Gov. Hutchinson signs deal for Chinese paper giant to build $1 billion plant in Arkansas’ ‘wood basket’

Eight months after losing out on a bid to land a huge Pentagon contract to build the next generation military vehicle in Calhoun County, Gov. Asa Hutchinson and his economic development team on Tuesday landed another mega project that will bring one of China’s largest private companies to South Arkansas.

Hutchinson, with state Economic Development Chief Mike Preston at his side, said a memorandum of understanding with Sun Paper Chairman and Founder Hongxin Li will bring the Chinese conglomerate to South Arkansas to invest more than $1 billion to build a bio-products mill that will create 250 new jobs at an average salary of $52,000 a year.

Speaking before an overflow crowd of lawmakers, government officials, business leaders and Sun Paper executives at the governor’s conference room at the State Capitol, Hutchinson said he and Preston began intensive talks with Sun Paper officials during his Far East trade mission in the fall and came to an agreement yesterday on locating the project near Arkadelphia in Clark County.

“Sun Paper wanted to make sure it was a good investment, and that they had the raw material and timber sources that were needed as well the logistics of the supply chain, so we have gone through four and a half months of negotiations and discussions on Arkansas’ competitive position for this program.” Hutchinson said, as an interpreter from the Sun Paper delegation conveyed his comments to the audience in Chinese.

“The fact Sun Paper is investing more than $1 billion in south Arkansas speaks volumes of their confidence in our workforce and pro-business environment,” Hutchinson continued. “This is among the largest private investments in the state’s history and the impact will be felt for generations. Thanks to Sun Paper for choosing Arkansas as the location for its first North American facility.”

During his trip to Japan and China in late November, Talk Business & Politics first reported that Hutchinson and Chairman Li signed a letter of intent of investment cooperation in which Sun Paper committed to studying the feasibility of building the facility in south Arkansas by May 1.

“In a broader context, it will provide a real boost to the economy of South Arkansas throughout the timber industry,” Hutchinson said. “I not only think about the 250 direct jobs, but also the log haulers, those in the fields in the timber industry that will benefit from this extraordinary project and investment.”

HUTCHINSON: SUN PAPER CHAIRMAN ‘TOUGH NEGOTIATOR’
Before Li made his comments, Hutchinson profusely complimented the Chinese business executive and called him a “tough negotiator.”

“Sun Paper, through Chairman Li’s leadership, is committed not only to invest in Arkansas but to be a good corporate citizen of Arkansas,” the governor said.

Speaking through an American interpreter, Li thanked the governor, state and local economic development officials in Clark County.

“This project will be the most modern, the highest efficiency and the most environmentally progressive factory in the paper industry in all of North America,” Li said. “We would like to extend our special gratitude to the people of Arkadelphia and the other communities we visited during out investigation, and we appreciate your hard work and look forward to continuing our relationship with the city and its people.”

With the company’s $1 billion to $1.3 billion investment in Clark County, Hutchinson said Sun Paper’s outlay in Arkansas is comparable to Big River Steel’s ongoing “superproject” in Mississippi County. At the time that project was announced, it was the largest private investment ever in Arkansas.

ARKANSAS’ TIMBER INDUSTRY GETS THIRD MAJOR OUT-OF-STATE INVESTMENT IN PAST TWO YEARS
According to state economic development officials, the Sun Paper plant will be located at the Clark County Industrial Plant in Gum Springs, just south of Arkadelphia on U.S. Highway 67 and less than a mile to access Interstate 30. The location of the project will be at the center of Arkansas’ so-called “wood basket,” where the state’s timberland forest covers about 18.8 million acres – about half of the state.

According to the Arkansas Forestry Commission, between 2011 and 2015 Arkansas grew approximately 25 million tons of pine timber, the product that Sun Paper will rely on heavily. Roughly 16.1 million tons of pine timber were harvested leaving 8.9 million tons across the state. Sun Paper could use up to 4 million tons of pine timber per year, the commission said.

The Sun Paper plant will be the third major announcement from out-of-state investors who are looking to take advantage of the state’s plentiful timberland resources. Boston-based Highland Pellets LLC and Houston-based Zilkha Biomass Energy are current are moving forward with preparations for Arkansas’ first high-profile entries into the burgeoning renewable energy sector.

On July 30, 2014, Zilkha Biomass Energy announced plans to build a $90 million proprietary black wood pellet manufacturing plant in Monticello that company officials said could be easily integrated into the energy grid as a clean energy alternative to coal-powered electricity. Less than a month after the Zilkha announcement, Highland Pellets LLC announced it was building a 500,000 metric ton per year wood pellet facility in Pine Bluff, about an hour’s drive north from Monticello.

The Highland plant, which is fronted by a Boston-based investment group, will cost $130 million to complete and is expected to create more than 35 direct jobs and another 482 offshoot jobs that would provide an $86 million a year financial bounce to local communities. Both of those projects are expected to come online in late 2016 or early 2017.

According to company officials, Shandong Sun Paper is the largest privately-held papermaking company in China, pulling in about $26 billion (Yuan) annual, or the equivalent of about $4 billion in U.S. currency. In 2015, the 10,000-employee company produced 4.5 million tons of pulp and paper at 15 branch companies located in China, Southeast Asia and the U.S. The head office of Sun Paper is located in Yanzhou City, the hometown of Confucius and Mencius.

Just a little over a week ago, state economic officials told Talk Business & Politics that talks with Sun Paper were still underway and might be extended beyond the May 1 deadline as the Chinese timber and paper goods giant looked for the best site to locate its project in the U.S.

In the end, the Chinese paper giant selected South Arkansas and said it hopes to begin construction on the project in early 2017, once permitting for the project is completed. Becky Keogh, director of state Department Environmental Quality, said preliminary efforts have already begun on getting the necessary land, water, air and other environmental permits for the project, although Sun Paper has not initiated its formal application.

During the expected 2-1/2-year construction phase of the project, Sun Paper and state economic officials said the project will support more than 2,000 construction jobs and another 1,000 other indirect positions before the project begins production.

NO AMENDMENT 82 INCENTIVES, OFFICIALS SAY
According to the memorandum of understanding signed by state economic officials and Sun Paper, the Chinese company does qualify for a full package of state incentives, including Create Rebate and Tax Back programs, sales exemptions on equipment, property tax abatement, a recycling tax credit, customized training for company workers and the development of an intermodal facility for a public rail yard located at the Gum Springs site.

However, Hutchinson and Preston said the project will not qualify for superproject status under Amendment 82 and would not need a special session to approve the incentive package. Amendment 82 allows the state to issue bonds to pay for infrastructure improvements on projects that exceed $500 million in investment and create at least 500 jobs.

Sun Paper will be the second mega project announced in 2016 with a total investment value of more than $1 billion that doesn’t meet Amendment 82’s “500 worker” standard. In February, Little Rock-based Energy Security Partners LLC and Pine Bluff officials announced that Jefferson County is being considered as the top location to build and operate a potential $3.7 billion industrial gas-to-liquids (GTL) processing facility.

AEDC’s Preston and ESP officials have said both parties are engaged in preliminary talks concerning what would be the nation’s first full-scale gas-to-liquids project but have not been able to reach an agreement concerning possible incentives from the state to help fund the multi-billion dollar processing facility. Like the Sun Paper project, ESP plans to hire about 250 workers if it decides to build in Arkansas.

HUTCHINSON NABS FIRST BILLION DOLLAR-PLUS PROJECT
Hutchinson, who credited former Gov. Mike Beebe’s administration for getting the ball rolling on the Sun Paper project more than four years ago, now has closed his first $1 billion plus project during his tenure as governor.

During the last months of his administration, Beebe was able to close the deal on the $1.3 billion Big River Steel mill in late September 2014. As a superproject, the Arkansas Legislature authorized the state to issue $125 million in general obligation bonds under the authority of Amendment 82, the state’s superproject amendment. That legislation allows the state Legislature to approve up to 5% of the state’s general revenue budget to be used for bonding of the large-scale project.

In March, Big River officials announced that the first phase of the mill had been finished, as the batch anneal furnaces and skin pass mill was done. Once the mill is completed later this year, it is expected to create about 525 jobs and produce about 1.6 million tons of steel each year. State and local economic development recently said the mill, which is expected to begin production later this year, is already boosting economic activity in the Delta.

The Sun Paper project will also provide some salve for the governor and the state’s economic development team after the U.S. Department of Defense chose not to award a $30 billion contract for the U.S. military’s next generation Joint Light Tactical Vehicle to Lockheed Martin’s industrial site, only about 50 miles away from the site of the Chinese paper plant.

Following the press conference, Gov. Hutchinson had a smile on his face when asked about trade missions and future potential job prospects that he has on his economic development agenda.

This week, three top AEDC officials are attending the international Hannover Messe trade show in Germany, where President Obama on Sunday kicked off the world’s largest industrial technology trade fair by highlighting the strength of the U.S. manufacturing sector.

Hutchinson said he also plans to take his fourth trade mission in early July when he travels with a state delegation to the Farnsborough International Airshow in England. He said he plans to promote the state’s aerospace and defense industry sectors to several large industrial companies that will attend the internationally acclaimed trade show.

When asked if he has his potential economic development prospects that he plans to talk to, Hutchinson said he hopes to achieve results in England similar to his trade mission to China and an earlier trip to Paris that led to the expansion of Aerojet Rocketdyne’s rocket motor plant in Camden.