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Loan for Uruguay forest plantation

05/12/2004

Finnfund has granted a supplementary loan for Compañia Forestal Oriental SA, an eucalyptus plantations in Uruguay. The company is in operation and is now Uruguay’s largest wood producer.

Finnfund has granted a supplementary loan of 7 million US dollars for eucalyptus plantations in Uruguay. The loan is to FOSA (Compañia Forestal Oriental SA), a company owned by the Finnish pulp producer Botnia (60 %), papermaker UPM (38.38 %) and Finnfund (1.62 %). Finnfund became a shareholder in 1993.Fosa-puunkuorimies.jpg

FOSA is in operation and is now Uruguay’s largest wood producer. Harvesting was begun in 1998 and so far all wood has been exported, mostly to Europe and Morocco. In 2003 output reached 0.6 million cubic metres of wood and will be higher still in 2004.

Uruguay offers good growing conditions for eucalyptus trees. The seeds were originally imported from Australia and South Africa but today most come from FOSA’s own trees and are raised to seedlings in the company’s nursery. In Uruguay eucalyptus grows about 1 centimetre a day, which means three and a half metres a year. The trees are ready for harvesting after 8-10 years.

Botnia is planning to build a pulp mill in Uruguay with an annual capacity of 1 million tonnes.

“The aim is that most of the feedstock required by the mill will come from FOSA plantations,” explains Finnfund investment manager Tarja Myllymäki. “This will require a doubling of the plantation area .”

Government support for afforestation

Since 1987 the government of Uruguay has supported forest plantations by granting tax benefits to landowners. The plantations have to be in Forestry Priority Areas, which are suitable for growing forest and not effective for crop farming or animal husbandry. There is a great amount of such land available. FOSA buys either open grasslands or areas planted with low-yielding forest.

The principles of sustainable forestry are applied on FOSA’s operations. As evidence of this, FOSA plantations have been certified as meeting FSC (Forest Stewardship Council) requirements and practices. Certification was one of the preconditions for a loan from Finnfund.

“It is important for Finnfund, as a development finance institution, that in this way a major amount of unproductive or poorly producing land is brought under certified forest management. The business also brings tax revenue and foreign currency for Uruguay,” Myllymäki explains.

More jobs and new technology

The pulp mill under planning would be the largest single investment in the history of Uruguay, and the official attitude to it is favorable. As the first of its kind in the country, the mill would provide Uruguay with new technology and thereby new opportunities for development. The investment is nearly 1 billion dollars.

Socioeconomic studies indicate that nearly 8000 new jobs would be created, directly and indirectly, during the mill’s construction phase and startup. It is also expected that highly trained people who left the country during its economic crisis would move to live permanently in the vicinity of the mill.

Uruguay has 3.4 million inhabitants, half living in the capital Montevideo and its surrounding area. The country’s surface area is about half that of Finland. Population density is 19 per square kilometre. The economy has diversified from traditional animal husbandry and the main occupations are now farming for export, animal husbandry and tourism, mostly from Argentina.

For more information please contact Senior Investment Manager Tarja Myllymäki tel. +358 9 3484 3326, email firstname.lastname@finnfund.fi

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