The European Investment Bank is providing a USD 30 million loan (some EUR 32 million) (1) to Veracel Celulose S.A., owned by Stora Enso (45%), Aracruz Celulose S.A. (45%), and Odebrecht S.A. (10%), for the plantation of eucalyptus forests in the Brazilian North-Eastern State of Bahia.

Veracel Celulose S.A. is a private sector company created in 1991 to implement integrated eucalyptus plantations and pulp production projects. It is backed by experienced shareholders, among which is Finnish Stora-Enso, a leading European forest product company. Veracel is Stora-Enso's first-step investment in Brazil.

The investment aims at producing low-cost pulpwood to be used as raw material for pulp production in Veracel's pulp mill. It includes land acquisition and preparation, plant production, the plantation of over 26 000 ha, as well as the acquisition of forest equipment and the construction and upgrade of some 450 km of roads. Out of the total, some 15 000 ha will be new plantations on degraded pasturelands that can hardly be used for other agricultural purposes. The remaining 11 000 ha will be replanted eucalyptus. The project is to be implemented between 2000 and 2004. Employment will increase by about 50% to 1250.

The project will have a significant positive impact on the environment. It will help to reverse tropical rain forest destruction, to reduce the pressure for logging on natural forests and to maintain biodiversity. The promoter sets aside permanently, for the conservation or regeneration of native ecosystems, some 50 000 ha, about one third of the total land owned. 

The project foresees improving the infrastructure, security and protection of the Veracruz reserve station, a 6 000 ha area of primary forest at an excellent stage of conservation. This area will never be used for logging; it has been recognized as a World Natural Heritage by UNESCO and as Private Natural Heritage Reserve by IBAMA (Instituto Brasileiro do Meio Ambiente). The Veracruz reserve station is one of the largest private reserves of Atlantic Rainforests in Brazil. It develops various programmes in conservation and physical protection, as well as scientific research, environmental education and ecological tourism. Investment will also go to a nursery for native species, to a natural history museum and to wild animal shelters. 

The afforestation of agricultural land will increase absorption of atmospheric CO2 and sequestration in terrestrial sink. This is in line with the recommendations of the Kyoto protocol and with the EU policy on climate change. In the Kyoto protocol governments agreed to reduce emissions by limiting fossil fuel consumption or by increasing carbon sequestration through afforestation and land use change. 

The project complies with the national Forestry legislation and has been monitored by the Government. An Environmental Impact Assessment Procedure, including public hearings, was carried out in compliance with Brazilian legislation. The promoter goes beyond these requirements in putting aside one third of the land owned to conserve and further enhance the native rain forest in the gullies and on steeper slopes so as to form corridors with great biodiversity and strengthen the environmental balance in the area.

The 10-year loan with four-years grace period can be disbursed either at fixed rates or at floating rates, the latter being capped at LIBOR + 40 basis points. It is guaranteed by Nordbanken AB. Risks of currency non-transfer, expropriation, war and civil disturbance are covered by the European Union (EU) budget guarantee.

The loan is provided in the context of the EU co-operation policy with third countries. In Asia and Latin America (ALA), the EIB may lend up to EUR 2.48 billion during 2000-2006 to support capital investment projects implemented by subsidiaries of EU companies or joint-ventures between EU and ALA firms, or investment that results in environmental improvements or fosters regional integration. The EIB was set up in 1958 to finance investment furthering EU integration. It lends for regional development, infrastructure, energy, industry and environment. Outside the EU, the Bank contributes to the European development co-operation policy in some 150 countries in Central and Eastern Europe, the Mediterranean region, Africa, the Caribbean and the Pacific, Asia and Latin America. In 2000, the EIB provided loans totalling some EUR 36 billion. The Bank borrows on the capital markets the funds for its lending. Its bonds have regularly been rated "AAA" by the leading rating agencies. The EIB works on a non-profit basis and can pass on to project promoters the excellent conditions it obtains on the markets. The EIB may finance up to 50 percent of project cost. On average it provides one third of the funding and co-finances investments with other institutions.