UPM and the Government of Uruguay sign an investment agreement regarding to a potential 2 million tons pulp mill

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UPM/Fordaq
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UPM and the Government of Uruguay have signed an investment agreement, which outlines the local prerequisites for a potential pulp mill investment. The agreement details the roles, commitments and time-line for both parties as well as the relevant items to be agreed prior to the final investment decision.

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.

A long-term industrial operation requires 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.

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 USD 1 billion. This investment is necessary to enable the establishment of efficient logistic 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.

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.

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.

UPM's operations in Uruguay include the Fray Bentos pulp mill, the UPM Forestal Oriental forestry and wood sourcing company with its two nurseries, as well as the UPM Foundation. UPM Forestal Oriental manages about 250,000 hectares of plantable land including own and Fomento partner producers' land. All of UPM's forest plantations are certified. The Fray Bentos pulp mill started operations in 2007. Its annual production capacity is 1.3 million tonnes of eucalyptus pulp. Besides pulp, the Fray Bentos mill is a significant biomass-based energy producer, accounting 8% of Uruguay's total energy production. The mill's wood raw material comes from sustainably managed local plantations.

Founded in 2006, the UPM Foundation works in coordination with local stakeholders to promote the development of rural communities through education, training and entrepreneurship, fostering a culture of safety and healthy living. UPM employs directly and indirectly altogether 7,000 people in Uruguay and its contribution to Uruguay's GDP is 1.4%. www.upm.uy

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