Stora Enso’s jackpot

João Alves da Silva Nato

Yeda Crusius

Janaina Stronzake

Nils Grafström

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By Jaakko Lyytinen and Tommi Nieminen
     
      It’s a familiar sight. Forest giant Stora Enso’s CEO Jouko Karvinen talking with a sour look on his face about the closure of factories and paper machines in Finland.
      Karvinen’s most recent list of shutdowns: Kotka, Imatra, Varkaus. People are also leaving from Kemi.
      In the past five years Stora Enso has invested a billion euros in Finland, and about three billion abroad. The news about Stora Enso’s conquest of Brazil involves two different stories. The first is about massive profits, and the second involves some rather astounding accusations made by Brazilians against Stora Enso.
      In July, João Alves da Silva Neto, the public prosecutor of the city of Eunápolis, introduced several charges against Veracel, a company which is half-owned by Stora Enso.
      “The crimes are very, very serious”, Silva Neto says over the telephone. “There is money laundering. There is, for example, the illegal expansion of eucalyptus plantations, changing boundaries, and forging documents.”
     
Companies owned by Stora Enso in Brazil have also been criticised for making generous donations to political candidates, causing environmental destruction, and involvement in massive land disputes.
      The company’s reputation has suffered, with repercussions extending all the way to Finland.
      “It is our own fault, because we have not managed to tell the Finns and the Swedes what all we are really doing in Brazil?” Nils Grafström, Stora Enso’s Swedish director of Latin American operations says with a sigh.
     So what is Stora Enso actually doing in Brazil?
     
Stora Enso was born in 1998 when the Swedish Stora and the Finnish Enso merged. Now the Finnish state is the biggest owner of the forest giant, with a 12.3 per cent holding. Stora was already in Brazil when it merged with Enso. Stora had just bought part of the Brazilian pulp manufacturer Veracruz, which has a questionable reputation in felling rain forests.
      The name of the company was changed to Veracel Celulose. Nowadays Veracel is owned half by Stora Enso, and half by the Brazilian company Aracruz.
      In the early part of the decade Stora Enso and Aracruz decided to build the world’s most productive pulp mill in Eunápolis in the state of Bahia. The enthusiasm was not dampened by the fact that the Norwegian-Brazilian partner Aracruz had a fairly poor reputation. The parliament of the state of Espirito Santo had actually set up a separate commission to investigate the company’s wrongdoings.
      “One might ask why Stora Enso became a partner of such a company”, says Markus Kröger, a researcher preparing a doctoral thesis about Brazil’s land reform.
      The world’s most productive pulp mill was completed in Eunápolis in 2005. Veracel’s pulp line started grinding eucalyptus into about a million tonnes of raw material for paper every year.
     
The Eunápolis mill was a money machine for Stora Enso. A real Brazilian jackpot.
      In Brazil, an eucalyptus grows to harvest size in seven years. This is ten times as fast as the wood used for pulp that grows in the north of Finland, for instance. Labour is also cheap. In addition, the eucalyptus plantations are right next to the pulp mill, so transport costs are low.
      In 2008 the Veracel mill made EUR 123 million In profits, before interest, write-offs, and taxes. This was an astounding 43 per cent of the EUR 238 million turnover of Veracel.
     No wonder the company has been systematically marching onto the Brazilian market. In August 2006 Stora Enso, in cooperation with the Chilean Arauco bought South America’s only magazine paper factory, a sawmill, and 30,000 hectares of cultivated wood in the state of Paraná.
     At the beginning of this year, Stora Enso tried to buy the Veracel pulp company for itself, when Aracruz had managed to sustain nearly EUR 3 billion in losses on the currency market, and ended up with problems on its hands. Finally the Brazilian giant Votorantim bought Aracruz and got half of Veracel.
     
Stora Enso’s gold nugget, the Eunápolis pulp mill, is at the centre of the disputes. According to local civic groups, the city of Eunápolis, which has 100,000 inhabitants, is sinking into poverty, even though Veracel pays plenty of taxes. When farmland was filled with eucalyptus trees, some farmers have had to move to the slums on the outskirts of town. Veracel owns a total of 91,000 hectares of eucalyptus plantation land in South Bahia, which corresponds to the combined surface area of Helsinki, Espoo, Vantaa, and Riihimäki.
     “The slums have grown, insecurity increased, local business is not flourishing, and housing prices have exploded since the pulp boom came. But there is not much work for the local people”, Kröger says.
     
Veracel and its owners naturally disagree about the employment issue. They say that the company employs about 3,800 people, directly and indirectly. Veracel’s employees have fairly good labour contracts, by local standards. Their basic salary is about 3,300 reals (EUR 1,300), which is about 20 percent more than the average wage in the sector in the poor state of Bahia. There are also health benefits, food, and transport to work.
     “Promises of thousands of jobs from Veracel have not been realised. In 2006 the company directly employed just 741 people, which amounts to one employee per 103 hectares of eucalyptus”, says Winfred Overbeek of the local civic organisation CEPEDES.
     
Brazil’s unruly NGOs have been a considerable nuisance to Stora Enso. The company, which puts a great emphasis on its corporate responsibility, has also been called to account for Veracel’s past crimes.
      Already in 1993 Greenpeace, SOS Mata Atlântica, CDDH-Teixeira de Freitas, and CEPEDES launched a lawsuit against Veracruz - today’s Veracel. The company was accused of felling 64 hectares of rain forest without permission. The charges were mulled over in a low Brazilian court for 15 years.
      Last year, judge Marko Mafra Leal ordered Veracel to pay a fine of 20 million reals (about EUR 8 million), and ordered the company to clear 47,000 hectares of its eucalyptus plantations, and replant them with species native to the rain forest.
     
The ruling was harsh: 47,000 hectares is the combined surface area of the cities of Helsinki and Vantaa. If the ruling is upheld, Veracel will suffer significant economic hardship.
     “We feel that the decision is completely disproportionate in every sense. Veracel has naturally appealed the decision, and its implementation has been postponed”, says Nils Grafström of Stora Enso.
     “In Finland and Sweden I often run into the view that we are felling rain forest in Brazil. There are no rain forests in the area where Veracel operates. There isn’t even a need to cut rain forests, as only four or five per cent of the rain forests of South Bahia are left.”
      This is actually true. The lion’s share of the rain forests of South Bahia were cut down already in the 1960s and 1970s, well before the Scandinavians came to share the bounty. Now only five per cent of the rain forests that existed in 1945 are left. But the civic organisations are blaming Veracel for the fact that it is not possible to plant new, revived rain forest on its plantations, and that eucalyptus has been planted in land which actually belongs to the Bataxo indigenous people native to South Bahia.
      “Brazil’s land ownership system is very complicated”, Grafström says. “We have been very careful not to buy land that can be said to belong to the Indians. I know that South Bahia is an area that is a question mark. A piece of land can be seen to belong to the Indians. We need to find that out.”
     
The attraction of Brazil encouraged Stora Enso to embark on new land deals in the autumn of 2005. The company said that it would buy land for eucalyptus plantations in the southern border state of Rio Grande do Sul.
      In the autumn of 2005 Brazil certainly looked especially attractive. Finland had gone through a wrenching labour dispute in its paper industry, where forest companies responded to a strike by imposing a lockout. The dispute weakened Stora Enso’s second quarter result in 2005 by EUR 150 million. It meant a shrinking of business profit by EUR 3 million a day.
      On the edge of Helsinki’s Market Square, in the head offices of Stora Enso, a building designed by Alvar Aalto, people were more convinced than ever that investment abroad was what was needed.
     When the managers of Stora Enso compared the prices of a tonne of pulp, the risks inherent to the country, and possible land areas to be purchased, Brazil was in a class of its own. China, Indonesia, and Argentina were all left behind.
     Brazil had become a stable democracy, where inflation was under control. Foreign investors were welcome, or at least that is what Stora Enso thought.
     
Initially, Stora Enso was planning a wood plantation of 100,000 hectares in both the south of Brazil and in Uruguay. The land that had been bought in Rio Grande do Sul was excellent in every way for plantations: even and fertile, with sufficient rain and plenty of ground water. Stora Enso says that the land was bought from private landowners, who had been using the land mainly for grazing cattle and growing crops.
      But there was a big problem. The land was in the wrong place. Under Brazilian law, a foreign company cannot own land closer than 150 km. to a national border, unless the country’s Security Council grants special dispensation.
      As Rio Grande do Sul has a long border with both Argentina and Uruguay, nearly half of the surface area of the state falls within this border zone.
      Beacuse of the law, Stora Enso could not buy the land in its own name. That is why the Brazilian-registered Azenglever Agropecuária Ltd. was named as its owner. According to Brazil’s trade registry, the company was owned by two of Stora Enso’s Brazilian managers, Otávio Pontes and João Borges. The two became the biggest single landowners of the whole state.
     
The arrangement was supposed to have been temporary. Once the Security Council approved Stora Enso’s application, the Azenglever land was to have been transferred to the ownership of Stora Enso. However, Incra, the Brazilian office which deals with land issues, smelled a rat. It considered Azenglever to be a proxy, allowing Stora Enso to circumvent the law.
      The legal process was stretched out. The national security council granted Stora Enso the right to use land in the border zone just a couple of weeks ago.
      But the company did not wait idly for the licence. Sotra Enso, or Azenglever, which was operating in its name, had started to plant its trees in the area soon after the land acquisition had taken place. Nearly half of the 45,000 hectares owned by Stora Enso in Rio Grande do Sul are now plantations. Planting started so that the farmers would not move into the area, Grafström says.
      “We had to prove that the land is productive. That is why we planted eucalyptus.”
     
Activists reacted before the dust had settled. In March 2008 about 900 activists of the small farmers’ organisation Via Campesina, and the farm workers’ MST movement entered the company’s plantation in the border zone of Rio Grande do Sul. Most of them were women. They cut saplings of the eucalyptus, planting food crops in their place.
      The women accused Stora Enso of violating Brazil’s land ownership law, of destroying nature, and stealing land.
      What had begun as a peaceful demonstration turned bloody. State security forces, the Brigada Militar, arrested hundreds of women, and more than 50 people were hospitalised. According to the demonstrators, the security forces beat them with clubs and fired rubber bullets at them. Stora Enso denies that it sent the police to attack the demonstrators, and deplored the violence that took place.
     
The clash made headlines in Finland as well. However, Stora Enso says that the reporting was slanted. The occupiers were portrayed as innocent victims, even though a police report received by Kaisa Tarna-Man, the Stora Enso director for corporate responsibility in Latin America, said that the women had first hit a police officer in the hand with a sickle while the officer was protecting his head.
      One of the participants in the action, 32-year-old history teacher Janaina Stronzake from Porto Alegre, accuses Stora Enso of a number of violations.
      “Stora Enso is breaking the law on buying land in border areas. In addition, its eucalyptus plantations are leading to monoculture, which causes ground water to dry up and become polluted. It may not be against the law, but it is a crime against humanity”, Stornzake says on the telephone.
      In her state, Stronzake is a leading figure of MST, an organisation of 1.5 million members. It is one of the strongest civic organisations on the continent. Its goal is to establish more just land ownership in an area where three per cent of the population own two thirds of the land.
     
MST is a serious problem for Stora Enso. Last July the company’s corporate responsibility director Eija Pitkänen invited representatives of MST to a discussion held in São Paulo. Stora Enso taped the event, at the end of which João Paolo Rodriguez, who represented MST and Via Campesina at the event declared: “MST will not start any kind of a dialogue with Stora Enso unless Stora Enso stops or freezes its project in Rio Grande do Sul. If Stora Enso continues its project, MST will provoke more conflicts, violence, and even deaths, which will cause negative publicity for the company around the world.”
     
But what is MST’s version of the dispute? It feels that it has become the victim of outright persecution in Rio Grande do Sul. Janaina Stronzake blames the state’s governor Yeda Crusius.
      “Crusius uses the police and the courts in every way to harass the NGOs”, she says.
      Now the news is that the measures that are being taken are growing in severity. Two weeks ago, state security forces shot an MST activist by the name of Elton Brum in the city of São Gabriel.
     
Yeda Crusius, who was elected Governor of Rio Grande do Sul in October 2006 is a familiar figure for Stora Enso as well.
      The former economics professor, a Social Democrat, promised to fix the state’s budget deficit with the help of a tight economic programme.
      The programme initiated by Crusius, who is seen as an iron lady, was a success. The state, which is nearly the size of Finland, and which has 11 million inhabitants, attracted nearly four million US dollars in investments in2007. Investors included large companies such as General Motors, Wal-Mart - and Stora Enso.
     
Stora Enso has also invested in Brazilian politics. The company says in its corporate responsibility report that it paid more than a million real - about EUR 365,000 - in election contributions. Donations took place at all political levels - campaigns for the president, governors, and state and federal representatives, and senators.
      In the elections for governor of Rio Grande do Sul, Stora Enso gave 25,00 real - more than EUR 10,000 - to both Crusius and her opponent Olivio Dutra. The contribution by Stora Enso’s partner Aracruz to Crusius was greater - more than 280,000 real, or EUR 114,000 at today’s exchange rate.
     
Stora Enso’s Grafström says that corporate donations are the local custom in Brazil. “There is very little public funding available for campaigns. The democratic system is dependent on private funding, just as it is in the United States. Donations are legally regulated, and they need to be made public.”
      Janiana Stronzake of MST says that money brings favours. She says that Governor Crusius has promoted Stora Enso’s interests by increasing the proportion of eucalyptus plantations, at the expense of food production in the state’s land use regulations.
      Nils Grafström denies the claim. He says that Stora Enso’s own environmental standards are so tough that they place greater restrictions on plantations than the state’s regulations ever could.
      Governor Crusius also disputes MST’s claims. Crusius told Helsingin Sanomat that neither Stora Enso nor Aracruz have expressed any wishes of a quid pro quo for the campaign funding. The governor supports reducing the width of the border to 50 kilometres at least, and considers Stora Enso’s investments to be important for the state’s economy.
     
And what about the claims of sending the police on a rampage against MST?
     “The accusations are ridiculous. My orders to the security police have always been, and continue to be the opposite of what MST claims they are. MST is no longer a social movement. It has become a political movement”, Crusius says in an e-mail message.
     In any case, the claims of linkages between campaign donations and favours are so awkward for Stora Enso that in November 2007 the company said that it would stop donating money to politicians. Under the new rules, support can be paid only in special cases with the specific authorisation of the company’s CEO.
     
Stora Enso’s real judgement day might still be ahead. In July, João Alves da Silva Neto, the public prosecutor of the city of Eunápolis, accused Veracel of bribing municipal politicians in 2006.
     Politicians were induced to vote against proposed legislation which would have made it illegal to keep eucalyptus plantations within ten kilometres of the city.
     Silva Neto says that the most important corrupt politician was Junior Bahia, a member of the city council, representing the PPS party. Also voting against the measure were Claudionor Nunes, Carmen Lucia and Ubaldo Suzart, all of whom Silva Neto is accusing of corruption. Council member Moacyr Almeida Silva has testified to the prosecutor that Veracel offered him money for the election of the mayor if he would vote against the measure. According to Silva, an event took place in Junior Bahia’s home in which representatnves of Veracel met Bahia, Nunes, Suzart and Lucia.
     
“It is certain that most of the members of the city council voted [against the bill] just as Veracel wanted, and they had previously promised to vote in favour of it”, Silva Neto says. “Only four members did not join the company’s game.
     
The law was not passed, as Veracel hoped it would not. It is still legal to cultivate eucalyptus in Eunápolis right on the edge of the city.
     
Money laundering is another serious accusation put forward by Silva Neto against Veracel. The company allegedly laundered money through its Multiplus restaurant business. Its former auditor Roque Souza has testified that he was forced to circulate 130,00 real (EUR 52,700) in illegal election money through a bank account. The money was allegedly cancelled to a local politician known to be subservient to Veracel.
      “According to Souza he had been forced to open a bank account in his own name. It is from there that the money was re-circulated. Souza says that 130,000 real was collected through overpricing and overstating bills.”
     Silva Neto says that the money was distributed to politicians in exchange for favours supporting the interests of Veracel. “The spirit of corruption hovers over this case.”
     
Is this just bribery, or is it money laundering as well?
     “Yes, it is money laundering.”
     “We have proof that Veracel has exceeded the limits. They are complete outlaws”, the prosecutor says.
     “They sell the products of crime to international buyers. International companies buy wood from them as if its certificates of origin were in order. But they are not.”
     Do you believe that Veracel’s mother company Stora Enso approves of the state of affairs?
      “Stora Enso is certainly monitoring the situation”, Silva Neto says. “These facts are public on the international level. I don’t know if they approve of it, but they cannot be ignorant. It is certain that for them, Veracel is a very useful company, which represents their interests.”
     
Stora Enso’s Nils Grafström heaves a deep sigh. He says that the accusations are “completely without foundation”.
      “From the very beginning we have had the same standards here in Brazil as we have had in Finland and Sweden. I have never come across bribery in Veracel, and not even anyone who would have asked for a bribe. We have very strict rules in the company.”
     So are Silva Neto’s accusations politically motivated?”
      “I cannot answer that, because I don’t know.”
      Next, a court in Bahia will decide if a trial should begin against Veracel. It would be very awkward for Stora Enso, as the company already has had headaches over the aftermath of last year’s severe judgement against Veracel. If the Brazilian money machine were to start coughing, the entire Finnish-Swedish forest giant would also catch the cough.
     
The closure of Stora Enso mills in Finland has sparked severe resistance, including civil activism. Investments have been moved to other countries, but even that has not gone without some pain. Last spring Helsingin Sanomat said that local farmers were angered by Stora Enso’s massive plantations in the south of China, where the company has cleared away local farmland to make room for eucalyptus trees.
      The difficulty in Brazil involves a much wider problem. How did Nils Grafström put it? Stora Enso should first have told the Finns and Swedes all of the things that the company is doing in Brazil.
      It is making huge amounts of money, in any case. But at what price? A listed company can lose its reputation only once.
     
Helsingin Sanomat / First published in print 30.8.2009


Previously in HS International Edition:
  Chinese farmers lose land to Stora Enso tree plantations (26.4.2009)
  Chinese lawyer investigating Stora Enso land dispute still faces threats (15.6.2009)
  Stora Enso plans massive new pulp mill investment - in Uruguay (19.5.2009)
  Stora Enso to investigate land use dispute over tree plantations in China (28.4.2009)

JAAKKO LYYTINEN AND TOMMI NIEMINEN / Helsingin Sanomat
jaakko.lyytinen@hs.fi, tommi.nieminen@hs.fi