The Uruguayan landscape is dominated by grasslands. Sheep and cattle raising as well as agriculture are the main land uses. Today, only three per cent of Uruguay is covered by native forests , and even this small area is threatened. Industrial plantations cover more than one million hectares, almost double the area of native forests. Land distribution in Uruguay is similar to that in Brazil and small farmers have little access to land. The pulp and plantation boom is exacerbating these problems while adding the problem of foreign control over land. In common with industrial tree plantations in other countries in the South, plantations in Uruguay have serious impacts on water supplies.
The pulp mill conflict
In 2006, a major diplomatic row broke out between Argentina and Uruguay when the construction of two pulp mills was started on the Uruguayan side of the Uruguay River. The two mills, with a combined capacity of 1.5 million tonnes a year amounted to Uruguay’s largest ever foreign investment. The Argentinian government took Uruguay to the International Court of Justice in the Hague, arguing that Uruguay had failed to notify Argentina of the proposed pulp mills and is therefore in breach of the 1975 Statute of the River Uruguay.
A final ruling will take two or three years, but the court initially ruled against Argentina by declining to order a halt to the construction of the pulp mills. The court argued that if the pulp mills were to pollute the river, they would only start doing so once construction is completed.
The companies behind the pulp mills, Botnia (Metsa-Botnia and UPM, Finland) and Ence (Spain) both plan to export the produced pulp.
People from Uruguay and Argentina have been protesting the pulp mills for several years. Citizens in Argentina have blocked the international bridge between the two countries as a way of protest . In April 2005, about 40,000 people from Uruguay and Argentina took part in a demonstration on the bridge against the pulp mills. A march against the mill in April 2007, was one of the largest environmental demonstrations anywhere in the world, with 130,000 people participating. Since November 2006, protesters have set up a series of road blocks on the three bridges between the two countries.
As a result of the protests, Ence decided to move the site of its pulp mill to the small tourist town of Conchillas in Colonia, southwest Uruguay. Ence has applied for approval for the Colonia project from the Uruguayan authorities and will produce an environmental impact study if approval is granted. The company has also announced that the proposed mill will have a capacity of one million tonnes a year. Local people oppose the mill and have already started to organise protests against its construction.
The Argentinian NGO Centre for Human Rights and Environment (CEDHA) has made several complaints to the Organisation for Economic Cooperation and Development (OECD), alleging breaches of the OECD’s guidelines for multinational companies . Nevertheless, the International Finance Corporation decided to go ahead with a US$ 170 million loan for the Botnia project. The World Bank’s Multilateral Investment Guarantee Agency (MIGA) agreed to provide political risk insurance covering US$ 350 million. Other financial support includes US$ 230 million from the Finnish export credit agency Finnvera and US$ 70 million from the Nordic Investment Bank. Private banks Calyon (France) and Nordea (Norway/Sweden) are mandated lead arrangers for the IFC loan, and Calyon, Danske Bank and Nordea were mandated to arrange a US$ 393 million revolving credit facility.
A subsidiary of Botnia, Forestal Oriental , has established eucalyptus plantations to supply Botnia’s pulp mill in Uruguay. Botnia claims that Forestal Oriental will supply 90 per cent of the raw material required to run the mill, 70 per cent from Forestal Oriental’s own plantations and the rest from timber bought from other plantation operations. Forestal Oriental and other Botnia subsidiaries in Uruguay own just over 160,000 hectares of which they intend to plant a total of 98,000 hectares with Eucalyptus monocultures. 
Forestal Oriental at present produces more than one million cubic metres of wood a year, which is significantly less than the 3.5 million cubic metres that will be required once the pulp mills starts operating at full capacity.
Plantation and pulp expansion
The rate of establishment of plantations in Uruguay peaked in 1997 at almost 60,000 hectares a year and is currently about 10,000 hectares a year. Today, there is a total of about 700,000 hectares of industrial tree plantations in Uruguay – about 70 per cent Eucalyptus and 28 per cent Pine.
Beside the planned projects of Botnia and ENCE , other companies are active in the pulp sector in Uruguay:
- Weyerhaeuser (USA) has established 100,000 hectares of plantations. Weyerhaeuser’s plantations were subsidised through tax breaks on the land and lowered duties on imported trucks and equipment.
- Stora Enso (Sweden-Finland) is also buying up land for plantations in Uruguay. So far the company has established 23,000 hectares and plans to plant a total of 100,000 hectares. The company is also considering constructing a new pulp mill in Uruguay.
- Recently, government officials in Uruguay announced that companies from Canada, the US and Japan are also considering pulp projects in the country.
Plantation development is heavily subsidised
The development of industrial tree plantations in Uruguay is the direct result of a series of government subsidies. The 1987 Forestry Act, produced under the influence of a World Bank structural adjustment policy, provided tax benefits and payments for part of the costs of establishing plantations. During the 1990s, an area of more than 500,000 hectares of plantations was established by companies from Spain, Finland, Canada and the USA. In the 12 years up to the year 2000, the government handed out more than US$ 400 million in tax exemption and direct payments to the plantations industry. On top of this figure, the government also built new roads, ports, bridges and railway lines to transport and export the wood.
In addition to the subsidies from the Uruguayan government, Forestal Oriental’s plantations were supported by the Finnish government in the form of a US$ 7 million loan from Finnfund (whose majority shareholder is the Finnish state: 79.9 per cent directly and 20 per cent through Finnvera – the remaining 0.1 per cent is owned by the Confederation of Finnish Industries). 
Botnia’s pulp mill is located in a free trade zone – exempting it from tax. Botnia is attempting to further subsidise its operations through carbon trading and has made an application to the Kyoto Protocol’s Clean Development Mechanism. The company argues that by generating electricity through burning black liquor from the pulping process it will be able to sell 32 MW of electricity to the state electricity utility, UTE. This will replace electricity generated from fossil fuel and therefore “the release of greenhouse gases . . . will be reduced.” Botnia does not explain how it knows that UTE will not use wind or solar energy in the future. In addition, even assuming some greenhouse gas emissions were saved, by trading the carbon credits, Botnia ensures that the emissions will be released somewhere else. Further, the company fails to take into account the greenhouse gas emissions associated with its operations: carbon loss from soils, building the pulp mill, producing the chemicals for the pulp mill, fuel consumption by forest machinery, logging trucks, and shipping the pulp to China once it has been produced.
Botnia’s Managing Director in Uruguay, Ronald M. Beare, says that “Botnia is a great opportunity, both for Uruguay and for the wider region.”  But many in Uruguay and Argentina disagree with this assessment. The Uruguayan writer, Eduardo Galeano, describes the development of the pulp industry in Uruguay as being “in the purest Colonial tradition: vast artificial plantations that they call forests, converted into pulp in an industrial process that dumps chemical waste into rivers and makes the air impossible to breathe.” 
 See CEDHA’s website for more information on CEDHA’s compliance complaints to the OECD and other activities against the pulp mill:.
 Marko Janhunen, Vice President, Communications & Public Relations Project, Oy Metsä-Botnia Ab, email to Chris Lang, 15 May 2007.
 For an overview of the subsidies to the Botnia project, see Chris Lang (2007) “Subsidies and the Botnia pulp mill”, Presentation at “Sustainable pulp production in Latin America or just pulp fiction?” organised by The Greens/EFA and the Heinrich Böll Foundation, European Parliament, Brussels, 16 May 2007.
 “View of MD in Uruguay”, Botnia website.
 “Uruguay: The Botnia pulp mill project intends to profit from climate change”, World Rainforest Movement Bulletin 109, August 2006.
World Rainforest Movement
CEDHA – Centre for Human Rights and the Environment
REDES – Friends of the Earth, Uruguay
Banktrack Dodgy deal – The Botnia pulp mill, Uruguay