From: Lesley Wroughton, Reuters
Published November 22, 2006 12:00 AM

World Bank to Fund Controversial Uruguay Pulp Mill

WASHINGTON — The World Bank Tuesday agreed to finance a controversial pulp mill project in Uruguay that soured relations with neighboring Argentina over concerns it will cause environmental damage to a river they share.

The financing by the bank's private-sector lender, International Finance Corp and guarantee agency Multilateral Investment Guarantee Agency will provide up to $520 million in loans and insurance for Finnish pulp-making firm Metsa-Botnia's Orion mill on the Uruguay River, which separates the two countries.

"The decision paves the way for us to move forward and engage with stakeholders to maximize economic, environmental and social benefits to local communities on both sides of the river," IFC Executive Vice President Lars Thunell said in a statement after the decision.

The IFC recommended the project saying it complied with the bank's environmental and social guidelines, after an independent study concluded the project was unlikely to cause long-term harm to the environment.

Argentina has vehemently opposed the construction of the mill on grounds it will damage the environment and hurt tourism and fishing along the river.

In response to Argentine complaints, Spain's Ence has said it will relocate its plant, which was part of the original plan, to another site.

A World Bank board official, speaking on condition of anonymity, said Tuesday's decision won the backing of 23 out of 24 directors, with the lone opposition coming from Argentina, which represents a constituency of six Latin American countries that includes Uruguay.

In the run-up to the board meeting, Uruguay had considered moving to another constituency, possibly led by Brazil, to ensure it got a fair representation over the pulp mills issue, but decided to stay put because of time constraints.


A statement by the Uruguayan government to the board directors said the project represents huge economic benefits, jobs and development opportunities for the country.

The statement, obtained by Reuters, said diplomatic strains with Argentina "will fade with time," although acknowledged that efforts will be needed to restore ties between the city of Gualeguaychu on the Argentine side of the river and Fray Bentos in Uruguay that are divided by the river.

Uruguay suggested one way to mend the rift would be to allow local communities from both cities to monitor environmental and other standards at the Orion plant.

The Orion mill, which is the largest foreign investment in Uruguay's history, is expected to add more than 2 percentage points to Uruguay's GDP, increase exports by 8 percent and add around 12,000 jobs during the construction phase.

"The project is in itself a turning point of the overall development process of Uruguay," it said.

"It is a capstone in a 25-year strategy to develop forest production as the initial link in a long, valuable chain of industrialization for Uruguay," it added.

Uruguay said the "plant poses no risk whatsoever to the health or livelihood of the populations on both sides of the Uruguay River".

Environmentalists and community activists from Gualeguaychu have intermittently blockaded major highways connecting the two countries to protest the project.

The Argentine Foreign Ministry said in a statement issued late Tuesday that Argentina's government "did not agree" with the IFC's decision, saying the project has "grave environmental implications."

Brazil, the current president of the Mercosur trading bloc, agreed Tuesday to call an extraordinary meeting Dec. 15 at Uruguay's request to discussion Argentine protests over the paper mill, which it says would harm trade and tourism.

Argentina, Brazil, Paraguay, Uruguay and Venezuela are Mercosur members.

Source: Reuters

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