AFTER CLOSING COKE, KERALA ACTIVISTS TARGET PEPSI
UNCLAS SECTION 01 OF 02 CHENNAI 000314
SUBJECT: AFTER CLOSING COKE, KERALA ACTIVISTS TARGET PEPSI
REFS: (A) 06 CHENNAI 0109, (B) 05 CHENNAI 2087
UNCLAS SECTION 01 OF 02 CHENNAI 000314
SUBJECT: AFTER CLOSING COKE, KERALA ACTIVISTS TARGET PEPSI
REFS: (A) 06 CHENNAI 0109, (B) 05 CHENNAI 2087
Link: http://wikileaks.org/cable/2007/05/07CHENNAI314.html
¶1. (SBU) SUMMARY: On April 10, Pepsi won a four-year court battle for survival in Kerala. But the legal victory has spurred a battle on another front: a virulent media campaign directed against it. A
similar campaign succeeded in locking out Coca Cola in 2004, despite court verdicts in Coke's favor. Pepsi's case is somewhat different. Unlike Coke, Pepsi's Kerala plant is located in an industrial park
which offers legal protection from hostile village councils. Nonetheless, activists opposed to multinational corporations are clamoring for government action to close down Pepsi, but the state
government is divided on the advisability of such a move.
END SUMMARY.
¶1. (SBU) SUMMARY: On April 10, Pepsi won a four-year court battle for survival in Kerala. But the legal victory has spurred a battle on another front: a virulent media campaign directed against it. A
similar campaign succeeded in locking out Coca Cola in 2004, despite court verdicts in Coke's favor. Pepsi's case is somewhat different. Unlike Coke, Pepsi's Kerala plant is located in an industrial park
which offers legal protection from hostile village councils. Nonetheless, activists opposed to multinational corporations are clamoring for government action to close down Pepsi, but the state
government is divided on the advisability of such a move.
END SUMMARY.
COKE'S EXPERIENCE: CAUGHT ON THE WRONG SIDE OF POLITICS
¶2. (SBU) When Coke began production in Kerala in 2000, a leftist coalition led by the Communist Party of India (Marxist) governed the state. A year later Kerala voted out the CPI(M) coalition and Congress took power. Local resentment over a shortage of drinking water in the drought-prone villages around Coke's premises soon led to regular agitations against the company. In April 2003, the panchayat (village council) of a nearby village ruled by the leftist Janata Dal party refused to renew Coke's license. Despite the panchayat's ruling, Coke was able to continue operations for almost a year due to the support of the Congress-led state government and the Kerala High Court. But, the Congress-led state government reversed itself in February 2004 and barred Coke from drawing groundwater, effectively ordering the plant to cease operations. In April 2005, Coke obtained a High Court verdict in its favor, which permitted the use of up to 500,000 liters of water daily.
¶3. (SBU) In May 2006, the CPI(M) returned to power with Coke's fiercest opponent, V.S. Achuthanandan, as Chief Minister. When an Indian nongovernmental organization alleged in August 2006 that Coke and Pepsi contained high levels of pesticides, Achuthananandan's government promptly banned the production and sale of both companies' products. Though it was not actually producing in the state, Coke was forced to halt Kerala sales of product it was bringing in from neighboring Tamil Nadu. The Kerala High Court, however, rescinded the government order in September 2006, allowing both companies to resume sales of their products in Kerala.
¶4. (SBU) "Technically, we can restart production because the panchayat has given us a conditional license following the April 2005 High Court order," said Coke's General Manager Vikas Kochar. But Kochar added that Coke has not restarted production and has no plans to do so because of the prevailing hostility of the local community.
¶2. (SBU) When Coke began production in Kerala in 2000, a leftist coalition led by the Communist Party of India (Marxist) governed the state. A year later Kerala voted out the CPI(M) coalition and Congress took power. Local resentment over a shortage of drinking water in the drought-prone villages around Coke's premises soon led to regular agitations against the company. In April 2003, the panchayat (village council) of a nearby village ruled by the leftist Janata Dal party refused to renew Coke's license. Despite the panchayat's ruling, Coke was able to continue operations for almost a year due to the support of the Congress-led state government and the Kerala High Court. But, the Congress-led state government reversed itself in February 2004 and barred Coke from drawing groundwater, effectively ordering the plant to cease operations. In April 2005, Coke obtained a High Court verdict in its favor, which permitted the use of up to 500,000 liters of water daily.
¶3. (SBU) In May 2006, the CPI(M) returned to power with Coke's fiercest opponent, V.S. Achuthanandan, as Chief Minister. When an Indian nongovernmental organization alleged in August 2006 that Coke and Pepsi contained high levels of pesticides, Achuthananandan's government promptly banned the production and sale of both companies' products. Though it was not actually producing in the state, Coke was forced to halt Kerala sales of product it was bringing in from neighboring Tamil Nadu. The Kerala High Court, however, rescinded the government order in September 2006, allowing both companies to resume sales of their products in Kerala.
¶4. (SBU) "Technically, we can restart production because the panchayat has given us a conditional license following the April 2005 High Court order," said Coke's General Manager Vikas Kochar. But Kochar added that Coke has not restarted production and has no plans to do so because of the prevailing hostility of the local community.
Appeals against the High Court order filed by the panchayat and the state government are pending in the Indian Supreme Court. In addition, the state's Pollution Control Board repeatedly denied Coke environmental clearance on the grounds that the factory's effluent allegedly contains heavy metals. Having given up hope of restarting production in the near future, Coke has shifted one of the three production lines out of the state and has either retired or redeployed almost the entire staff. According to Kochar, Coke has also stopped the free supply of drinking water to the neighboring villages.
WITH COKE GONE PEPSI FINDS ITSELF IN THE CROSSHAIRS
¶5. (SBU) While Coke was bearing the brunt of leftist opposition, Pepsi managed to quietly continue doing business. Unlike Coke, Pepsi's facility is located within an industrial park, which provides it protection against the jurisdiction of the local panchayat. Undeterred by this legal impediment, the panchayat still canceled Pepsi's license in 2003. After a four year legal battle, during which Pepsi operated under a stay of the cancellation, the Kerala High Court ruled in April 2007 that the panchayat had no right to cancel the license of a factory located in a notified industrial area under the terms of the Industrial Township Area Development Act of 1999. (NOTE: The Act was enacted with cases such as Pepsi's in mind: to protect investors from cumbersome licensing procedures and hostile bureaucracy it exempted industrial parks from the purview of the panchayats. END NOTE.)
¶5. (SBU) While Coke was bearing the brunt of leftist opposition, Pepsi managed to quietly continue doing business. Unlike Coke, Pepsi's facility is located within an industrial park, which provides it protection against the jurisdiction of the local panchayat. Undeterred by this legal impediment, the panchayat still canceled Pepsi's license in 2003. After a four year legal battle, during which Pepsi operated under a stay of the cancellation, the Kerala High Court ruled in April 2007 that the panchayat had no right to cancel the license of a factory located in a notified industrial area under the terms of the Industrial Township Area Development Act of 1999. (NOTE: The Act was enacted with cases such as Pepsi's in mind: to protect investors from cumbersome licensing procedures and hostile bureaucracy it exempted industrial parks from the purview of the panchayats. END NOTE.)
¶6. (SBU) The unambiguous court verdict did not end the matter. In fact, it has only served to rile Pepsi's critics. Janata Dal Member of Parliament, M.P. Veerendrakumar, whose family runs one of Kerala's leading daily newspapers, is spearheading an anti-Pepsi media campaign. Chief Minister Achuthanandan, whose district is in the area of Pepsi' plant, reacted to the court verdict by saying the panchayat's rights would be restored, and he reportedly indicated that the government would consider amending the Industrial Township Area Development Act.
¶7. (SBU) The architect of the Industrial Township Area Development Act told post that he believes that chances of amending the law are remote, although he added that one cannot be too sure given the CPI(M)'s "crazy leadership." According to journalists, serious differences still persist between the Department of Industries and the Department of Local Administration (which governs the panchayats) on the issue. They point out that the Advocate General's office received conflicting directions from these departments, one supporting the company and the other the panchayat. The journalists told post that the Department of Industries is aware that any attempt to restore the panchayat's right to cancel industrial licenses at will would undermine the attractiveness of its industrial parks and expose investors, particularly in the manufacturing sector, to the whims of local politicians.
¶8. (SBU) COMMENT: The judiciary seems to be Coke and Pepsi's only reliable ally in all of Kerala. But Coke's experience shows that judicial verdicts alone are not sufficient to carry the day in Kerala's rough and tumble political environment. Although Pepsi's location in an industrial park afforded it the support of the state's Department of Industries, the company still faces a threat to its ability to do business in Kerala. Companies, particularly multinationals, setting up operations in Kerala will face the possibility of such problems until Kerala's governing class changes its mindset and focuses on the need to create more jobs within the state.
END COMMENT.
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