State's sweet talk snagged pulp mill

Almost lost Chinese, governor says

Mike Preston, executive director of the Arkansas Economic Development Commission
Mike Preston, executive director of the Arkansas Economic Development Commission

Arkansas was hours away from losing a $1 billion pulp mill project near Arkadelphia last month, Gov. Asa Hutchinson says, in what would have been a disappointing end to a five-year courtship. But last-minute meetings to promote the state's resources prevented the project from landing in Mississippi.

State officials persuaded Shandong Sun Paper Industry Joint Stock Co. to choose a site in Gum Springs, Hutchinson said Thursday at a meeting of the Arkansas Bankers Association, despite a package of incentives that fell short of Mississippi's.

The plant will use timber to produce pulp, dry it and ship it to China. The dried pulp will be used primarily to make such products as napkins, feminine products and diapers.

In his remarks to the bankers, Hutchinson referred to a "competing state." But Mike Preston, executive director of the Arkansas Economic Development Commission, and Arkadelphia executives indicated the state was Mississippi and its site was a former International Paper Co. plant, which opened in Natchez in 1950 and closed in 2003.

Incentives for Sun Paper from Arkansas exceeded $65 million, not including a 5 percent payroll rebate for 10 years and sales-tax refunds on building materials; Arkadelphia anted up $10 million, not including $92 million for a 65 percent discount on property taxes for 20 years.

The package fell about $17 million short of Mississippi's.

"I looked at Mike Preston and he rolled his eyes and said, 'Governor, we're maxed out. We can't do anymore,'" Hutchinson recalled.

On Thursday, April 21, five days before the project's site was announced, Hutchinson, Preston and others met with vice president-level executives from Sun Paper, Hutchinson said. The meeting was in Hutchinson's office.

Arkadelphia officials hosted the contingent from Sun Paper the next day, said Bill Wright, chief executive officer for the western region for Southern Bancorp, a $1.2 billion bank based in Arkadelphia. Wright also spent years serving with economic development agencies in Clark County.

At both meetings, the offers from Arkansas and Mississippi were discussed.

The Chinese were using future costs and values in discussing the offers, Wright said in a telephone interview. He recalled that the difference, as the Chinese perceived it, was about $18 million, Wright said.

Early in the meeting that Friday, Wright went to Eric Hughes, chairman of the Economic Development Corp. of Clark County, and said, "Eric, I think they're telling us they're not coming [to Arkansas]."

By the end of the four-hour meeting, Wright wasn't quite so pessimistic.

Natchez doesn't have the timber resources that Clark County and south Arkansas have, Wright said.

"There is barely enough timber in the Natchez area to support their plant," Wright said. "They would have to go to Louisiana."

The Louisiana timber would carry a higher price, Wright said, because of the cost to truck it over the Mississippi River to the Natchez plant, Wright said. Regulations wouldn't allow trucks to carry as much timber as Sun Paper expected, Wright said.

Arkadelphia representatives had been meeting with Sun Paper representatives for five years, Hughes said in a telephone interview.

"We had developed a good relationship," Hughes said. "They liked Arkansas and wanted to come here if we could make it work. Their desire was to be in Arkadelphia."

Still, the Chinese had scheduled a meeting with Mississippi executives for Monday, April 25, Wright said.

Over the weekend, Hutchinson, Preston and others met to crunch numbers on the two offers, Hutchinson said.

"I called the Union Pacific chairman," Hutchinson said.

He asked the chairman -- Lance Fritz, who is also chief executive officer of Union Pacific Railroad -- to look at the logistics of moving pulp from Clark County to the West Coast, Hutchinson said.

"We redid the numbers and made some adjustments and changed [the Chinese] way of looking at things," Hutchinson said.

Wright said, "The deal couldn't have been struck without Gov. Hutchinson, his direct involvement and putting more money on the table."

"The Sun Paper's representatives specifically asked for the governor to intervene on more than one issue with Union Pacific," Wright said. "One of them, of course, was trying to get the logistics to work dollar-wise."

The differences between the Arkansas offer and the Mississippi offer weren't direct comparisons, Preston said in a telephone interview. But he conceded that Arkansas was "woefully behind."

"We wanted to make sure they were valuing things on what the overall cost would be for Sun Paper," Preston said, "and not how things were credited by the state [of Arkansas] or by Mississippi."

For instance, Mississippi valued its Natchez site at $10.5 million, Preston said, and Arkansas valued the site in Clark County at $3 million. Land at each site would be given to Sun Paper.

"On paper, it looked like Mississippi had a [$7.5 million] advantage," Preston said. "But if you looked at it in terms of acquiring land, it was even."

Also, the Natchez site has a port facility, valued at $14 million, and Clark County didn't. But there was no need for a port in Clark County, Preston said. Union Pacific was able to show that its offer to ship the product to the West Coast by rail was very competitive compared with Mississippi's costs of shipping the pulp down the Mississippi River to New Orleans, putting it on a barge and shipping it to China, Preston said.

"One difference was that [with the Union Pacific offer] you don't have to have the pulp sit on a barge and wait at the Panama Canal," Preston said.

The bottom line, Preston said, was that Arkansas had a great relationship with Sun Paper's chairman and founder, Hongxin Li, and Arkansas' access to timber was superior to Mississippi's.

On Monday, April 25, Hutchinson met with Li in the governor's office.

"It was the same day that the governor of [Mississippi] was calling him," Hutchinson said. "They had set up a meeting the next morning with the leadership of [Mississippi] so [Mississippi] could make their case to him."

Arkansas went over its offer again with the Chinese. It included a $3 million grant to train Sun Paper's employees, Preston said.

"We were down late in the fourth quarter ... but we were able to close the gap by the end of the game," Preston said.

After more than an hour of negotiations on that Monday, Sun Paper decided to accept Arkansas' offer, Preston said.

Arkansas held a reception for the delegates from China and well after 5 p.m., Li and Hutchinson agreed to make the announcement on Tuesday, Preston said.

"We had no idea on that Monday that we would have an announcement on Tuesday," Preston said.

By 7 p.m. on Monday, spokesmen for the commission and the governor's office began putting together material for the news conference, Preston said. The announcement was made at 10 a.m. on Tuesday, April 26.

A Section on 05/14/2016

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