Metsä-Botnia to build massive pulp factory in Uruguay

UPM to get majority ownership in subsidiary factory

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Metsä-Botnia, a company jointly owned by the forest industry companies UPM and the Metsäliitto Group, is to build a large pulp factory in Uruguay in Fray Bentos near the country’s with Argentina.
      The Board of Directors of Metsä-Botnia decided on the move on Monday.
      The factory is to cost EUR 830 million, and will be the biggest single direct Finnish investment abroad. It is also the largest industrial investment in Uruguay’s history.
      The factory will be run by Botnia SA, which has just been established in Uruguay. Its ownership base is slightly different from that of Metsä-Botnia. In Finland, Metsä-Botnia is part of the Metsäliitto Group, while UPM holds a 51% majority of the Uruguayan company, with Metsäliitto holding 47% of its shares.
      The reason for the complicated arrangement is that UPM needs Uruguayan pulp more than the other shareholders of Metsä-Botnia do.
     
Connected with the project are a number of internal ownership arrangements within the Metsäliitto group. The holding of M-Real in Metsä-Botnia is to be reduced to 39%, with Metsäliitto paying M-Real EUR 164 million for the shares.
      The reason for the arrangement is that the cash-strapped M-Real cannot afford to participate in the Uruguay project, and it also does not have as much of a need for South American pulp as UPM does.
     
The Uruguay factory is scheduled to begin operations in the autumn of 2007. It is to have an output capacity of one million tonnes of short-fibre eucalyptus pulp a year, with 70% of the output to be used by the owner, while the rest is to be sold on the open market.
      Metsä-Botnia’s CEO Erkki Varis expects the factory to be very competitive, with estimated production costs of about half of those of modern Finnish pulp factories. The facility will provide jobs for about 300 people.
      The factory will require 3.5 million cubic metres of wood a year. Nearly two thirds of the raw material will come from the company’s own land, while the rest will be bought from private forest owners, foundations, and cooperatives.
      Botnia SA has 90,000 hectares of land, two thirds of which comprise forest plantations, and the rest is grazing land for approximately 15,000 head of cattle.
      The tree plantations have been given the FSC environmental certificate for good forestry practices.
     
Uruguay, with a population of over three million, is led by leftist President Tabare Vasquez.
      Although many Western investors tend to shun countries with leftist governments, Varis sees Uruguay as a politically stable nation. He notes that the Nordic welfare state model was originally copied from Uruguay.
      The factory project is not getting any direct state subsidies, but the Uruguayan government is supporting the project indirectly. The factory is going up in a free trade area, which means that the company does not have to pay high import tariffs for the equipment, most of which will come from Finland and Sweden.


Links:
  Metsäliitto press release 7.3.2005: Botnia to build a pulp mill in Uruguay
  WWF on FSC certification

Helsingin Sanomat