The project
The Veracel Pulp Mill project consists of the construction and operation of a large pulp production mill in the North-Eastern State of Bahia, based on eucalyptus plantations. Project promoter is Veracel Celulose S.A., a private sector company owned by Stora Enso OYJ (Finland) and Aracruz Celulose S.A. (Brazil). Total investment costs are 1.25 billion USD.
The Veracel pulp mill will produce Bleached Eucalyptus Kraft Pulp (BEKP) for exportation. BEKP is a raw material used in the manufacturing of tissue and printing and writing paper products. With a capacity of 900 000 tonnes of pulp per year, the mill will substantially increase Brazil's pulp export capacity. The start up of the mill is scheduled for the second half of 2005.
The mill will draw from some 69 000 ha of eucalyptus plantations in the Bahia region, owned by Veracel. These plantations have been in existence for some 10 years and have been established on worn out degraded pasture land purchased mainly from large landowners. Another 23 000 ha of tree farms, owned and developed by local farmers, will also provide raw materials for the pulp mill.
EIB financing
The EIB provided an USD 80 million loan for the Veracel Pulp Mill project in December 2003. This loan was preceded by an USD 30 million loan to Veracel in 2001 for the plantation of a total of 26 200 ha of eucalyptus in the southern part of the State of Bahia.
The pulp mill project is eligible for EIB finance as it complies with the Bank's lending mandate of financing projects in Latin America that represent a mutual interest to the European Union and the country concerned. The project is located in a poor region with a large need of financial resources and investments and is expected to create significant economic benefits for the region, including employment. It will generate significant export revenues, thereby having a positive impact on Brazil's balance of payments. As an important foreign direct investment, the project contributes to sustaining the foreign investors' trust in the Brazilian market.
EIB's value added in financing the project is that its loan will make available both much-needed long-term resources and political risk cover. The loan enables the participation of other financiers, which is the more important as Brazilian borrowers have very limited access to medium and long term finance at present.
As a general rule, before deciding on a loan the EIB satisfies itself that the project will meet appropriate European Union and internationally recognised standards and benchmarks. Consequently, the EIB carries out a detailed appraisal of the economic, financial, technical, and environmental aspects of each project it is considering for financing.
Environmental aspects of the pulp mill
The Veracel Pulp Mill project obtained all necessary environmental licenses from the Brazilian Authorities based on appropriate environmental studies and public consultations. The licensing process includes clearly defined public consultation procedures with local authorities and representatives of civil society, including indigenous people. All licenses are accompanied by lists of conditions. The Environmental Impact Assessment (EIA) process for the pulp mill started in 1995 with an initial EIA for the location of the mill, including a list of mitigation measures. A second study was made in 1998 for the implementation of the project. In 2002, an update of those studies was necessary as significant characteristics of the mill were modified. Information on the various licenses, i.e. Licença de Localizaçao (1995), Licença de Implentaçao (1998) and Licença de Alteraçao (2002), is available from the competent Brazilian authorities (see Further details below).
The mill's design and detailed engineering are based on Best Available Technology (BAT), in line with the EU's Integrated Pollution Prevention Control (IPPC) Directive, in particular for technical mitigating measures of the project's environmental impact. The impact of the emissions on the water system and solid residues disposal related to the plant's operations will be a key element of the monitoring process. An ISO 14001(1) environmental certification will be obtained for the future operations of the mill as part of the shareholders' policy for their activities worldwide.
Environmental issues linked to the eucalyptus plantations
The eucalyptus plantations represent reforestation coupled with forestation of former degraded land, managed in accordance to European forestry best practice. The native forest remnants are included in the set aside areas, conserved and further enhanced. The forest mosaic of eucalyptus on plateaus, with Atlantic native forest in the intersecting valleys, form a landscape covering the soils thus reducing erosion, increasing biomass production and contributing to biodiversity. Management of the plantations meets European standards. The plantations have been fully licensed under Brazilian regulations for forestry exploitation, which are based on best international practice.
As part of Veracel's rainforest rehabilitation programme, encompassing the replanting of degraded areas, enrichment and the protection of remnants, 44% of its 147 000 ha of forestlands are set aside for environmental recovery and conservation. Special care is being given to preserve and recover original biotopes, in particular the Mata Atlantica forests. There are close to 90 000 ha of Veracel property dedicated to the Mata Atlantica forest recovery, of which over 6 000 ha belonging to the Veracruz Station, the largest private Atlantic Forest reserve in the northeast of Brazil. The Station is recognised by UNESCO as a World Nature Heritage Site. In June 2003, Veracel obtained an ISO 14001 certification for its eucalyptus and Atlantic Forest tree seedling production processes along with its processes for the harvest, transportation and sale of wood from its eucalyptus plantations.
Social aspects
The mill and plantations are generating employment, both directly and indirectly, in a region where there are few job opportunities currently. The promoter expects that during the construction phase of the project, up to 12 000 direct and indirect jobs will be created. After the investments have been completed, the forest and pulp mill operations are expected to generate 2 000 direct jobs. Another 6 000 to 8 000 indirect job opportunities will be created in outsourced services and operations.
The promoter and the Government of the State of Bahia are working together to prepare the region in terms of infrastructure and social investments to allow a balanced development and minimise potential problems related to population growth, as for example the flow of unemployed job seekers. The promoter's social programmes comprise in particular water quality improvements, housing and health care programmes, schooling and training. The partial outsourcing of wood supply to local farmers would be an important alternative income for the region.
Monitoring
The project will be subject by continuous monitoring by the promoter, the Brazilian Authorities, civil society and the lenders. The lenders are in the process of selecting an independent consulting firm, as published in the EU's Official Journal and Brazilian newspapers on 11 February 2004.
The environmental and social monitoring of the project will put special emphasis on the rain forest rehabilitation programme, including the control of forest exploitation certification systems; the impact of water emissions on the project zone's hydrology and solid residues disposal; and the forestry practices for both plantations and tree farming. In this respect, tree farming contracts and the encouragement of farmers' participation in the promoter's rain forest rehabilitation programme are key issues.
Further details
Further information on environmental studies and licenses for both the mill and plantations can be obtained from the competent authority, the Centro de Recursos Ambiantais (CRA), which is the executive body of the Conselho Estadual de Meio Ambiente (CEPRAM), part of the Secretaria do Planejamento, Ciencia y Tecnologia, Governo Do Estado da Bahia. CRA's website is www.cra.ba.gov.br.
EIB's contacts with NGOs on the Veracel Pulp Mill project
EIB staff met with a delegation of Brazilian and international NGOs in October 2003 to discuss their concerns with the project. In addition, the Bank has conducted correspondence on the project with interested NGOs.
(1) The family of ISO 14000 management system standards of the International Organization for Standardization (ISO), the world's largest developer of standards, concern environmental management and help organisations of all types to improve their environmental performance.