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Uruguay Mills:  What Now?

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CHRONICLE SPECIAL
Latin America Advisor

Two World Bank agencies (recently) released a study they said shows that two proposed controversial pulp mill projects in Uruguay meet their environmental standards, paving the way for loans for the projects. Do you think construction of the mills, to be built along Uruguay's border with Argentina, will go forward? Do you expect further action by Argentina's government, which has raised objections on environmental grounds?

Arturo Porzecanski, Scholar of International Finance at American University:  Since the report gives the pulp projects as clean a bill of health as possible, construction of the mills will resume or go forward— depending on the project—in 2007.The Finnish firm Botnia is likely to restart construction after it obtains financial support from the IFC and MIGA in the wake of the favorable environmental report. The Spanish firm Ence, which has decided to relocate its project within the general area, is running behind because it must still present updated construction and business plans. As concerns the attitude of the Argentine government, the indications are that, in light of two major defeats (first in the Hague, and now in Washington), the Kirchner administration is starting to rethink its opposition. While the federal and provincial authorities may not be willing to forcibly clear the protesters from the roads and bridges leading to Uruguay, at least they are no longer egging them on."

Thomas O'Keefe, President of Mercosur Consulting Group, Ltd.: The Kirchner administration will continue to exploit the controversy over building the two pulp mills in Uruguay in order to shore up its environmental credentials in anticipation of the Argentine presidential elections late next year. Even so, regardless of what the World Bank study indicates, the fact remains that environmental groups in both Argentina and Uruguay have provided credible analyses indicating that both mills will have a serious deterimental impact on river life and will contaminate the nearby air in both countries. This case provides a classic development conundrum that has gotten the World Bank into trouble in the past.Namely, does the economic gain for Uruguay in terms of new jobs and tax revenue outweigh the environmental damage?

Jorge Daniel Taillant, Executive Director of the Center for Human Rights and Environment in Argentina: ... The IFC, the World Bank's private-sector arm, is considering providing financing to the mills, unleashing what has been the world's largest recorded environmental march, bringing 120,000 people to an international bridge in opposition to a private industrial venture. Argentina has taken Uruguay to the International Court of Justice in an unprecedented move to involve an international tribunal to rule on a World Bank-sponsored project. The Inter-American Commission on Human Rights, meanwhile, has received a complaint by Argentine citizens, claiming that Uruguay, by promoting this investment, is violating their human rights, including the right to a healthy environment, enshrined in the San Salvador Protocol. Local stakeholders are sending a clear message to international financial actors that there is no social license or support for these projects, a position countered by many Uruguayan pro-mill stakeholders that see the pulp mill investments as a key way out of persistent recession. The case involves alleged violations of the IFC's and World Bank's own social and environmental safeguards, which have been sustained by the IFC's independent compliance advisory ombudsman, which resulted in ING Group (a Dutch bank) pulling $480 million in pledged support to Botnia, one of the mills. The case is now the center of a local, regional, and international financial dispute, which could be greatly aggravated by an eventual decision of the IFC and World Bank to lend financial support to the investment.

Paul Reichler, Partner at Foley Hoag LLP in Washington, and is Counsel and Advocate for Uruguay in the case before the International Court of Justice: I believe the construction and operation of the mills will go forward. The International Court of Justice has already ruled, by a 14-1 vote in July, that there is no reason to suspend or delay their construction or operation. Now the independent technical experts retained by the IFC have concluded, after an exhaustive and objective study, that the mills will not cause any environmental harm to the Uruguay River, or to Uruguay or Argentina. This has led the IFC to submit the project to its board of directors with the strongest possible endorsement. There is every reason to believe the board will give its formal approval to the project when it meets on November 14. There is no rational basis for the board to decide otherwise. The project will be approved by the board in two phases. On November 14, the mill that is already under construction by Botnia (of Finland) will be approved. At a subsequent date, the mill that will be constructed by Ence (of Spain) will be approved. Because Ence announced recently that it will build its mill in a different location than originally planned, the IFC will await Ence's presentation of its modified plans before approving financing for the Ence mill. With the independent consultants' report and the July ruling by the ICJ, there is no environmental or legal impediment to approval of the financing for the mills by the IFC board of directors, or to their construction and operation. This is good news to all states and non-governmental actors who are truly committed to environmental protection and sustainable development.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

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