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Miga has issued a guarantee of US$300mn to Oy Mets-Botnia of Finland for its equity investments in a greenfield pulp mill, a free trade zone, and plantations in Uruguay. The coverage, for a period of up to 15 years, will protect the investments against the risks of expropriation, war and civil disturbance, and breach of contract. The project represents the largest foreign investment in Uruguay’s history, and is considered very important for the country’s economic development.

 

The project involves the construction of a new pulp mill in Fray Bentos, Uruguay, to produce bleached eucalyptus kraft pulp, which will be exported to paper manufacturers in Europe, Asia and North America. The project is expected to produce one million tons of pulp per year and consume 3.5mn cubic metres of wood annually. Approximately 140,000 ha of eucalyptus plantations will be used to supply this wood. For the most part, these plantations are developed on soils that are not suitable for agriculture and are used primarily for cattle grazing.

 

The mill is designed to implement best available techniques as identified by the European Union (EU) in a 2002 directive. The techniques and control measures used will ensure that emissions and effluents comply fully with EU and US Environmental Protection Agency standards, and are therefore acceptable under Miga’s environmental guidelines.

 

The mill is located on a site on the east bank of the River Uruguay about 5km upstream of the town of Fray Bentos. Established in 1859, the town’s economy was closely associated with a well-known meat processing plant until the plant closed in 1979. As a result of the closure, the local economy became depressed; families were forced to rely on public sector employment and pensions; and unemployment rates jumped substantially higher than the national average.

 

The project will help the country move up further the value chain beyond the export of raw materials. The plant will generate value added equivalent to 1.6% of Uruguay’s entire GDP (based on 2005 figures) and slightly more than 8% of the country’s exports for each year of full-capacity production. The direct and indirect employment is especially significant for the region’s unemployed and low-income residents. During the peak construction phase the plant will employ 4,500 workers, of which 80% are Uruguayan. In the operational stage, direct and indirect employment is estimated to exceed 6,000 new jobs.

 

Expected regional environmental improvements related to the mill include treating wastewater from the nearby town of Fray Bentos; generating electricity from mill operations that will offset 68,000 tons a year of carbon dioxide and reduce acid rain by replacing oil burned in public generating plants; treating the untreated effluent of an older, unrelated pulp mill in the nearby town of Mercedes; and producing sufficient sodium chlorate to allow local mills in Argentina and Uruguay to move to elemental chlorine-free pulp production.

 

Miga’s participation in the project complements the World Bank Group’s long-term strategy in Uruguay, which supports the expansion of the private sector in areas where the country is internationally competitive. Miga’s participation in the project also complements the work of the IFC, which is providing US$170mn in debt financing.