I extend a very warm welcome to all of you at this 19th 
 Annual General Meeting of your Company.
 
 During the past year, there was a Changing of the Guard on 
 your Board.  Mr. K.L. Chugh, who had been the Chairman of 
 your Company since August 1989 and Managing Director of your 
 company for nearly eleven years prior to that, stepped down 
 from the Board with effect from May 5, 1995.  Mr. Chugh has 
 indeed played a distinctive role throughout the formation, 
 stabilisation and growth phases of ITC Bhadrachalam 
 Paperboards Limited.  On behalf of all of you, your Board of 
 Directors, the Employees and all other Stakeholders of your 
 Company, I would like to place on record my most sincere 
 appreciation of his invaluable contribution to your 
 Company's growth and market standing.  Mr. F.R. Vevaina, who 
 was a Director of your Company for a period of over 9 years, 
 also stepped down from the Board during the year.  I would 
 like to thank him most profusely for the valuable 
 contributions made by him.
 
 I joined the Board of your Company on October, 19, 1994 and 
 was elected Chairman with effect from May 5, 1995.  I seek 
 your good wishes and look to your support and encouragement 
 in the discharge of my new responsibilities.
 
 The signing of Gatt and emergence of the World Trade 
 Organisation have commenced the process of dismantling trade 
 barriers and spurring international trade.  Global 
 priorities are shifting from political concerns to economic 
 agenda.  Our economic liberalisation programme, which 
 commenced four years ago, has also brought us progressively 
 into the mainstream of international economic activity.  We 
 have quite suddenly been brought face to face with direct 
 international competition.
 
 Since the last Annual General Meeting, import duties on 
 paper and paperboard have been dramatically slashed from 65% 
 to 20%.  This has given rise to a paradigm shift in the 
 fundamentals of competitiveness for the Indian Paper 
 Industry.  Our Industry now has to gear itself up with 
 utmost urgency to be able to compete effectively on the 
 international stage.  To put it simply, even to survive, let 
 alone grow, we have to become world class.  The Indian Paper 
 Industry, in particular, has a multiplicity of issues to 
 contend with, making its task even more arduous.  I propose 
 with your kind permission, to dwell on some of the major 
 global trends, before addressing the key issues of 
 competitiveness facing us.
 
 GLOBAL TRENDS IN THE PULP AND PAPER INDUSTRY
 
 Global demand for paper and paperboard is expected to grow 
 annually by 2% at least in the next decade.  A 1994 FAO 
 forecast projects world paper production capacity expansion 
 from 290 million tonnes in 1993 to 320 million tonnes in 
 1998, with demand for paper products increasing from 249 
 million tonnes to 292 million tonnes in the same period.  
 India's current working capacity at around 2.8 million 
 tonnes, and production at 2.4 million tonnes, accounts for a 
 bare 1% of global demand.
 
 While the global paper capacity is slated to increase 
 annually at 2%, the world pulp production capacity is 
 projected to increase annually at only 1%.  The primary 
 cause for this mis-match is the projected scarcity of 
 pulp-wood on account of harsher environmental laws 
 restricting the felling of trees.  Further, a combination of 
 environmental, social, technological and economic factors is 
 encouraging increased recovery and usage of waste paper and 
 other recycled fibres in global paper production.
 
 The share of recycled fibre in the typical paper furnish in 
 some developed economies has already increased from 25% in 
 1980 to 35% in 1993 and is expected to exceed 40% by year 
 2000.  Despite the technological breakthroughs enabling 
 greater use of recycled fibre, shortage of virgin woodpulp 
 is likely to escalate.
 
 There is also a perceptible trend in the growth of pulp 
 production capacity shifting from countries in the Atlantic 
 Rim to the tropical countries such as Indonesia, Thailand, 
 Australia, Brazil and Chile.  Indonesia has now become the 
 world's lowest cost producer of pulp with a 1994 variable 
 cost estimated at 7 per tonne, followed by Brazil at 1 
 and Canada at 1.  The harvest cycle (from growing to 
 cutting) for tropical hardwood plantations such as 
 eucalyptus is shorter at around 7 years, compared to over 30 
 years for softwood trees.  Indian soil and climatic 
 conditions are also fortunately conducive to hardwood 
 plantations, with relatively shorter growth cycle.
 
 The apprehended scarcity of raw materials is spurring 
 application of biotechnology towards improved plantation 
 yields and development of alternative sources of raw 
 materials in keeping with intensifying ecological concerns.
 
 The concomitant trend of increased use of recycled fibre has 
 also accelerated the development of innovative and efficient 
 technologies, associated with de-inking, chlorine-free 
 bleaching and process control equipment used to separate 
 different fibre fractions.
 
 Such trends and developments have altered the sources of 
 competitive advantage in the manufacture of pulp, paper anti 
 paperboard in a globalising market.  Availability of 
 cost-effective raw materials, efficient energy management, 
 access to sustainable technology for quality and cost 
 competitiveness and compliance with ecological demands now 
 constitute the critical success factors.
 
 INDIAN PAPER INDUSTRY -- PRESENT POSITION
 
 Demand for Paper and Paperboard
 
 Per capita consumption of paper and paperboard in India at 3 
 kg is presently amongst the lowest in the world, against a 
 world average of over 45 kg with 315 kg in the USA, 225 kg 
 in Japan, 218 kg in Singapore and 18 kg in China.  With 
 increasing literacy, accelerating economic and industrial 
 growth and rising per capita income, India will be one of 
 the fastest growth markets in the next decade.  A United 
 Nations study has concluded that elasticity of paper demand 
 in countries with low per capita incomes, ranging between 
 0 and 0, is higher at 1.5 to 2.5.  This translates to 
 a growth in paper demand in our country of around 8% per 
 annum.  In quantitative terms, this implies an increase in 
 paper and paperboard demand from the present 3 million 
 tonnes to 5 million tonnes by the turn of the century.
 
 The income growth and distribution pattern in our country -- 
 with faster growth being exhibited in the middle and upper 
 classes -- will result in a more rapid growth in the 
 industrial packaging paper segment, at around 12%.  This 
 augurs well for your Company, being the market leader in 
 this segment.  There is also a perceptible qualitative shift 
 in the demand towards paper and paperboard of higher 
 strength and better surface quality.  Consequent to the 
 economic liberalisation, international quality benchmarking 
 has become more of a rule than an exception.
 
 Production Capacity & Industry Structure
 
 The Indian paper industry today comprises 379 mills, of 
 which 150 mills are reportedly lying closed, resulting in a 
 net operational installed capacity of 2.8 million tonnes, 
 excluding newsprint.
 
 A few large sized forest-based mills, including that of your 
 Company, account for over 40% of the total installed 
 capacity.  The remaining mills are agro-residue and waste 
 paper based.  Most of these mills are performing poorly due 
 to erratic availability of raw materials, lack of chemical 
 recovery facilities, irregular power supply, higher 
 financing costs, use of absolete technology, and inadequate 
 scale economies.
 
 INDIAN PAPER INDUSTRY -- ISSUES OF COMPETITIVENESS
 
 The key issues of competitiveness facing the Indian Paper 
 Industry are raw material competitiveness, energy 
 competitiveness, technology upgradation and economies of 
 scale.  Government policy in the 1970s and 80s encouraged 
 the setting up of smaller mills through fiscal support and 
 easy import of second hand plant & machinery.  The 
 fragmented structure of the industry evolved thus in a 
 closed and regulated regime has now rendered many of the 
 mills uncompetitive in an open and globalising economy.  The 
 restructuring of the industry will not be painless and will 
 require imagination, will and, above all, a policy framework 
 that takes into account the requirements of transition.
 
 Fibrous Raw Materials -- Availability and Competitiveness
 
 The most critical issue facing the Indian paper industry is 
 the availability of cost-effective fibrous raw materials.
 
 Creation of paper manufacturing capacity, based on straw, 
 has not kept pace with the growth and pattern of demand of 
 the Industry.  This is due to the cumbersome and 
 uneconomical task of collection from widely dispersed areas, 
 the attendant problems of storage of this seasonal product, 
 and prior charge on straw for cattle feed, limiting the size 
 and induction of appropriate technology on the one hand, and 
 non-availability of suitable sites for installation of paper 
 mills, in some other areas, where straw is available, on 
 account of non-availability of water, problems of disposal 
 of effluent, availability of power and coal, on economic 
 basis, on the other.  The potential of straw, as a major 
 source of raw material is, therefore, likely to remain 
 limited.
 
 Bagasse was considered in the 1970s to be a promising 
 alternative to forest-based raw materials.  This has, 
 however, not fructified to the extent expected.  Sugar mills 
 are reluctant to convert their bagasse fired boilers in view 
 of the problems of coal availability, additional capital 
 investment and increased cost of steam and paper.  The 
 emerging pattern of demand and requisite parameters of 
 strength and functionality, in various grades of paper, 
 limits the use of bagasse as universally accepted raw 
 material for all grades of paper.  Availability of bagasse, 
 in sufficient quantity, on a sustainable basis, at such 
 sites which are suitable for manufacture of paper, does not 
 appear to be promising.
 
 The collection and recovery of waste paper in India is 
 largely unstructured and likely to remain so in the 
 foreseeable future.  The availability of waste paper in our 
 country is also limited because of its other varied uses.  
 The rate of reclamation is barely 1.5% compared to around 
 40% in the developed countries.  Industry requirements are 
 therefore being supplemented substantially through imports 
 and such reliance on imports will continue.  This, however, 
 will be feasible only by those mills that produce specific 
 grades of paper and paperboards and have advanced recycling 
 technology.
 
 There has been a chronic shortage of forest-based raw 
 materials, viz. bamboo and pulpwood.  The shortage is likely 
 to escalate with dwindling forest cover.  Though the 
 National Forest Policy of 1988 specifies 33% forest cover 
 for ecological balance, the actual forest cover is barely 
 11%.  Despite various form forestry and revegetation 
 programmes, population and industrialisation pressures have 
 led to a progressive depletion of forest cover.  The present 
 domestic pulpwood availability is insufficient to meet 
 requirements, and imports are relied upon to meet the 
 shortfall.
 
 India consumes roughly 170 million tonnes of wood each year, 
 of which over 85% is firewood and barely 2% is pulpwood; the 
 remainder being used as timber.  It is estimated that if 
 paper industry's entire requirements are to be met 
 domestically, pulpwood availability has to more than double 
 to 7.2 million air dry tonnes by year 2000, and grow further 
 to 12 million air dry tonnes by year 2015.  While the larger 
 issue of forest cover does need urgent attention, the 
 visible impact of any related policy measures would take 
 decades to manifest itself.  The issues related to pulpwood 
 for Paper Industry are relatively more manageable in the 
 short to medium term, and need to be dealt with in their own 
 right, delinked from the larger issue of forest cover.
 
 The National Forest Policy of 1988 does not permit 
 industrial plantations on forest lands by the corporate 
 sector.  Equally, farm forestry by the corporate sector is 
 not feasible due to land ceiling regulations, thus making 
 the industry dependent on individual farmers.  Individual 
 land holdings are small and fragmented, rendering cumbersome 
 the logistics of financing, technology application and 
 collection.  Farm forestry programme instituted by paper 
 mills have met with limited success.
 
 According to estimates of The Wasteland Development Board, 
 degraded land accounts for 130 million hectares out of a 
 total 329 million hectares.  This comprises 30 million 
 hectares of degraded forests and 100 million hectares of 
 agricultural and non-forest waste lands.
 
 Pulpwood yield from plantations is generally 10 times that 
 from natural forests.  Paper industry would be in a better 
 position to secure its pulp requirements indigenously, if 
 even a small portion of the large area of degraded forest 
 lands were to be made available for plantations by the 
 corporate sector.  I would strongly urge amendment of policy 
 to enable allotment of adequate degraded forest land in 
 contiguous blocks in proximity to the mills for the 
 corporate sector to develop technology led plantations.
 
 Adequate safeguard could be incorporated to ensure that the 
 corporate sector does not assume any de facto ownership of 
 such land.  Such a scheme, apart from enhancing 
 competitiveness of the Indian paper industry, will yield 
 multiplier benefits in terms of improving ecological 
 security, providing gainful employment, and conserving 
 foreign exchange.
 
 Energy Management
 
 Paper Industry is one of the most energy-intensive, with 
 energy cost comprising 20-25% of the cost of manufacture.  
 The average energy wastage in Indian mills exceeds 35%, 
 compared to the international average of 20%.  Effective 
 energy management is, therefore, critical to cost 
 competitiveness.
 
 Indian paper mills on an average consume 70% more thermal 
 energy and 110% more power per tone of paper produced than 
 their international counterparts.  The main reasons are 
 systemic in nature, attributable to the poor and variable 
 quality of coal, erratic and poor quality power supply, and 
 the more onerous process requirements for the types of raw 
 materials used in India.  Moreover, small mills cannot 
 generally afford captive co-generation systems and use 
 either DG sets or purchase their entire power requirements 
 from the erratic State grids, thereby increasing their 
 energy cost per unit of production.  These systemic 
 inefficiencies are likely to be resolved in a hurry, and 
 will have to await fructification of reforms in the power 
 sector.
 
 The larger integrated paper mills in the country are, 
 however, in a better position to overcome the systemic 
 disadvantages through investment in appropriate technology 
 suited to the quality of coal available in India.  They are 
 also in a position to realise the economies inherent in 
 captive co-generation systems, thereby fully exploiting the 
 cost advantages of cheaper coal.  Large mills should be 
 encouraged to invest in economically sized captive power 
 generation units through a policy framework that would 
 permit sale of surplus power to the State grids on 
 commercial terms.
 
 Secondly, though the development of fluidised bed combustion 
 technology in recent years has facilitated the optimum 
 utilisation of low colorific, high ash content coal, the 
 disposal of the resultant ash continues to dodge a solution.  
 Till such time a lasting solution is found to utilise such 
 solid waste in a viable manner, the State Governments need 
 to provide land to the paper mills for ash disposal, just as 
 land for ash ponds is provided to power generating units.
 
 Technology Upgradation and Economies of Scale
 
 Paper industry is highly capital-intensive and normally 
 located close to one or more of its critical inputs such as 
 raw materials, coal and water.  Such locations are usually 
 in the backward areas.  Apart from investment in the mill, 
 substantial capital is employed in attendant infrastructure 
 relating to health, education, housing, transportation and 
 communication facilities required to supplement the 
 infrastructure provided by the State.  This renders the 
 enterprise even more capital-intensive.
 
 International competitiveness requires application of 
 state-of-art technology to enhance utilisation of raw 
 materials, improve product quality and simultaneously meet 
 the most stringent standards of pollution management.  Such 
 technology is expensive and can be made viable only through 
 achieving economies of scale.  Escalating capital costs have 
 made greenfield investments prohibitively expensive.
 
 The answer to competitiveness in Indian Paper Industry 
 therefore lies in the scaling up and modernisation of 
 existing mills, thereby more fully exploiting the existing 
 infrastructure and facilities.
 
 The urgency of this task cannot be overemphasised and will 
 require both entrepreneurial will and the application of 
 managerial resources, time and money.  Only the 
 nimble-footed will survive the next downturn in the 
 international paper markets when the severity of 
 international competition in its real form would more fully 
 impact the Indian market.
 
 The capital intensity of this industry and the relatively 
 higher interest rate structure in our country also call for 
 innovative financial restructuring with increasing emphasis 
 on equity financing to ensure that the burden of capital 
 intensity is managed effectively.
 
 MANAGING TRANSITION -- IMPORT TARIFF STRUCTURE
 
 Prior to the commencement of economic liberalisation, the 
 tariff structure insulated the Indian Paper Industry from 
 international competition.  Import duties were as high as 
 140% in 1991/92.  These were scaled down in a phased manner 
 to 65% in 1994/95 and thereafter drastically reduced to 20% 
 in two quick steps, while the customs duty in most other 
 cases was brought down to only 50%.  This sudden drop in 
 import duties on all varieties of paper has indeed taken the 
 Indian Paper Industry by surprise and rendered it 
 uncompetitive based on fundamentals.  Fortunately, the 
 international market is on a rapid upswing with 
 international prices of bleached softwood pulp having risen 
 from US0 per tonne towards the end of 1993 to US70 per 
 tonne in March, 1995.  Paper Industry being cyclical in 
 nature, the next downturn can cripple the Indian Industry 
 through large scale imports of prices that the Paper 
 Industry in its current form will find difficult to 
 withstand.  Whilst the Indian Paper Industry needs to 
 address issues of competitiveness which of necessity would 
 take time.  The import tariff structure, therefore, should 
 take into account the needs of transition.  The precipitous 
 drop in import duties was caused by a temporary shortage in 
 the cultural segment, which was further aggravated by the 
 diversion of creamwove paper to the newsprint industry.  
 Quite clearly, a temporary supply-demand imbalance in the 
 cultural segment justifying a tariff reduction intervention, 
 neither warrants its long term continuance nor its uniform 
 application to other paper segments.
 
 The uniform application of customs duties across all paper 
 segments is not justified.  The Government needs to take a 
 pragmatic view on each major product segment of the paper 
 industry, and accordingly calibrate the tariff structure.
 
 The reduction in import duties of paper products should go 
 hand in hand with a reduction in duties on inputs.  I would, 
 therefore, recommend that import duties on pulp and 
 wastepaper be completely withdrawn and duties on other 
 consumables and chemicals reduced substantially so that 
 value addition on our shores can become a sustainable and 
 growing economic activity.
 
 COMPETITIVE STANDING OF ITC BHADRACHALAM
 
 Your Company has always been cognisant of issues of global 
 competitiveness and is engaged in taking urgent steps in 
 this direction.  The bio-technology based R&D programme for 
 genetic improvement of planting stock of eucalyptus through 
 clonal technology has enabled development of fast growing, 
 high yielding and disease resistant clones for large scale 
 commercial plantations.  The demand for these saplings from 
 farmers and the State Forest Departments is growing rapidly.  
 Your Company continues to invest in this long gestation 
 activity to secure long term availability, quality and cost 
 effectiveness of pulpwood in the command areas of the mill, 
 and to enable future scaling up of mill capacity in keeping 
 with evolving global standards.
 
 Your Company has commenced the first phase of a massive 
 modernisation and expansion project at a capital cost of 
 Rs.525 crores.  The successful completion of this project 
 will more than double its capacity and is expected to render 
 it internationally competitive.  The project includes 
 installation of an atmospheric fluidised bed combustion 
 boiler and a turbo-generator of matching capacity with 
 condensing facility that will enhance energy 
 self-sufficiency and cost competitiveness.  The project is 
 being funded by utilisation of the proceeds from the earlier 
 rights issue in 1993, tying up of debt and a proposed equity 
 issue sometime later in the current fiscal year.
 
 A large complement of the Mill's workforce is drawn from the 
 backward tribal area.  Your Company has always been 
 committed to the education, economic and social advancement 
 of the local population.  The induction of state-of-art 
 technology requires time-consuming re-training and HRD 
 inputs.  The continuing attention given by your Company to 
 training and HRD has paid rich dividends and I am confident 
 that the new technology would be effectively absorbed.
 
 The times ahead are therefore indeed very challenging for 
 your Company.  I am sure that with your support and 
 encouragement, your Company will grow from strength to 
 strength.
 
 I thank you for your kind attention.