higher prices, we are unable to open LCs to import raw materials."

He said, "The rise in gas and electricity prices has worsened the crisis. Due to price hikes in line with rising costs, demand has decreased. Many factories have closed down, and some have become loan defaulters."