VZCZCXYZ0000
RR RUEHWEB

DE RUEHMN #0316/01 1591328
ZNR UUUUU ZZH
R 081328Z JUN 09
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 9071
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHMD/AMEMBASSY MADRID 0878
RUEHHE/AMEMBASSY HELSINKI 0084
RUEHSM/AMEMBASSY STOCKHOLM 0129

UNCLAS MONTEVIDEO 000316 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USTR 
 
E.O. 12958: N/A 
TAGS: EINV ETRD PREL PGOV UY
SUBJECT: ENCE Sells Forestry Holdings, New Owners Announce an 
18-Month Review of Uruguay's Largest-ever Planned Investment 
 
¶1. (SBU) SUMMARY: Spanish forestry firm ENCE announced on May 22 the 
sale of most of its forestry plantations to a consortium formed by 
Finnish-Swedish Stora Enso and Chilean Arauco, and that it will not 
continue with plans to build a $1.2 billion cellulose plant.  Stora 
Enso/Arauco announced they would reevaluate the size and the 
location of the future plant, for which site development was already 
underway.  ENCE's projected investment, which would have been the 
largest in Uruguay's history, had raised adamant opposition in 
neighboring Argentina and stoked political frictions between the GOA 
and the GOU on top of the ongoing dispute related to the Botnia pulp 
mill.  END SUMMARY. 
 
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ENCE sells investments in Uruguay and cancels long-promised plant 
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¶2. The participation of Spanish forestry firm ENCE in Uruguay's 
forestry boom came to a sudden halt on May 22, when it announced the 
sale of most of its forestry plantations (274,000 acres) and 
investments to a consortia formed by Finnish-Swedish Stora Enso and 
Chilean Arauco.  The sale, valued at $340 million, put an end to 
ENCE's longstanding plan to undertake the largest investment in 
Uruguay's history: a major pulp mill worth $1.25 billion.  Stora 
Enso/Arauco announced they would reevaluate the size and the 
location of the future plant.  ENCE kept 74,000 acres of Eucalyptus 
plantations, a sawmill, and two medium-sized chipping operations to 
supply its Spanish-based plants with chips.  A representative of 
U.S. forestry company Weyerhaeuser told emboff that the sale of 
ENCE's forestry holdings was expected, but that the partnership 
between Stora Enso and Arauco was not anticipated.  While 
unexpected, he said Stora Enso and Arauco already have a joint 
venture in Brazil and this land purchase makes their forestry 
holdings more diverse and balanced.  There is probably still room in 
Uruguay for a second pulp mill. 
 
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ENCE's erratic activities in Uruguay 
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¶3. ENCE began operations in Uruguay in 1990 by purchasing land and 
planting pine and eucalyptus.  In 2003, it launched a riverside port 
terminal on the Uruguay River (near the city of Fray Bentos) and 
began building a chipping plant in Montevideo.  Also in 2003, it 
announced the construction of a major cellulose plant near Fray 
Bentos that would be operational by 2008.  The announcement aroused 
strong opposition in Argentina, especially from people living in the 
town Gualeguaychu (on the opposite shore of the Uruguay River) who 
feared the ENCE plant, along with the eventually completed Botnia 
plant, would pollute the river.  Gualeguaychu activists began a 
blockade of the bridge connecting Uruguay and Argentina which 
continues until now.  Arguing that the plant was too close to 
Botnia's, in September 2006, ENCE's president Jose Arregui announced 
that ENCE would relocate its planned plant to Colonia (on the shore 
of the Rio de la Plata and farther away from Argentina).  Arregui 
also announced the doubling of the project's size to $1.25 billion. 
In January 2008 ENCE obtained the permissions to relocate and begin 
constructing its plant.  Excavation work was underway. 
 
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Background on the growing importance of forestry in Uruguay 
--------------------- ------------------------------------- 
¶4. The forestry sector is one of the most important and fastest 
growing sectors of Uruguay's economy.  Spurred by an extremely 
favorable climate and good soils, good market conditions and 
sectoral government policies adopted in the late 1980's, forestry 
plantations in Uruguay jumped from 4,000 acres/year in 1988 to 
125,000 acres/year in 2008 (with a peak of 200,000 acres per year in 
1998).  There are currently about 2.1 million acres of planted 
forests and another 7.5 million acres reserved for future forestry 
activities.  Uruguay continues to attract the attention of major 
paper companies that are either in the process of establishing 
themselves (Stora Enso, Arauco), or scouting prospects (Nippon 
Paper, Portucel).  Over the last two decades Uruguay has received 
over $3 billion in investments in forestry, and forestry products 
will soon become one of the top three exports. 
 
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Stora Enso's plans 
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¶5. ENCE's sale of its Uruguayan project to Stora Enso reduces from 
three to two the number of pulp mills in Uruguay's near future. 
Notwithstanding, the chances that the mill will indeed be 
constructed increase with this purchase, and the acquisition of 
ENCE's forested areas (together with that already owned by the 
Finnish company) gives Stora Enso the critical mass necessary to 
begin the industrialization process.  While ENCE already had 
concluded their feasibility studies and had obtained the necessary 
environmental permits to construct its plant in Colonia, Stora Enso 
 
had traditionally been looking at Uruguay's interior for the 
development of its project.  Immediately after the purchase, Stora 
Enso announced it would begin new investment and feasibility studies 
that will require from twelve to eighteen months' work. 
 
 
MATTHEWMAN