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Dramatic Weekend Unfolds as Uruguay Issues Operating Permit to Botnia

Spanish King Ends Mediation in Failure while Uruguay Closes Borders to Protect Against Unrest

First Smoke Billows from Chimney and Causes Nauseous Odor Around International Bridge

[a narrative recount of the escalation of Botnia's Pulp Mill War … ]

November 12, 2007. Uruguay. Yet again, Botnia's pulp mill war in Uruguay made the cover pages and several more in Argentine and Uruguayan dailies throughout the weekend as the conflict escalated on several fronts. Hundreds marched to the international bridge linking Argentina and Uruguay protesting the Uruguayan government decision to extend the Finnish pulp mill company Oy Metsa Botnia an operating permit. The Spanish King, which had reprimanded the Uruguayan President last week for attempting to do as much before the King's mediation attempt was finished, was informed via an envelope passed under his ambassador's door at a hotel at the Latin American Summit in Chile that his mediation effort to broker a solution to the cross-border dispute caused by the Finnish company, had come to an abrupt end, in failure . The backbreaker was the unilateral issuing of the operating permit, which violated the agreement between the three parties, to not take actions to “aggravate” the dispute.

The operating permit, may be short-lived however, if a pending International Court of Justice (ICJ) decision on the legality of the project rules against Uruguay. The mill, which began operations Friday, is one of the world's largest, three times larger than any in Finland. Local community stakeholders have already made it the world's most controversial.

Smoke spewed from the chimney towers as early as Friday morning, just hours after Botnia received the green light to fire up its kilns and begin producing 1 million tons of ECF pulp, a grade less than what the World Bank recommends for the pulp mill sector. Community groups were furious, when the winds picked up in the wrong direction (that is, towards Argentina), a rare phenomenon that should only happen a few days out of the year, according to the environmental impact assessments offered by the mill proponents. It seems ironic to everyone that the meteorological rarity should coincide with the first few hours of operations. Stakeholders that doubted the EIAs when they were first contested, are saying, “we told you so!”.

The putrid rotten egg-smelling odor feared by local residents (categorically denied in EIAs by Botnia and IFC-hired consultant groups), permeated the area immediately surrounding the bridge, tool booths, and other installations pertaining to the binational river committee (CARU), as well as border immigration control posts. Staff assigned to the posts began to feel nauseous and several vomited from the intolerable stench which lasted all day.

This was only the beginning to a weekend ridden with mounting tensions around what many are now calling Botnia's Pulp Mill War . President Kirchner met with community stakeholders that had traveled to Chile to the Summit, to protest against Uruguay's imminent operating permit issuance. Moments later, Tabaré Vasquez, infuriated by Kirchner's agreement to meet with his own citizens to discuss the mill situation, called his Environment Minister Arana to sign the operating permit, and in an unprecedented move, decided to close borders with Argentina at the San Martin International Bridge, and is even considering closing the only remaining two bridges, in fear of possible border conflicts with disgruntled community groups.

President Kirchner met shortly afterwards, with the Spanish King, thanking him profusely for his effort to broker a solution, but alluding to the unwillingness of some (understood by all to mean the President of Uruguay and the company Botnia) to enter into negotiations and reason. Kirchner said to Tabaré at the Summit in a casual meeting, “you have stabbed a dagger into the back of the Argentine people”. Tabaré later tried unsuccessfully to gather Kirchner, Argentine President Elect Cristina Fernandez, and the Spanish King for a protocol picture to show the public they had met in positive spirits, but the Argentine President refused. As a final note to seal the diplomatic collapse and to mark the official end to the mediation process, the Uruguayan President surprised everyone by announcing, that “the decision to issue the permit was taken long ago, and that it was only a matter of time before it was issued.” In other words, Uruguay never intended to mediate anything.

The conflictive project is led by Botnia's Finnish CEO Erkki Varis, who has set his eyes abroad for constructing the first pillar of an industry that is no longer welcome in Western Europe, where pulp mills have contaminated for years. The export of contaminating industries from the north to the global south, is precisely what Argentine President Nestor Kirchner spoke up against in Vienna during a European – Latin American Heads of State Summit last year. But Botnia offers profit seeking shareholders “the Uruguay Project” as an excellent solution for pulp mill fatigue at home: in Uruguay, trees grow 5 to 8 times faster than in Scandinavia, the country is converting traditional agriculture (with World Bank financing) to eucalyptus farming, lucrative tax shelters offer maximum profits, as do low wages in pesos instead of Euros. Botnia would have to pay Finnish workers up to 10 times more at home for equal work. Botnia even gets its own private port facility to export pulp (tax free) to a market that consumes more than 10 times the amount paper consumed in Uruguay. President Vasquez of Uruguay has been a fervent defender of the Botnia project, although he had to keep journalists and environmental groups out of inaugural ceremonies avoid the massive public display of opposition that has grown against the Finnish investment, and which mounts daily in Uruguay.

Thousands of local stakeholders in Uruguay and Argentina, have marched against Botnia's project; 50,000 in 2005, 120,000 in 2006, and 130,000 in 2007 bringing international press coverage and extensive focus by students, academics, campaigners, governments and industry to the conflictive pulp mill. These numbers are mind boggling considering that between the two cities closest to the mill (Gualeguaychú in Argentina and Fray Bentos in Uruguay) the population amounts to about 100,000. Locals complain of contamination to come (which is now coming true), cultural insensitivity of the Finnish CEO, as well as Botnia's total disregard for local and diplomatic sentiment. The international financial community supporting Botnia, including IFC, MIGA, Calyon, Nordea, Finnvera, NIB, and SEB has also ignored local sentiment, attracted by the financial promises made by Botnia.

In an era of growing public scrutiny against contaminating industries like pulp mills, local residents don't want the mill placed in its present pristine tourist location. Recently, Fray Bentos' tourism chamber declared that their industry was officially dead because of the Botnia project. In Gualeguaychú (across the border), land value is dropping in areas once known for their natural beauty. “The BBC of London dubbed the sunset over the Uruguay River at this site, as the world's most beautiful. Now it will have a spewing rotten egg smelling pulp mill smoke stack to contrast its multicolor skies” says a hotel operator of Nandubaysal beach immediately across the Botnia mill site. “It simply needs to move”, said Oscar Bargas, a local community spokesperson, who traveled to Finland last year to plead Erkki Varis and international financial institutions, to reconsider the mill site. Botnia, the World Bank, and the Finnish Government (who is a large vested shareholder in the project) ignored the request. This was no surprise as the project is the largest Finnish investment ever abroad, as well the largest FDI in Uruguayan history. It was probably no coincidence that Finland also held the EU Presidency at the time of the World Bank Board vote in favor of the loan to Botnia.

The IFC was another key player in the way the conflict escalated. Despite being in the middle of revamping Social and Environmental Safeguard Policies, and trying to lead international private banks (like the signatories of the Equator Banks-of which at least five were involved in this project) in responsible investments, and making renewed public promises to skeptical NGOs about the integrity of its social and environmental norms, IFC's high management chose to ignore a scathing compliance audit by its own ombudsman (the CAO), as well as mounting local opposition. IFC gave Botnia a green light on the heels of a consultant's report that argued the mill met industry standards. The private sector consulting firm, which gains its income from reviewing (and helping approve pulp mill specs), suggested in an unofficial version of its report, leaked mistakenly by IFC, in reference to one of the communities' principal concerns regarding visual contamination, “the public's response to these new industrial features is subjective and may change over time as the public becomes accustomed to the new landscape”. Stakeholders were outraged by the comment, and discredit IFC altogether.

Lars Thunnel, the IFC's Swedish chief, brushed away local opposition to Botnia before the World Bank's Board of Directors lobbying vehemently for the loan. The IFC bombarded Board Members with favorable information and power point presentations about the project before the vote, and established ongoing direct communication channels with the country departments to anticipate any potentially damaging information made available to Board Members by stakeholders, who were communicating in droves, daily, to directors about the project. IFC's efforts paid off for its business partner Botnia, and the Board voted to grant Botnia US$470 million for what would become its most controversial project ever. Thunnel argued in the run up to the vote, that if IFC had to stop financing each time stakeholders opposed a project, they would never give out any loans. IFC's thumbs-up to a controversial project, resulted in an avalanche of financing made available for Botnia by private banks, precisely what IFC should avoid, argue environmental groups, regarding such questionable projects.

But on November 20 th , 2007 the eve of the World Bank's decision to finance the investment, stakeholders blocked the international bridge at the mill sit, and halted traffic between the two countries. In just a few days, their roadblock will be one year old, the longest standing protest vigil ever against a World Bank project . The non-governmental human rights organization based in Argentina, CEDHA, indicates the IFC's handling of the process was irresponsible and negligent , because IFC knew the project had serious problems, and would never be accepted on the ground, but it forced it through anyway, instead of trying to solve the problems it had been complicit in creating. In an era where we are all investing an enormous amount of energy and effort into making the Equator Principles work, and promoting responsible international investment, this was a huge step backwards.

The project is presently the focus of nearly two dozen international complaints in just about every procedural forum available to communities. It is also the source of regional bilateral instability, sending shock waves into the Mercosur Trade Agreement, the regional trade block, which Uruguay now threatens to abandon. Why has the project gone so wrong?

“Botnia (and the IFC) simply failed to do its homework, skirting basic principles of modern corporate ethical behavior and CSR principles. Botnia fell far short of the World Bank's social and environmental norms, as well as it legal obligations,” states Edgardo Moreyra, an Argentine local community stakeholder opposing the mill investment. Stakeholders criticize Erkki Varis' refusal to take the CAO audit into account and point to what they consider Botnia's biggest mistake, Varis' decision to continue building his mill when two heads of State asked him to refrain for only 90 days. “He only aggravated the situation by accelerating implementation. ENCE, the other mill that was constructing alongside Botnia, agreed to the 90-day truce, and has since relocated and is continuing unabated.” When asked if Botnia should be forced to pay relocation costs if the ICJ ruled against the project and ordered a dismantling, as it has already threatened it might do, Moreyra replied, “They deserve to take the loss, they went forward with a project knowing it was a serious risk, that it caused bilateral conflict, and that it was illegal. Botnia should pack its bags and go home, we don't want them here!”

CEDHA questions the role played by two key agencies that have helped minimize this risk, MIGA of the World Bank Group and Finnvera of the Finnish Government, both putting up substantial guarantee loans to Botnia, to lower the investment risk of the project so that shareholders of the other large private financial institutions like Calyon, Nordea, NIB and others can create a save investment climate, while on the ground, tensions and community opposition continue to rise.

Uruguayan environmental groups, which have remained publicly silent for most of the conflict, deterred by nationalist pressure to favor the investment, and silenced by Uruguayan media (unanimously defending the government position), have come out and joined forces with the Environmental Citizen's Assembly in Argentina, creating a cross-border collaborative partnership to oppose Botnia. They now publicly manifest their opposition to the greater implications of the pulp industry for the country's environment. “Botnia checkmates our sustainable development model, … and will result in water shortages, deterioration of our soil, while transferring ownership of our land to foreign interests.”

Erkki Varis, referred to as “the Blundering CEO” by one leading Environmental group in Argentina, convinced European investors to pump in more than US$1billion into the controversial project. Finnvera (the Finnish State Export Credit Agency) and the Nordic Investment Bank (a multilateral bank) both support the project with undisclosed sums. Meanwhile, the Finnish government closed complaints filed by stakeholders, claiming that Botnia, because it signs the Global Compact, a loose set of voluntary principles established by the United Nations, can be expected to invest responsibly.

Yet Botnia's headaches come from more than community groups. Today, 11 of its workers seriously injured last August following a lethal gaseous accident, and left alone to tend to the escalating medical problems they have faced since, held a press conference to protest against Botnia's refusal to provide medical assistance. A string of accidents in fact, are at the center of mounting concern over Botnia's operations in Uruguay from its own workers and allies, even government, and the mill has only just begun to operate. Rushed construction and lax security controls employed by Botnia in an effort to beat the ICJ ruling that is expected later this year, resulted in the death of one worker, amputations of limbs of others and several other serious injuries. Botnia refuses to assume any responsibility for the incidents.

Many are comparing Erkki Varis' and Botnia's corporate shrewdness and stubbornness which has caused grave, even deadly, accidents on the job, to Lee Iacocca's decision to ignore safety hazards in the design of one of the Ford Motor company's automobiles, despite knowing that death and severe injuries would occur; it was simply cheaper to pay for lawsuits, than save lives argued Iacocca. Varis' decision to ignore the presidential request to halt construction for a mere 90 days, and accelerate construction (with the human health and life and death implications this implied), came after Botnia's stock fell 9% in global markets after the then promising presidential agreement was announced.

Finnish companies operating in Latin America, like Nokia, are worried that Varis' culturally insensitive, head-stubborn management and profit over human safety, style are eating away at the Finnish image of being environmentally and socially friendly investors. Recently, Nokia's CEO had to face an angry mob complaining about Finnish investments, in front of Headquarters in Argentina, and hid behind one of his pregnant secretaries, fearing anti-Botnia protesters might harm him.

Marko Janhunen, Botnia's Communications Officer commented to an Argentine environmental group which had requested unsuccessfully to meet with Varis on one of his visits (he was too busy to meet with civil society, claimed Janhunen), “after this case, pulp mill investments around the world will never be the same”. That's what many pulp mill CEOs, competitors of Botnia, are probably grumbling about after Erkki Varis' and Botnia's disastrous investment venture into Latin America.

For More Information

jdtaillant@cedha.org.ar