UPM and the Government of Uruguay sign an investment agreement
Finland-headed forest industry major UPM has announced that it has signed an investment agreement with the Government of Uruguay to establish a competitive operating platform for a possible new pulp mill in Uruguay. The agreement outlines the local prerequisites for a potential pulp mill investment details the roles, commitments and timeline for both parties as well as the relevant items to be agreed prior to the final investment decision.
The world megatrends support a strong growth of the market pulp demand. UPM’s customers value the stable quality of the Uruguayan eucalyptus pulp and hence Uruguay could be a competitive alternative for addressing UPM’s pulp market opportunities in the 2020s. The possible new capacity in Uruguay would support UPM’s multifibre strategy; to serve customers in growing hygiene, packaging and speciality end-use segments, said Jaakko Sarantola, UPM’s Senior Vice President, Uruguay Development.
According to a statement, the agreement defines the requirements for the operating environment of a world-class pulp mill project. The site of the mill would be close to the city of Paso de los Toros, in the department of Durazno in central Uruguay. Requiring a “stable and predictable” operational environment, this will be supported by several measures in the areas of regional development, environment, forestry and land planning as well as labour and energy conditions.
Infrastructure development as key enabler
The Government will develop the rail and road network by tendering the construction and long-term maintenance of the network. The total investment by the Government has been reported to be approximately US$ 1 billion.
This investment is necessary to enable the establishment of efficient logistics infrastructure in the Uruguayan inland. The Government will also promote concession for a terminal specializing in pulp in the Montevideo port with rail access in order to secure reliable and competitive outlet to export markets.
A competitive world-class pulp mill must have a solid wood supply, well-working logistic infrastructure and efficient mill operations. Robust infrastructure is elemental for industrial development. The Government of Uruguay is stating their serious intent with this agreement and timeline. The agreement sets the foundation for UPM’s planning of a state-of-the-art pulp mill investment, said Sarantola
Once the permitting requirements are fulfilled, the Government will grant the mill a free trade zone status, which is necessary to ensure competitiveness on international markets.
UPM will carry out an engineering study and permitting process for a pulp mill with an annual capacity of about 2 million tonnes of eucalyptus market pulp. The preliminary estimate for a pulp mill investment on site is approximately EUR 2 billion.
In addition, a successful project requires off-site investments in plantation land and forestry, road network and nursery capacity, harvesting and transport equipment, rolling stock for the rail, export facilities and human development.
The signing of this agreement confirms that we are now entering the second preparation phase of this prospect, which is expected to take some 1.5 to 2 years. Achieving significant progress in the implementation of the infrastructure initiatives is critically important for the final investment decision said Sarantola.
About the project
In July 2016, UPM commenced discussions with the Government of Uruguay regarding the prerequisites for long-term industrial development in Uruguay. The aim of these discussions during the first preparation phase was to come to a mutual understanding on an investment agreement that defines the local prerequisites for industrial investment as well as initiatives for infrastructure development. The investment agreement was signed 7 November 2017.
The subsequent second preparation phase consists of an engineering study, tendering and permitting process as well as achieving significant progress in the implementation of the agreed infrastructure initiatives. Any relevant items are to be agreed prior to the possible final investment decision. This second phase is expected to last 1.5 to 2 years. If these two preparation phases are concluded successfully, UPM will initiate the company’s regular process of analysing and preparing an investment decision.