Cost rising for the Sun Paper mill in Arkadelphia, financing still in progress | Arkansas Blog

Cost rising for the Sun Paper mill in Arkadelphia, financing still in progress

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DELAYED BUT STILL COMING: Sun Paper mill near Arkadelphia. - ARKANSAS BUSINESS
  • Arkansas Business
  • DELAYED BUT STILL COMING: Sun Paper mill near Arkadelphia.

News that the proposed Shandong Sun Paper mill in Clark County was changing manufacturing plans and adding 100 jobs to an original projection of 250 inspired a look at some of the  public costs of the project.

Tens of millions in local and state tax benefits were offered to the Chinese company to build a mill now said to be a $1.8 billion investment. Were incentives the deal-maker? All who gave them will say so, though the surplus of pulpwood in Arkansas and a ready source of water also figured in.

Which brings us to water. The plant needed approval to both draw water from the Ouachita River and return treated wastewater to the river. The operation got a permit last year from the Arkansas Natural Resources Commission to draw 25 million gallons per day from the river. A separate discharge permit is under review by the Arkansas Department of Environmental Quality.

The Resources Commission also has been reviewing plans for a wastewater treatment plant and the potential for state backing to help finance it..

The proposed plant, to treat about 14 million gallons a day, will cost about $97.8 million, according to a November engineering report for the city of Arkadelphia, which would issue bonds to build the plant and seek a  state guarantee for them over the 20 years of repayment. The borrowing would require more than $6 million a year in interest costs. The treatment plant would cost $4 million a year to operate and maintain.  The mill would connect with the plant in the Clark County Industrial Park and serve only the mill, not other wastewater customers.

The $100 million cost of the plant is new. The original memorandum of understanding between the state and Sun said Arkadelphia would finance, construct and operate a plant expected to cost $30.3 million.

Also pending is state backing of the financing of the water plant necessary to take in water from the Ouachita River to supply the mill. In a report on bond and grant plans for the fiscal year beginning 2018, the Natural Resources Commission told the legislature that Arkadelphia has promised to provide a process water plant for the mill. The city is seeking $30 million in financing from the ANRC for that purpose, but no commitment has yet been made.

The project was announced almost two years ago. Construction was supposed to begin last year. This week, the company said it was no longer planning to make rayon, but instead make linerboard, which goes into cardboard boxes. It said this change in process would reduce environmental impact, both in air emissions and water emissions, the latter because no bleaching is required for brown paper When announced, company officials said the mill  would make fluff for shipment to China for use in making diapers and other products. The latest switch is seen as a marketing decision to capitalize on the boom in need for cardboard boxes to serve Amazon and other retailers.

Sun Paper anticipates average pay of $52,000, or an annual payroll of $18.2 million at the increased level. In the memorandum of understanding between the state and Sun, the state promises a state payment of 5 percent of payroll, or about $900,000 a year for 10 years, or roughly $9 million at full projected employment.

The state has also promised to contribute $12.5 million to site preparation and infrastructure.

Sun will get a refund of all state and local sales taxes on purchases of material and equipment for the plant, an amount worth millions depending on how much of the $1.8 billion tab is in taxable materials..

Local agencies have promised to build a rail facility for the plan at no cost to Sun.

Sun also gets a 30 percent income tax credit for equipment purchases, on top of the sales tax exemption, with a rollover provision if all the credit can't be applied in a tax year.

The state will provide up to $3 million for the training of workers.

The state promises a loan of $50 million to build fixed assets.

Construction costs will be financed by tax-advantaged industrial development bonds and, because these are public bonds, the plant will qualify for a big reduction in property taxes it would otherwise owe. It will have to pay only 35 percent of the normal property tax rate, a savings worth $92 million over 20 years. But it will still add additional revenue, perhaps $2 million a year, to schools and other property tax beneficiaries.

The state and local agencies agreed to finance, construct and operate a plant to take in and treat water for plant use at a cost of $22.9 million. This is the plant now on the Resources Commission agend said to cost $30 million.

The local economic development agency promised $10 million for infrastructure including land, already purchased and cleared, and the rail spur.

Clark County agreed to build a landfill to dispose of ash produced by the plant.

A precise total figure is not possible to obtain, but the figures known suggest hundreds of millions in  credits and direct payments in behalf of Shandong, plus government backing for millions in borrowing. Should the operation fail, facilities built with public bonds would revert to state ownership.

The state believes the jobs and boost to timber sales make the project a net gain. Hundreds of loads of pulpwood deliveries also will create some traffic and road maintenance issues. Its reminiscent of the inadequate provision for road damage during the shale gas boom (since busted) in Arkansas. But Stephen Bell, president of the Arkansas Regional Economic Development Alliance, told me he believed main timber routes were already constructed with log truck loads in mind and some other recent highway improvements will help. He said talks continue with the Highway Department on dealing with truck traffic through Arkadelphia. The mill will be four miles south of the city at Gum Springs.

In today's geopolitical climate, with China sometimes a political target and debate hot on trade barriers, the irony is rich. One of the poorest states in the country is providing hundreds of millions in help to subsidize a company owned by a Chinese communist billionaire.

UPDATE: Readers have remarked with questions about the ability of the Ouachita to supply the mill in dry periods. That has been studied and you can read it all here.



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