C O N F I D E N T I A L SECTION 01 OF 03 MUMBAI 000491

SIPDIS

E.O. 12958: DECL: 11/15/2023
TAGS: EINV EIND ECON PGOV IN
SUBJECT: DOW CONTINUES TO RUN THE GAMUT OF INDIAN POLITICS

REF: MUMBAI 459

CLASSIFIED BY: BANSALG, ECON, ECON, STATE.
REASON: 1.4 (b)

1. (SBU) Summary. On October 1 Maharashtra Chief Minister (CM) Vilasrao Deshmukh ordered a halt to construction of the Dow Chemical Company's Research and Development facility near Pune until a commission can review Dow's plans. The CM ordered this halt to defuse broadening protests against the construction of the facility, which had risen to the attention of major political leaders outside the state. Dow is dispirited by this move, and blames continued local political problems and corruption for the problems. Protest leaders say that Dow needs to answer the villagers concerns, and hope the conflict can be resolved peacefully. Dow is contemplating other options - including pulling out from the site - but fears that protests will dog its investments elsewhere in the country. In this, Dow continues to underestimate the political ramifications of its purchase of the assets of Union Carbide, a company whose legacy in Bhopal still provokes fear and concern in Indian communities. Meanwhile, political opportunists and grassroots politicians seek advantage in the travails of Dow, while senior political leaders find it difficult to confront head on a situation that seems combustible. End Summary.
Maharashtra Chief Minister Puts Dow Project on Hold
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2. (SBU) On October 1, Maharashtra State Chief Minister Vilasrao Deshmukh announced that he was ordering a halt to construction of Dow's Research and Development facility for at least 30 days. (Note: Deshmukh made the announcement from London; he had traveled to the U.K. and the U.S. to promote Maharashtra as a good investment destination. End Note.) Dow began construction on the facility -- a $100 million research and development facility outside of Pune which will eventually employ 500 scientists - this year. This facility is located in a new industrial area developed by the Maharashtra Industrial Development Corporation (MIDC) about 40 kms from Pune, rural land that had previously been used for grazing. Dow's facility has been plagued with] protests, largely stemming from Dow's 2001 purchase of the U.S. remnants of Union Carbide, the company responsible for history's largest industrial accident in Bhopal, India, in 1984 where over 3000 people were killed (see reftel for background). When protests at the facility turned violent in July, the state government assigned round the clock police protection to secure the site. Construction resumed, but the agitation against the facility had grown and diversified.

Protesters Increasingly Diverse. And Effective
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3. (SBU) According to Dow, three major groups have combined to protest Dow's facility. The initial groups consisted of NGOs and activists involved in the campaign for justice on behalf of the victims of the Bhopal tragedy. These activists have targeted Dow since its purchase of Union Carbide, and have protested Dow's operations throughout India. According to Dow, these activists have told villagers about the Bhopal tragedy, and invoked fear that Dow would do the same at this site. The second faction is led by local Shiv Sena Member of Parliament, Shivajirao Adilrao Patil. While Dow has met Patil several times to explain the nature of their facility, Patil has continued to stir up trouble against the company, and has led several protests. The third angle stems from concerns by a popular local religious sect, the Warkaris, who worship at a river shrine about 60 kilometers from the site. They fear that Dow will dispose of chemicals at the site, which will pollute the groundwater and the river they revere.

4. (SBU) Dow representatives told Congenoffs that Warkari leaders met recently with visiting Union Minister for Agriculture Sharad Pawar, who is from Maharashtra, to protest the Dow facility. According to Dow, Pawar dismissed their complaints, telling the religious leaders that Dow is a good company, and that they should not interfere in the industrial policies of the state. This prompted the Warkaries to publicly denounce Pawar and his connection with Dow, and threaten to protest during the Commonwealth Youth Games which are to be held in Pune in October. Dow said that Pawar subsequently asked CM Deskmukh to stop the construction until a commission can review the charges. This will be the second state-appointed commission
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to look into charges that Dow could pollute or damage the environment at this site. Dow representatives said that Deshmukh called Dow CEO Andrew Liveris to reassure him about Dow's investments, and said the commission will take two months; Liveris, increasingly frustrated, told Deshmukh that it needs to take less than one month.
Patil Says That Dow Needs to Do More to Meet Village Concerns
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5. (SBU) In a September 25th meeting with the Consul General, Shivajirao Adhilrao Patil expressed his desire to resolve the dispute peacefully. He informed the CG that he opposes the project because the local villagers are not informed about the project, and do not want it. Even though the state government owns the land, the villagers look after it and they should have been taken into confidence. As a business owner himself, Patil said that he is usually very pro-business and claimed to have helped create one of the largest Special Economic Zones (SEZs) in the country on 5,000 acres in his constituency which already has operations by multinationals like General Motors and Hyundai.

6. (SBU) According to Patil, the villagers learned that Dow was connected to Union Carbide from newspaper stories. Patil said that Dow has drilled dozens of holes near the site and run pipes throughout the area, and villagers feared that Dow will pollute their groundwater and sacred rivers. Patil informed the CG that he responded to the villagers concerns by meeting representatives of the National Chemical Laboratory who showed him that the approvals that Dow had received. These documents showed that the company had received permission to manufacture chemicals. According to the MP, this was startling news. He explained that even the Environment Department had not been aware that the company had received permission to manufacture chemicals.

7. (SBU) In July 2008, Patil met Dow's CEO and stressed that the company needed to explain the project to the villagers, preferably through a public relations agency that was experienced at this. The MP stated that company ignored his advice and decided to rely on police force and started work on the site. Patil noted that it was because of this decision that the Warkaris started protesting and a Dow vehicle was burned.

8. (SBU) Patil reassured the CG that the safety of any American or Indian working for Dow will not be compromised. However, the strong police presence is focusing anger at Dow, and the situation could get out of control. He advised that Dow should go slow for now and reduce the police presence, and work harder to convince villagers that the facility is truly a research and development facility. He still thought that Dow should hire a public relations agency like the one that the local company Bharat Forge hired when it ran into problems, and give donations to local villagers to resolve the situation.
Dow Says Corruption and Politics At Root of the Problem
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9. (SBU) On September 29, Congenoffs met with Rakesh Chitkara, Dow's Head of Corporate Affairs, to discuss the recent developments. Chitkara said that Dow has met with Patil several times to clarify issues. Three months ago, the company hired the public relations specialist Patil recommended for USD 20,000 per month. (Note: Chitkara said that the PR specialist is a ""close associate"" of Patil. End Note.) They have also hired a number of local villagers for construction projects, helped refurbish a local school, expanded water services, and acted on a number of other public works projects that were requested in writing by the local village council.

10. (SBU) On the issue of drilling holes into the ground, Chitkara countered Patil's charges, stating that Dow has been drilling holes to study the soil strata which is standard construction practice; he added that after receiving government approval, four holes had been drilled to ascertain the water content of the subsoil. He noted that the soil contained no water so water is currently being brought to the site by tanker, not the local rivers; furthermore Dow shares this tanker water with a Korean company, Hyundai, which is also building at the site (and has had no problems).
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11. (SBU) On the charge that their approval allows them to manufacture chemicals, Chitkara countered that the state application forms do not have a category for R and D facilities, and it was mistakenly labeled as a manufacturing facility. Dow had taken the step to rectify this language to show that manufacturing will not take place at the site. (The facility will be used to research and develop chemical applications for alternative energy and transportation.) He added that all of the information that he had shared with us had already been shared with Patil -- repeatedly.

12. (SBU) Chitkara said that the company was pessimistic that the Maharashtra state government will make any decisions in the time period specified by the Chief Minister. Moreover, Maharashtra Chief Secretary Johnny Joseph called Dow to express his support, but asked for time to defuse the situation. Dow expects the state government to appoint another committee to review the claims against Dow, all of which had been answered before. In the meantime, the company is losing USD 250,000 a month. Dow CEO Ramesh Ramachandran told Congenoffs that these protesters are seeking a ""buy-out,"" but have not yet ""internalized"" that Dow will not pay.
Dow Faces More Problems with Gujarat Project
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13. (C) Chitkara said that Dow is also having problems with its investment in a Gujarat state-owned company. The investment requires approval from the Foreign Investment Promotion Board (FIPB), which it expected because of support from the Gujarat government and the Finance Ministry. However, Dow was told that the Ministry of Chemical and Fertilizers has put a hold on the project. According to Chitkara, however, when agents of Dow met with Union Chemical and Fertilizer Minister Ram Vilas Paswan, he demanded a large sum of money from the company before he would support the project. The company refused to pay and the investment remains on hold. Dow has also discussed this problem with Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, who was reportedly sympathetic, but unable to overcome this opposition. [Note: It is unclear at this stage what ostensible reason the Chemicals Ministry offered to the FIPB for not approving what is a routine application. End note].
Comment:

14. (SBU) Dow has told Congenoffs that they do not have infinite patience for the political and other problems faced by their business in India. While Dow could write off the $15-20 million of their investment so far, the company fears it could face protests and harassment wherever it settles in India. Clearly, Dow has become an easy target for politicians seeking to exploit the company's situation, especially as state and national elections are just around the corner. Currently, Maharashtra is run by a coalition under a weak and ineffective Chief Minister. While another commission could put this issue off the table for a few more months, opposition politicians have found a combination of issues close to the hearts of their voters: land, environment, livelihood, and religious devotion. In relying on the promises of protection of the state, Dow continues to underestimate the political ramifications of the company's connection to the legacy of Bhopal and Union Carbide. End Comment.
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