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- Paper Pulp Mills - Uruguay
- Corporate Accountability and Human Rights
- Climate Change and Human Rights
Botnia Pulp Mill Conflict
Uruguay and Argentina Agree to Put Relocation of Mill on the Negotiations Table
Botnia Faces Possible Collapse of Investment
April 20, 2007 – Madrid Spain . To the surprise of all onlookers of the escalating Finnish pulp mill crisis in Uruguay , and a great blow to the Finnish pulp mill company, Metsa Botnia , Argentina and Uruguay signed a joint declaration today in Madrid , in which the “relocation” of the controversial pulp mill plant, is squarely on the negotiating table. This marks a huge victory for local stakeholders, and for Argentina , which have thus far been unable to get pro-mill proponents to consider whether they've simply made an unequivocally poor siting choice.
The bilateral document signed today by Uruguay and Argentina 's highest foreign ministry authorities, marks a great setback to the Finnish Metsa Botnia, owner of the mill, which has thus refused to even consider discussing the issue of relocation. Instead, since the conflict began to gain attention locally and then internationally, Metsa Botnia actually accelerated its construction schedule during the height of the escalation of the bilateral dispute, in hopes that relocation would have to be discarded given that the mill construction was too far along to consider alternative sites.
Ironically, and in retrospect a great oversite of the pulp mill company, Argentina had offered to pay for costs of relocation when it was still a feasible option for Botnia, but Botnia's Helsinki-based CEO, Erkki Varis, ignored the option. Today, they may have to foot the entire bill, or take losses and walk away, if relocation discussion prevail.
The high risk strategy chosen by Botnia to plow forth with its siting choice, convinced financial backers of the investment with consultant reports from the pulp industry, that the project was environmentally sound and that it should go forward. Amongst those convinced were the World Bank, Calyon, Finnvera, Nordea and the Nordic Investment Bank, who have thus far been led by Botnia's to believe that their investment project, the largest pulp mill ever projected in Latin America, is safe, and that the dispute would be overcome. These arguments failed, however, to address social license , a growing concept and concern of financial institutions like the World Bank, that understand that local communities must give local license to operate to sensitive industrial investments.
The problem for Metsa Botnia, despite the green bill of health for its mill in Uruguay from the industrial and financial proponents is that the local dispute has not gone away and has actually been getting steadily worse. Over 15 claims have been filed internationally against the project, an International Court of Justice case brought by Argentina against Uruguay is to be decided no sooner than late 2008, and criminal complaint charges filed in local courts even implicate the World Bank's Board of Directors, who for the first time have been dragged into a criminal complaint proceeding based on a controversial financial investment decision.
This conflict comes at a bad time for the World Bank, whose chief executive Paul Wolfowitz is under the gun for muscling through loans at the Bank's Board of Directors, despite existing institutional concerns over project soundness. Wolfowitz and his close advisors were key in getting the project through a difficult board vote, with legal counsel doubts and several Bank Executive Directors showing concern over project non-compliance with the World Bank's social and environmental safeguards, particularly with regards to social license and compliance with international law.
ING Group of Netherlands , a private financial bank, heeded the warnings of a World Bank audit against the investment, and pulled US$480 million from the project early on, when local groups and stakeholders filed an Equator Principles Compliance Complaint against the Dutch bank for its support to Botnia based on the World Bank's own findings against the project. The IFC, the World Bank's private sector lending arm, overlooked the escalating local dispute caused by the project, and ignored the scathing audit filed by its own control agency for policy violations, and was key for Metsa Botnia to gain other financial backers to enter the investment back in November of 2006.
The Argentine-Uruguayan document signed today marks an important milestone in the evolving conflict, as it places the investment, conservatively estimated to have passed the 500 million dollar mark, to date, at great risk. Further, the agreement brings to the negotiation table, the border dispute presently on trial at the International Court of Justice, namely the possible violation of the Uruguay River Treaty, which implies for Botnia, that the discussions could also turn to focus on the very legality of the project, which would further undermine its investment at the present site, something the legal team at the World Bank has highlighted as a risk of the project. The world court has already ruled that it could order the dismantling of the project if it is found to be in violation of the Uruguay River Treaty.
Botnia's mill is 95% complete according to Erkki Varis, CEO of the Finnish pulp mill company, who for the first time confessed a few days ago to Argentine press, that Uruguay never asked Botnia to cease construction when the Argentine and Uruguayan presidents had reached a preliminary agreement in march of 2006 to resolve the dispute. His claim that he would have considered it seriously surprised Uruguay , who rebutted that Varis' statement is untrue. Strains are showing between Botnia and its host government. Botnia now must face bilateral government negotiations it cannot control and which may lead to forcing its relocation, which may be the kiss of death to the investment, despite the fact that its mill is nearly all built and set to start operating this year!
Metsa Botnia is showing that its first-ever investment beyond Finnish borders, the largest Finnish foreign direct investment ever, valued at US$1.2 billion, is riddled with inexperience and failure to adapt to local culture and politics, a hard lesson to learn with so much already invested and at stake. Botnia's inexperience has caused financial, political and social instability in the region, a destabilizing consequence seldom seen in international development finance. Generally, conflict is from local stakeholders who might oppose industrial development which is risky to the environment, but rarely two neighboring countries going at it over a private border investment project. It is unknown how long Argentina and especially Uruguay will be willing to let a foreign company come between good neighborly relations. The level of conflict is already unprecedented. The growing rift between Uruguay and Botnia, may be suggesting that the tolerance and support Uruguay has given to Botnia, is diminishing.
Midstream into the conflict, Botnia hired new communication staff to address communication failures of their billion dollar investment. They've since recognized that they failed to get local stakeholders in Argentina , well within the impact zone of their project, on board, and that this is at the heart of their problem. Yet staff hired in July of last year to correct the problem has not attempted to bridge communication gaps with local stakeholder groups and has instead focused on the easier task of building support in Uruguay . An earlier World Bank audit which looked into the IFC financed investment, found the project had left out local concerns in Argentina , and legitimized local communities as having a legitimate and rational voice. This infuriated Botnia and the IFC and gave local stakeholders strong leverage to file successful international complaints against the investment, which had monumental results such as the US $480 million pull out by ING. Botnia ignored the findings when it was still in time to do something about them, preferring to focus on the eventual results of environmental studies carried out by World Bank consultants which as most expected, sided with Botnia. The feud however, continued and continues.
The news of the Argentine-Uruguayan bilateral negotiations document presents serious complications for Metsa Botnia, which hopes to become one of world's largest pulp mill companies. It also comes at a sensitive time for the Finnish pulp mill industry, which is slowly exporting itself abroad. The industry was recently shaken by news published in the Financial Times, indicating that Russia expected to raise the price of timber exports destined to Finnish paper pulp mills, sending shivers through the pulp sector, as Finnish pulp competitiveness would surly decline as a result. If Botnia relocation discussions move forward, this would be another huge blow to the industry. The Finnish government, clearly concerned over a possible domino effect to the industry, has come out strongly in favor of the Botnia project and shown support through its export credit agency Finnvera as well as a multi-nordic-country public loan of US$70 million through the Nordic Investment Bank. Finland dismissed claims by local communities against Botnia alluding to the fact that Botnia is signatory to the Global Compact, a non-binding set of voluntary corporate social responsibility commitments, as proof that Botnia is a respectable company that abides by international law.
The Argentine-Uruguayan conflict now takes a turn for the worse for the Finnish company, which finds itself having accelerated construction of a mega mill, when it should have perhaps considered moving it only a few kilometers away, as the other mill, the Spanish ENCE did, to avoid local opposition and create a better investment climate. Instead, the social environmental movement that has risen against Metsa Botnia has registered world-record breaking levels. Recent marches included a 120,000 person peaceful demonstration, which set a world record for local community opposition to an industrial investment. An international roadblock then went up on the Argentine-Uruguayan border, in November 2006 just across from the ill-chosen Botnia site, and remains to date, blocking traffic between the countries.
Botnia has indicated that it is now willing to help Argentina and Uruguay resolve their international dispute, ironically, caused by Botnia's unwillingness earlier to help the countries get over their differences over the mill location. Today, the discussions are turning dangerously in the wrong direction for Botnia, as relocation discussions may spoil their largest industrial investment ever. Botnia has offered no public answers about what it might do if forced to relocate. It is speculated, though, that if it came down to it, Botnia might have to leave Uruguay .
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