UPM, Uruguay Government Planning to Build One of World’s Largest Market Pulp Mills

UPM, Finland, and the Government of Uruguay have signed an investment agreement outlining 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 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 labor 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 $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 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 metric tons 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. 

"Robust infrastructure is elemental for industrial development. The Government of Uruguay is stating its 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 Jaakko Sarantola, UPM's SVP, Uruguay Development. "A competitive world-class pulp mill must have a solid wood supply, well-working logistic infrastructure, and efficient mill operations. The environmental performance of the mill would be secured with competent and engaged personnel and with best available technology. When in operation, the mill, forestry, and related activities would employ 8,000 additional people in its full value chain. The operations would also have a significant positive impact on the central and northeastern regions. 

"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," Sarantola said, adding that "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 specialty end-use segments." 

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 Nov. 7, 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 analyzing 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 and remains one of the world's most modern and efficient pulp mills. Its annual production capacity is 1.3 million metric tons of eucalyptus pulp. Besides pulp, the Fray Bentos mill is a significant biomass-based energy producer, accounting for 8% of Uruguay's total energy production. The mill's wood raw material comes from sustainably managed local plantations.