URUGUAY: New Report May Show Way Ahead in Paper Mill Dispute

A report from an unexpected quarter, the World Bank, has set forth a number of recommendations to mitigate the environmental impact of two paper pulp factories being built in Uruguay on a river that separates the country from Argentina.

The study commissioned by the International Finance Corporation (IFC), a member of the World Bank Group, will serve as a basis for decisions on financing for the plants, which are at the centre of a heated dispute between the two South American countries.

The report carried out by two independent Canadian environmental experts, which was publicly released on Wednesday, suggests a number of corrections needed in earlier environmental impact studies.

Wayne Dwernychuk and Neil McCubbin with Hatfield Consultants Ltd., a Canadian firm, reviewed the reports which were presented by the two companies building the pulp mills - Botnia from Finland and ENCE from Spain - and had been accepted by the Uruguayan government.

They also analysed a draft Cumulative Impact Study (CIS) that the IFC itself commissioned and made available to the public as part of a consultation process in December 2005.

If the IFC accepts the observations by the two experts as a condition for approving the credits and insurance sought by the two companies, it would have to make corrections in the final version of the CIS. In addition, Botnia and ENCE would have to adjust their plans for the factories, which could modify the timeframes involved.

And Uruguay's leftist government, which is still digesting the contents of the IFC review, would have to alter its environmental requirements.

The IFC stated that it was involved in talks with the companies and would soon announce a detailed plan of action to address the recommendations handed down by the panel of two experts.

The IFC is deciding whether to finance part of the cost of building the plants, which will involve a combined total investment of 1.8 billion dollars - the biggest-ever industrial investment in Uruguayan history.

At the same time, the Multilateral Investment Guarantee Agency (MIGA), which also forms part of the World Bank Group, is evaluating whether to provide political risk insurance to investors in the Botnia plant.

"Neither IFC nor MIGA will make a decision on whether to proceed with funding until the revision of the Cumulative Impact Study is completed," added the IFC.

The review by Dwernychuk and McCubbin was not only received well by the two governments involved in the nearly three-year conflict, but also by environmentalists in Uruguay.

It is "infinitely more serious" than the CIS commissioned by the IFC and the environmental impact studies presented by the two companies, activist Ricardo Carrere of the World Rainforest Movement and the Guayubira environmental group told IPS.

The two Canadian experts reviewed all of the available documents, as well as comments and criticisms from the Argentine government, local citizens, activists and scientists from Uruguay and Argentina, and representatives of the Citizen Environmental Assembly of Gualeguaychú, the Argentine town that has led the resistance to the factories.

Gualeguaychú is located not far from the Uruguay River, where the two plants are under construction, and local residents there are concerned about the threat of water and air pollution and the impact on tourism, fishing and the landscape.

In their review, the experts state that "Assertions that the CIS, Botnia and CMB (Celulosas de M'Bopicuá - the ENCE project) have not provided sufficient information on the proposed design, operating procedures and environmental monitoring for the mills are generally valid."

But, they add, "Comments expressing concern that the mills will cause catastrophic environmental damage are unsupported, unreasonable and ignore the experience in many other modern bleached kraft pulp mills."

The review does not question the location of the two plants, which are being built near each other, on the banks of the Uruguay River. Residents of Gualeguaychú and other activists have been demanding that the factories be relocated.

Nor do the experts question the use of elemental chlorine free (ECF) technology to bleach the paper pulp. "Comments asserting that only a totally chlorine free (TCF) bleaching process is acceptable are unsupported, either by their authors, or by current scientific knowledge," the authors maintain.

However, "There are some environmental advantages in the TCF process, some of which can be attained if the mill design is modified to an 'ECF-light' version where the quantity of chlorine dioxide used is relatively low, or the alkaline bleach plant effluent is recycled to the mill's chemical recovery system."

But they criticise the CIS for failing "to provide a solid justification for the ECF approach versus the TCF option. Botnia has extensive experience with TCF, having built (in 1995) and operated the only mill in the world designed to produce only TCF pulp.. There is other experience with TCF production available" as well, they add.

The ECF/TCF debate is a touchy aspect, because chlorine-based bleaching processes produce highly toxic organochlorines like dioxins and furans, which can cause birth defects and cancer.

"The reference to dioxins/furans in mill discharges appears to be handled in a rather cavalier manner," say the experts. "These compounds are of significant concern to the general public, and should be discussed fully. Setting the issue aside by concluding that dioxins/furans will be at 'undetectable levels' is unacceptable."

The CIS stated that "'full replacement of elemental chlorine by chlorine dioxide results in the decrease of dioxins and furans in the effluent to undetectable levels'. This statement may be true depending on the level of detection being used," say Dwernychuk and McCubbin.

But "There is no indication in the document as to what the level of detection is in relation to this statement - is it parts per million (ppm), parts per trillion (ppt), or parts per quadrillion (ppq)."

They thus recommend that the final version of the CIS clarify what units are referred to, and that it provide proof that dioxins/furans will indeed be at "undetectable levels".

Botnia, ENCE and the Uruguayan government have given their assurances that the two factories will comply with the "Best Available Techniques" (BAT).

"However," say the Canadian experts, "there is a lack of supporting information in their documents to show that the mills would actually use BAT in all aspects of their design and operations." In their comparison of 24 aspects of BAT with the available mill design data, they found that the Botnia and ENCE projects only comply with five.

Furthermore, they add, "There is no complete listing of discharges to the natural environment in the vicinity of the mills," and "There does not appear to have been any independent review of the estimates of pollutant discharges presented by the companies.."

After reviewing the main weaknesses of the three studies, Dwernychuk and McCubbin set forth 70 critical recommendations, involving both the construction and operational phases of the plants.

They call for biological, chemical and physical field studies, as well as continuous monitoring of effluents.

Carrere said the report demonstrates that in many cases, the authors of the previous studies "did not know what they were talking about" when they said the factories would have virtually no impact.

In his view, the World Bank is moving carefully on the question of financing the plants because of the conflict between Argentina and Uruguay that has dragged on for nearly three years.

"MIGA cannot provide political risk insurance to investors when two countries are in dispute" and in the midst of a conflict that has had major international repercussions which could hurt the World Bank's prestige, said the activist.

Behind the scenes negotiations between the two governments were cut short last week just when they were on the verge of reaching an agreement, and the conflict began to escalate once again.

Argentina complains that when Uruguay authorised construction of the plants, it failed to consult the binational commission that governs the Uruguay River, thus violating a treaty between the two countries. The Argentine administration has announced that it will file a complaint with the International Court of Justice in The Hague.

At the same time, activists in Argentina reactivated the roadblocks on two bridges connecting the two countries over the Uruguay River, a measure that they had kept in place for 45 days during the southern hemisphere summer, dealing a heavy blow to Uruguay's tourism industry.

For its part, the Uruguayan government has complained that the traffic blockades are illegal, and plans to turn to The Hague or to regional dispute settlement mechanisms.

The Argentine press reported Tuesday that the Dutch ING bank had decided not to consider a loan to Botnia for the construction of its factory in Uruguay.

"Anything that would improve quality and controls is welcomed by the Uruguayan government," a source close to the executive branch told IPS.

The source said the review by Dwernychuk and McCubbin is favourable to Montevideo in three key aspects: it gives a green light to construction of the two plants, to the use of ECF technology, and to the present location of the two factories.

The cost of fulfilling the authors' recommendations would be equivalent to one percent of the total investment, added the source, who preferred to remain anonymous.

A Botnia official, meanwhile, commented to IPS that the company had received the report on Monday and that it was not yet ready to make a public statement.

The Argentine Foreign Ministry warmly welcomed the report, because it addresses a large part of the demands voiced by the Argentine government.

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