A Beneficial Uruguayan Paper Mill: Pulp Fiction?

January 30, 2007 COHA

As Mercosur was about to meet, Uruguay’s President Vázquez signs papers with the U.S. that could lead to a free trade pact with Washington. Vázquez flirts with the idea of being forced to leave Mercosur if he goes ahead and binds himself to Washington.
In the fatal battle between the two normally friendly nations, Uruguay may be making the mistake of the generation by not seeking some kind of settlement of its ugly spat with Argentina.
International lending agencies deserve blame for not engaging in a vigorous environmental study before agreeing to allocate the substantial asset to the “Orion” project.

Through their use of roadblocks and varied inflammatory statements to the press, Argentine activists and Uruguayan public officials have sought international attention to their respective sides in the nearly 2-year-old conflict over the construction of a paper mill on the Uruguayan side of the river. Usually amassed on the San Martín Bridge and largely hailing from the Argentine town of Gualeguaychú, these demonstrators vehemently oppose Botnia’s (a privately-owned Finnish firm) vision of a cellulose plant on the banks of the river separating the two countries. The project has evoked strong antagonism due to the detrimental environmental effects that appear unavoidable should the mill be completed and become operational. Botnia’s endeavor has drawn enthusiastic support from the Vázquez government, the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the World Bank. Unsurprisingly, their backing has added to the political tension now plaguing the two sides, which includes Buenos Aires’ pleas before the International Court of Justice to halt construction of the mill and Uruguay’s plea to the same court that the border closures were causing ‘irreparable’ damages to the country’s economy. On January 25, Uruguay boldly signed a Trade and Investment Framework Agreement (TIFA) with the U.S. in hopes that the affiliation with the northern super power might influence the paper mill dispute in its favor. A TIFA is often a first step to a Free Trade Agreement, which would directly violate Uruguay’s membership agreement with the other Mercosur countries. In spite of the perspective economic bonanza to Uruguay, resulting from the pulp mill, Montevideo would be wise to reexamine the likely political and economic costs of risking its continued membership in Mercosur. Then there is the need for Uruguay to preserve its own environment, as well as the need for it not to imprudently go too far out of its way to antagonize Mercosur partner Argentina and, quite possibly, its long term ties to Brazil.

Full Steam Ahead
The IFC and MIGA approved funding of the “Orion” (pulp mill) project last November, after a World Bank study had concluded that the erection and operation of the mill would comply with all existing environmental standards. Botnia, the Finland-based company which is overseeing the mill’s construction, received approximately $US 520 million in financing from the IFC and MIGA as a result of the Bank’s favorable ruling.

Located in Fray Bentos, the mill (set to begin operations in the third quarter of 2007), is the largest foreign investment and development project in the country’s history. According to World Bank research, its completion will result in a 1.6 percent increase in the country’s GDP and the creation of 8,000 jobs for the nation. The executive vice president of the IFC, Lars Thunell, cited the reasoning behind his organization’s support of the project, stating, “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….”

Environmental Consequences Seem Unavoidable
Argentina does not view the project through such rose-tinted glasses, although Montevideo has welcomed Thunell’s somewhat self-serving rhetoric. In official statements issued by the government of Uruguay and the IFC, as well as the World Bank, the mill is presented as posing little to no harmful long-term effects on the environment. However, a number of concerned environmentalists point to a drought that already has profoundly affected the area as well as confirm the likelihood of water and air pollution resulting from the processing of pulp as evidence enough to justify Argentina’s deep-seated enmity toward the project.

A somewhat unexpected miscreant, the Eucalyptus tree, already has seriously contributed to the dehydration of whole areas adjacent to the pulp mill site. Raw material for the paper mills will come from 232 square miles of terrain on which Botnia has planted Eucalyptus plantations. This species serves as ideal fuel for pulpwood cultivation because of its swift growth rate. Perhaps not coincidentally, many wells in Uruguay began to dry up around the time the Eucalyptus tree was being introduced to the region. The tree’s roots voraciously draw moisture from the ground and, as a result, water is disappearing at an alarming rate across the acreage where it is being planted. The water shortage has displaced Uruguayan families, even forcing the evacuation of a town formerly named Las Flores (The Flowers), which is now called Pueblo Seco, or “Dry Town.” Additionally, the drought has been responsible for many local ranchers’ difficulties in raising cattle – affecting the country’s major livestock sector – as well as having had a detrimental effect on watermelon and peanut crops.

Damage to these important yields would further cripple an already struggling economy. Moreover, these crop yields are threatened by the anticipation of environmentalists that the raw materials required for the mill’s optimum operation will necessitate the conversion of land now being used for agriculture and grazing, into an even more extensive stretch of Eucalyptus forests.

A possible negative environmental impact on the region was optimistically left out of the final judgment on the project that was officially issued by the World Bank, IFC and Uruguayan officials. It also appears inevitable that further ramifications could have an even greater deteriorating impact on the biosphere, according to environmental studies now being conducted.

Pulp mills require enormous quantities of water for production, and the Fray Bentos location on the bank of the Uruguay will undoubtedly have a detrimental influence on prevailing river levels and the adjoining ecological environs. Relevant studies of paper mill operations in Sweden, Canada, and the United States reinforce this conclusion. Research efforts established that the caustic chemicals routinely used by pulp mills can not only result in water contamination, but together with the resulting compounds, can build up in the fatty tissue of animals, including humans who depend upon the river for their supply of portable water. This build-up can cause birth defects, hormonal imbalances, and incidents of diabetes. The toxicity has even been traced to mills using the supposedly environmentally-friendly Elemental Chlorine Free (ECF) and the Totally Chlorine Free (TCF) systems. The resulting damage is likely to affect not only Uruguay, but also Argentina, which is already plagued with very high levels of water pollutants in adjacent bodies of water in the area of Fray Bentos.

Some claim that erection of the mill will also affect air quality as well. Botnia itself acknowledged that the paper mill’s emissions will cause a lingering stench, as well as possibly generating adverse effects, including eye and nasal irritation and wheezing.

Montevideo’s Approval Hides its Citizens’ Discontent
The Uruguayan government is aggressively supporting the mill construction, forcefully claiming that it has the best interest of its citizens and the environment in mind. This seems questionable, considering that eucalyptus cultivation (in addition to recurrent periods of drought) made a killing by allowing big syndicates to buy land at very low prices dating back to Uruguay’s financial crisis of 2002. This land speculation issue has hardly bestowed financial stability on the country or encouraged the normal regularity of the nation’s ecosystem. The intensity of Vázquez’s feelings were enough for him to rather dramatically call upon the military to protect the construction site of the Orion project from a suspected sneak attack by militant Argentine environmentalists. This action infuriated Argentina’s President Nestor Kirchner, who denounced Vázquez’s over-heated grandstanding.

Though relatively subdued in comparison to the ongoing raucous protests being staged across the border, a widespread sense of unease regarding the project’s intrinsic merit prevails over those Uruguayans with strong ecological sensibilities. Some in the small South American country are calling for the revision or termination of the Botnia enterprise, including professionals in environmental issues as well as public advocates from every conceivable background. These numbers include average citizens who cite the danger to Uruguay’s natural ambiance posed by the mill. Numbered among the opposition is the REDES-Friends of the Earth (FoE) Uruguay. The organization has filed formal complaints against the Vázquez government, which mirrors those being lodged by the Kirchner government. The Permanent Peoples’ Tribunal, a group dedicated to monitoring human rights violations and environmental and economic abuses has corroborated the FoE’s complaints in its finding that: “…there is clear evidence that moving forward with this project will violate the right of access to basic utilities, the right to land, food sovereignty and safety, labor rights, environmental rights and political and civil rights…”

Multinational Opinion
The bulk of the foreign opposition to the mill has been spawned in Argentina, centering in the border city of Gualeguaychú. The unfaltering blockade by Argentine protestors on the international San Martín Bridge prompted the Spanish National Pulp Company, ENCE (Empresa Nacional de Celulosa) to eventually agree to alter the planned location of the second cellulose plant under construction in Uruguay.

However, Buenos Aires has failed, both before the International Court of Justice at The Hague and the World Bank, to halt construction of the mill altogether. Designating the mill’s anticipated pollution as a violation of the fundamental right of people everywhere to a clean environment, Argentina cites a breach of the San Salvador Protocol and the existing Uruguayan River compact between the two countries. The San Salvador Protocol, established by the Inter-American Commission on Human Rights, and agreed upon by twenty-five Latin American member countries (including both Uruguay and Argentina), serves to protect individual rights of citizens throughout the region. Mediation by Spain, under its terms has been offered, but to no avail.

Thanks to the continued presence of Argentine protesters and the effective obstruction at any given time, on at least one of the bridges connecting the two Latin American nations, Uruguay officials have become increasingly hostile toward the demonstrators and is carefully tabulating the substantial financial losses that are being assessed to its economy. A discussion was initiated at the International Court of Justice on December 18 regarding the most recent claim that Uruguay had brought against Argentina’s bridge blockade. On January 23, the International Court of Justice ruled that it would not mandate a cessation of any of the international bridge interdiction’s being staged by Argentines, despite Uruguay’s repeated complaints that tourism to the country was being adversely affected due to the attendant chaos. After refusing Argentina’s petition that the ICJ should desist from allowing construction of the Orion facility until the court ruled on the case’s merits, it also refused Argentina’s requests to freeze construction until that time.

Some Argentines are suggesting a more cooperative approach to the present impasse, commenting upon the interdependence of the two countries’ economies. They see it as essential that in order to coax concessions from Montevideo on the issue, presidential leaders should be as flexible as possible. Others, however, wonder whether the resentment that has built up between the two governments and most of the population over sectarian lines has carried the situation beyond any hope of reconciling the now entrenched opposing sides.

The foreseeable negative consequences on both air and water quality brings to light an international problem that centers on the sometimes incongruous nature of global protocols. The San Salvador agreement is in place in order to protect human rights, one of which concerns the health of individuals affected by environmental dangers. Yet, the World Bank ostensibly judged the pulp mill project according to strict environmental standards. This process helped to demonstrate blatant inconsistency in terms of the ecological ground rules which were being followed by the financial institutions. It may very well be that the international lending agencies will prove to be the real villains in the turn of the events surrounding Botnia’s “Orion” Project.

The World Bank study purports that the construction of the paper mill in Fray Bentos complies with all environmental regulation. However, the financial institutions’ past is scattered with literally hundreds of incidents whereby proposals that are initially deemed beneficial, have brought long-term environmental impairment to the host country: deforestation in Brazil, desertification in Botswana, and disease and displacement in India. While ill-fated projects in those countries do not necessarily presage the ultimate fate of the Uruguayan mill project, the multitude of failed efforts, including those backed by the World Bank and the other lending agencies provide myriad examples that the organization’s judgment regarding its environmental strategy has been clouded before. Likewise, the credibility of the Bank’s ruling seems highly questionable, given the fact that the financial institution now has a large institutional stake in this particular case in terms of its portfolio commitments and institutional pride.

What’s Best for Uruguay?
At first glance, there is no doubt that Uruguay can only benefit from initiatives aimed at creating jobs in a country better suited for expanding employment in traditional economic sectors that harmonize with the population’s life-styles. Tourism and the fishing industry, for example, currently bring jobs and revenue to the country, but it could be severely crippled by pollution from the Botnia pulp mill. The real question posed here is who are the projected winners and losers when the dust settles on the Botnia affair. Another aspect is that relocation of the mill away from the Uruguay River may satisfy Argentina, but what about those in Uruguay still left to face the consequences of not only an opportunity denied, but also the physical relic of an unfinished giant project that could have brought thousands of new jobs to the country?

Foreign corporations such as Botnia may not automatically bear the principal responsibility over what went wrong here. Nevertheless, the company was surely aware of how dirty the pulp industry intrinsically is. Several decades ago in the state of Maine, the pulp industry was progressively shuddered in the 1960s onward because of its massive environmental threat to the state’s ecology, a graphic portrayal of what could occur in Uruguay. One could also raise the question how watchful and responsible were Uruguayan authorities, as well as the international agencies. These groups were coming up with much of the funds needed to construct a project whose very nature should have initially flashed a red light to all concerned and allowed for thoughtful decisions to be framed before a heavy commitment had been made.