Brief Description of Actors Involved
The Pulp Mill as a Sector
Mention: “Bleached Kraft Pulp Mills”
When personal computers hit the market in the 1980s most thought that we’d conveniently eliminate the use of paper, and prefer to see our documents on a screen. While that may still be to come with such invents as the IPAD and other tablet format computers, it didn’t happen with the common PC. In fact just the opposite occurred. The pulp mills sector realized that the facility of printing just about anything, would end up doubling or tripling the demand for paper. In fact, that calculation fell short of the actual demand that resulted, which was a fivefold increase or more.
The key problem was not so much the expansion of the industry, which was viewed as highly positive, but that the trees needed for paper production simply couldn’t grow fast enough to keep up with the exponential growth of demand.
European and North American trees used to make paper pulp took from 50 to 80 years to produce. The rapid and immediate growth in demand could not wait that long.
And so, the pulp sector teamed up with the World Bank and the Asian Development Bank and started looking for another solution. [LINK TO ADB and Japan STUDY] In their quest to increase paper pulp output, they discovered that places like Uruguay could grow trees rapidly (in 8-12 years) and that they could be easily convinced to convert enormous tracks of land traditionally used for livestock and local agriculture into eucalyptus farms. Further, the industry for pulp was already saturated and expensive in places like Finland, while countries like Uruguay offered lucrative tax havens to foreign direct investment, not to mention subsidized World Bank loans to convince farmers to plant eucalyptus trees. Eucalyptus is an invasive species in Uruguay, and it drains aquifers of enormous quantities of water, in comparative volumes highly exceeding the water consumption of cows or local agriculture.
And so the industry turned south, and pointed to places like Chile, Argentina, Brazil, and Uruguay, where pulp mill factories could produce tax free, pay meager wages (several times less than in places like Finland), and contaminate someone else’s land, air, and water. Countries like Uruguay offered enormous profit margins- liberating ports, offering big tax write-offs, and providing low wages to eager workers, not to mention lax environmental controls for industries that brought rotten egg smell and persistent chemicals like chlorine which would begin to foul otherwise clean local rivers.
The first company to register awaiting tax free profits in Uruguay was ENCE, a paper pulp producer with operations in Pontevedra Spain.
IFC project number 23681, ENCE, at the time was a Spanish company operating 3 paper mills in Spain and was the second largest producer of eucalyptus pulp in the world. The total value of the project was approximately $660 million, including an IFC “A” loan of $US50 million and a syndicated “B” loan of $US150 million.
ENCE officials have been convicted of civil and criminal offences concerning the contamination of the Ria de Pontevedra in Galicia, Spain over a period of 30 years. The case took over 12 years and comprised 12,000 volumes. Several of the company’s top executives received jail sentences due to their improper conduct regarding contamination from the paper mills operated by ENCE, while the company was forced to pay an indemnity of 433,000 Euros for the damage caused by the company’s actions. The environmental impact report for the project in Uruguay admits that ENCE in Pontevedra used the same technology as was to be employed in the proposed Uruguay project. The proposed Uruguayan project would have had a capacity that was 80% of the combined capacity of ENCE’s three plants in Spain. Further to the experience in Spain, the programmed capital-intensive plant provided relatively little in terms of local employment, and would be detrimental to employment in the tourism, fishing and shellfish industries, essential to the livelihoods and very identify of the Fray Bentos and Gualeguaychu regions.
Botnia’s Orion Pulp Mill Project
Oy Metsä-Botnia, UPM-Kymmene, and Metsäliitto
The sponsor of the Botnia project (IFC project number 23817) is Metsa Botnia, then owned by three Finnish companies, key players in the in the European paper industry with 5 pulp mills in Finland. The total value of the project was approximately $US 1.2 billion of which $100 million was sought in the form of an “A” loan from the IFC as well as a further $US 100 million syndicated “B” loan.
Orion’s project sponsor, Botnia SA (henceforth Botnia), was incorporated in Uruguay as a joint venture by three registered multinational Finnish enterprises. The Finnish enterprises and their percentage share in Botnia SA are Oy Metsä-Botnia (82.1%), UPM-Kymmene (12.4%), and Metsäliitto (5.5%). All three are based and head-quartered in Finland.
Kemira is a registered Finnish chemical company subcontracted by Botnia S.A. for €60 million to provide chemicals, including primarily chlorine (the principal contaminating agent) to Orion. Kemira would also purchase electricity from the Orion factory, such that Botnia maintains a significant scope of influence over Kemira. It should be noted that Kemira is the sole chemical supplier to the Orion plant, so without Kemira the pulp mill operation, and subsequent guideline breaches could not have occurred. Finally, a most important point, the Kemira group is 49% owned by the State of Finland.
The International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) – (Both part of the World Bank Group)
Before the local community ever found out about these pulp mills showing up on their shores, the International Finance Corporation and the Multilateral Investment Guarantee Agency (MIGA), both agencies of the World Bank Group, weighed in heavily in project preparation and design. They were (and IFC in particular) perhaps the most important actor (certainly the most relevant financial actor) in the making of the project, perhaps more so than the companies themselves. IFC support of a project helps to ease the concerns of other banks, private and public, over a large investment in a developing country. This vote of confidence can be the deciding factor in whether or not a bank will contribute funds to a venture.
These two agencies, and particularly the IFC, became obstinate in defending their investment, practically making the defense of the loans a personal quest for heads of upper management, who would not bow to the social uprising and the international conflict their multimillion dollar project was creating for local communities.
The Asamblea Ciudadana de Gualeguacyhú
The Asamblea Ciudadana de Gualeguaychú (meaning “the self convened citizens assembly of Gualeguaychú), came together haphazardly through the seamless and relentless effort of an entire community, determined to protect their environment and posterity against the environmental and health impacts of this unwanted industry.
The No a las Papeleras slogan permeated the nation’s television stations and newspapers. The community was driven by the conviction that they were truly engaged in an effort to thwart inevitable contamination, cancer, and death of their people and ecology. People from all walks of life poured into the bi-weekly meetings at the local municipal theater to contribute to the cause of “NO a las Papeleras, Si a la Vida”.
People would offer their services- printing, radio programs, vehicles, food to sustain day long (often week-long, and eventually month or year-long) standing protests- against the foreign investors. When the roadblocks went up on the international bridge joining (and eventually separating) the communities of Gualeguaychú and Fray Bentos (the Uruguayan community across the river which was to receive the investment), the roadblock had to be manned, for days, weeks, and then years! The community organized as if by some magic guiding hand, its members taking turns at manning the roadblock station, local restaurants, and residents supporting the cause would prepare home cooked meals. Those that could, would provide car and bus services, or donate blankets, drinks, books, toys, and other elements so that the residents-turned-activists could last through the sometimes long, wet, cold, or hot, mosquito-infested days of resistance at Arroyo Verde, as the roadblock site would come to be called.
No NGO, not ours, not any, ever co-opted the Asamblea Ciudadana of Gualeguaychu. Their only legitimacy was the democratic vote of its members arriving at each assembly meeting twice weekly. If there were 20, then 20 voted, if their were 2000 then 2000 voted on each of the propositions that any member of the community might make. The assembly would have to carefully count the rising of hands at each vote. And what sort of decisions and proposals were these? In one case which I personally witnessed, one resident suggested printing two big signs saying NO a las Papelereas (the basic slogan of the movement) which would be strung across a certain road in front of the residents house. That proposal was accepted. Another resident indicated he would be traveling to another city and could, in representation of the Assembly, participate in a radio program to talk about the case. That proposal was also accepted by the 200 or so people present. Another proposal offered to carry out a night run by boat to the pulp mill site, in order to unfurl a large banner opposing the mill. That proposal, due to concerns about bad publicity from illegally crossing the river border, was rejected. In a later meeting, where our organization proposed taking 3 assembly members to Washington DC to lobby the World Bank against supporting Botnia and ENCE by supplying loans, the Assembly took nominations on small bits of paper of 10 candidates that offered themselves for the trip. Those present that day, which well exceeded 1000 stakeholders, painstakingly jotted down their preferences and then a vote count ensued to determine who would represent the Assembly on the international trip. This was probably the most extreme case of direct democracy I have ever seen first hand in nearly 25 years of work in my field.
Perhaps one of the most notable reasons the Assembly of Gualeguaychú took on a remarkable and universal force of its own was the fact that the entire town was mobilized in favor of the cause. This meant that you had members from all walks of life engaging in the advocacy around the case. Schoolteachers, commerce owners, politicians, scientists, students, retirees, journalists, doctors, even tourists to Gualeguaychú joined in the efforts to oppose Botnia and ENCE.
Having such a diverse set of actors all collaborating and actively engaged in an effort to oppose the investment provide unique material resources in that the Assembly benefited from all of the possible elements that any given member might contribute from his or her own situation and abilities. One day for example, we got word that a high level executive from Botnia had just landed at Uruguay’s international airport. He traveled to Fray Bentos and then took a flight to Argentina, where he was visiting some unknown contact. His steps were traced in real time because the Assembly had contacts at the airports and at the restaurants of the airports that would call in the with man’s location and destinations.
It was this universal support and engagement of the community in the cause that gave rise to feats of unparalleled proportions, such as the initial and spontaneous march to the international bridge between the cities of Gualeguacyhú and Fray Bentos of upwards of 50,000 people opposing the mills. This was the largest march on record against a World Bank supported investment. Coming from a town of 80,000, people the number is staggering.
And yet, the second year, already with much national support from other organizations and citizens assemblies appearing around the country, nearly 100,000 people (some put the number higher) gathered on the anniversary of the first march and again marched to the border bridge. That number was matched in both the third and forth years, marking the respective anniversaries of the initial uprising.
Journalists from all over the world, including Finland, Spain, the US, France, Germany, Norway, Sweden, Chile, Uruguay, Brazil, and other countries traveled across the oceans and land to be at and cover the protest against the foreign investments. Children arrived in tricycles, babies in strollers, pregnant mothers, and octogenarian grandmothers, Greenpeace activists, the local governor, and the mayor, entire school classes, farm workers, and industry teams, some waving Argentine and Uruguayan flags, others brandishing signs reading Botnia Murderers, Finland Go Home, Si a la Vida, NO a las Papeleras, marched peacefully across the several kilometers of the San Martin international bridge to show their support and say that they had been to one of the marches.
The resolve of the community was relentless in the case. It was not until the national government of Argentina reversed its position to formally support the protesters in their fight against the companies and against Uruguay, that they left the international bridge road block. This demonstration was maintained for nearly 4 years [CHECK TIME], at a loss of billions of dollars in cross border flow of finance.
The Governments of Argentina and Uruguay
The conflict took on monumental proportions, not only because of the large community support the case drew, the recurrent public marches to the international bridge, and the innumerable street protests by thousands of residents, but also due to the fact that the two otherwise friendly border governments, Argentina and Uruguay, found themselves at odds with one another over the investment.
In the early stages of the conflict, both governments clearly ignored the potential and mounting severity of the case and took their mutual responsibilities to protect their border river lightly. The Uruguay River Treaty established that both countries had to consult eachother if they were planning anything that might harm the river, such as introducing the world’s largest paper pulp mill to a river bank community. In retrospect, and largely because we know now that neither country took their responsibilities under the treaty very seriously, Argentina probably verbally granted an informal OK to Uruguay to construct the mills. In fact, when assembly members consulted the previous Argentine foreign minister, Rafael Bielsa, as to whether he gave a green light to the Uruguayan’s, Bielsa reportedly said, “I didn’t sign anything!!!” – we took that to mean, “yes I did, but I didn’t put it in writing!”.
But the case would blow up in the face of both negligent governments when 50,000 people, mostly residents of Gualeguaychú, but also many Uruguayans from Fray Bentos and from environmental circles, marched to the bridge in protest.
Like many politicians, the governments of both Uruguay and Argentina have generally shown little concern for the opinions of their populations-particularly as to foreign direct investment funds, which are seen to be a key ingredient for development.
This is why, perhaps, Argentina’s former Executive Director (ED) at the World Bank, Alieto Guadagni, brushed off our initial consultations and concerns about the upcoming board debate over whether the World Bank would give a loan to Botnia and ENCE. He at the time was a good friend of his Uruguayan counterpart at the Bank, and living a quiet uneventful life on the very generous salary assigned to him. His job was to be Argentina’s voice in Washington DC, and this basically meant to carry out administrative duties which nobody back in Argentina really ever showed any interest in. In fact, what we learned about most of the EDs is that they are simply glorified and irrelevant bureaucrats, which are mostly unknown back at home, and only very seldom do they get any attention from their respective bosses in their home Finance Ministries or Foreign Ministries. A tell tale event occurred recently, in fact, involving Argentina- the Finance Minster forgot to inform the World Bank of its replacement choice to be the new serving Executive Director. The Board of Directors had to take action into its own hands, and decided to simply extend the mandate of the existing Argentine ED, without any participation whatsoever of the Argentine government. A truly embarrassing diplomatic moment. Needless to say, the candidate that should have been the new ED was furious, but as the old saying goes, “you snooze, you loose”.
When I first met the previous Argentine ED, Alieto Guadagni, in his 13th floor penthouse office at the World Bank’s Headquarters in Washington DC, he literally said to me, practically smirking, “bring the big NGOs to the table and cause havoc, or this case is irrelevant to us”. Here was Argentina’s own ED, telling an environmental NGO representing 50,000 people, mostly citizens of Argentina, who had signed a power of attorney for us to represent them before the World Bank, that the opinion of local stakeholders was irrelevant. In fact, what he was really telling us was that he was not about to stir the waters at the bank, just because a local community opposed a project. He indicated to us indirectly that he was more concerned about rustling the feathers of his counterpart, the Uruguayan ED, and that he probably felt uncomfortable confronting the IFC about a controversial project. He was also saying to us, perhaps in a rare visionary moment, that disturbing the waters might actually cost him his well paying 6 figure income.
Well, as it turned out, Guadagni was right. In fact the case would cost him his job. When the politics around the invest blew up in his face he was fired for his failure to react earlier, and he was replaced by the far more diligent Alberto Camarassa. Unfortunately however, much to Camarassa’s dismay, and despite his earlier years and experience and his quixotic battle with the other EDs, he could not revert the by-then lost case against the Uruguayan Pulp Mills.
Most government and international financial staff work to defend their own jobs, and not so much for the benefit of the public good. That’s a pretty broad general statement that might sound exaggerated, but that is simply what we have seen after engaging with a significant number of public servants (national and international) that were in a position to influence a case, but decided not to.
Some reflection is in order about the highest echelons of the Argentine government, starting from then president Nestor Kirchner, the bad boy of international investment politics. Kirchner turned out to be a stoic force (for a limited time) supporting the case against Uruguay, which he took of his own resolve to the International Court of Justice. But we should make several qualifications to this statement, because Argentina’s former president, who has gone down in history (after his recent death) as a very able politician, had his own selfish and very personal reasons to get behind this case. And these did not seem to be accompanied by any real conviction to “do the right thing”.
We should recall that Kirchner was not elected president of Argentina, but rather, he came into office with a mere 23% of the popular vote when Carlos Menem, vying for a third term in office, backed out of a run-off election when he saw that the opposition had rallied together to muster up enough votes to oust him for good.
Little can be said for the Uruguayan government, who’s president Tabare Vasquez refused to reign in Botnia while both governments were trying to sort things out in a friendly manner. Tabare’s resolute insistence on avoiding the real issues and conflict, pushed Uruguay into a controversial case at the International Court of Justice in the Hague, with Argentina rightly claiming that Uruguay had violated the river treaty between the countries.
ING or other banks?
King of Spain