Delusions of Economic Grandeur Deep in Brazil's Interior
By LARRY ROHTER
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
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
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.
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.
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
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
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
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."
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."
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
"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
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
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.
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."