VZCZCXRO2161
RR RUEHBI RUEHCI
DE RUEHCG #0314/01 1210851
ZNR UUUUU ZZH
R 010851Z MAY 07
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 0874
INFO RUEHNE/AMEMBASSY NEW DELHI 2470
RUEHCI/AMCONSUL KOLKATA 0764
RUEHBI/AMCONSUL MUMBAI 5031
RUEHLM/AMEMBASSY COLOMBO 1323
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 CHENNAI 000314 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
COMMERCE FOR MAC: EROL YESIN 
 
E.O. 12958: N/A 
TAGS: EINV ETRD PGOV IN
SUBJECT: AFTER CLOSING COKE, KERALA ACTIVISTS TARGET PEPSI 
 
REFS:  (A) 06 CHENNAI 0109, (B) 05 CHENNAI 2087 
 
¶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.  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.) 
 
¶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 
 
CHENNAI 00000314  002 OF 002 
 
 
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. 
 
HOPPER