Casos FDC

Copyright© 2004, Fundação Dom Cabral

CF0402 – June, 2004

ARACRUZ CELULOSE AND THE CONSTRUCTION OF THE LUCIANO VILLAS BOAS MACHADO BARGE-SHIP MARITIME
TERMINAL

Cláudio Bruzzi Boechat Nísia Duarte Werneck
Letícia Miraglia

Centro Alfa – Campus Aloysio Faria
Av. Princesa Diana, 760 – Alphaville Lagoa dos Ingleses
34000-000 – Nova Lima, MG – Brasil
Tel.: 55 31 3589-7377 Fax: 55 31 3589-7402 e-mail: [email protected] – www.fdc.org.br

Aracruz Celulose and the construction of the
Luciano Villas Boas Machado Barge-Ship Maritime Terminal

ARACRUZ CELULOSE AND THE CONSTRUCTION OF THE
LUCIANO VILLAS BOAS MACHADO BARGE-SHIP
MARITIME TERMINAL*

opposing opinion camps: for some, the news brought hopes that the city – once one of the most important towns in the southern portion of the state – would resume growing; for others, there was a concern that the new company would negatively impact the region's natural environment – among the wealthiest in Brazil.

CASE ABSTRACT

The case discussed here involves events related to the project of a maritime terminal on the coast of the northeastern Brazilian state of Bahia. The region where it was to be built is very close to a National Park comprising islands with reefs, natural pools and vast sea life. Annually, from June to December, the area is visited by "jubarte" (humpback) whales, which come from Antarctica seeking warmer waters to reproduce.
The city is located quite near the Abrolhos Marine National Park, a set of five islands with reefs, natural pools and abundant sea fauna. Every year, humpback whales, leaving Antarctica to seek warmer waters where they can breed, visit the area.
The company responsible for the project is Aracruz Celulose, worldwide leader in the production of bleached eucalyptus pulp sold worldwide to manufacturers of tissue, printing and writing, and specialty papers. Fearing the environmental risks involved in this case, the company developed different activities designed to avoid or at least minimize the possible impacts. Otherwise, the decision already had been taken: the project wouldn't leave the drawing board.
To Aracruz, the maritime terminal project would represent reduced expenses with freight. The local community would benefit from the creation of some 300 new jobs during construction phase, and nearly 600 direct and indirect- jobs upon the startup of operations. Furthermore, heavy truck traffic would be reduced on roads between Bahia and Espírito Santo, where the company's pulp mill is located. But the US$51 million investment risked never actually materializing, if environmental threats were to be confirmed.
The case addresses the 7th principle of the

• United
• Nations
• Global
• Compact

("precautionary approach").

What could be done in order to determine the true extent of environmental risks? Was it possible to prevent or minimize them? What should the company do in order to bring the community into the discussion process? If locals could not be persuaded, even with the

I - INTRODUCTION

When Aracruz Celulose announced the construction of a maritime terminal in Caravelas, Bahia, the population split into two

* Cláudio Bruzzi Boechat, Associate Professor FDC; Nísia Duarte Werneck, Researcher FDC; Letícia Miraglia, Assistant Researcher FDC, developed this case sponsored by Aracruz Celulose, based on data collected from the business reality and for exclusive use as didactic material and as the basis for class discussion rather than to illustrate either effective or ineffecitve handling of an administrative situation. Copyright© 2004, Fundação Dom Cabral. To order copies or request permission to reproduce materials, call 55 31 3589-7250 or e-mail: [email protected]. This publication may not be reproduced without the permission of FDC.

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Casos FDC – CF 0402

required licenses being obtained, would it be producer. The new Veracel pulp mill is

• worthwhile building the terminal at all?
• scheduled to start operations in 2005, with

the capacity to produce 900,000 tons/year of
It was thus, with so many questions to be bleached eucalyptus pulp. faced, that Aracruz started its work in Caravelas. The first people in charge of Aracruz Celulose's forest areas, located in the answering the questions were Forest Manager Brazilian states of Espírito Santo, Minas Gerais, Tadeu Mussi de Andrade, responsible for the Bahia and Rio Grande do Sul, cover a total technical and financial feasibility studies, and 363,000 hectares. Of these, 242,000 are Transport and Wood Handling Manager Fábio destined for eucalyptus plantations, while Velloso; they began in 1998 by conducting 121,000 are covered by native forests owned reconnaissance in the small Bahian town. by the company, respecting an internal policy With the studies approved by the Aracruz of maintaining one hectare of native forest for

• shareholders
• in
• November
• 2001, each two hectares of eucalyptus plantations.

Environmental and Industrial Safety Manager Alberto Carvalho de Oliveira Júnior and Ownership control is exercised by the Environmental and Corporate Relations Lorentzen, Safra and Votorantim groups, Director Carlos Alberto Roxo initiated work holding 28% of common shares each, and by

• to obtain the environmental licence.
• the BNDES (National Bank for Economic and

Social Development) with a 12.5% stake. The company's preferred shares - representing more than 50% of the total shares - are negotiated on the São Paulo, New York and Madrid stock exchanges.

II – THE COMPANY

Aracruz Celulose (www.aracruz.com.br) is the world leader in the production of bleached eucalyptus pulp, sold worldwide to manufacturers of tissue, printing and writing, and specialty papers. It produces around 20% of the world's eucalyptus pulp. About 95% of all that the company produces is exported to countries in Europe, North America, Latin America and Asia.
Being located in Brazil constitutes a competitive advantage for Aracruz. The country is responsible for more than 50% of the bleached eucalyptus pulp produced in the world. And its importance on that market tends to grow because the productivity of tropical forests is significantly higher than tree growth in the northern hemisphere.

Comprising three production lines, its manufacturing complex located in Barra do Riacho (Espírito Santo State) is the world's ARACRUZ AND THE ENVIRONMENT largest single site pulp facility, with capacity
The world demand for paper is growing. The to produce 2,000,000 tons/year. The Guaíba

production is made with wood. In the
(Rio Grande do Sul State) unit is responsible

northern hemisphere, native forests are for 400,000 tons/year of the company's overall

normally used to produce pulp, while in Brazil capacity. Aracruz Produtos de Madeira, a

the industry uses plantation lumber

• high-tech
• sawmill
• dedicated
• to

exclusively. The eucalyptus, due to its fast

growth, has always aroused the interest of companies, but initially it was used only as a secondary fiber in paper production. Aracruz developed the technology that made feasible the commercial growth of eucalyptus for the production of pulp used on the manufacture of premium paper. manufacturing solid wood products, located in Nova Viçosa (Bahia State), and the maritime terminals of Portocel (ES) and Caravelas (BA) complete the company's production system. The company also has a 50% ownership stake in Veracel Celulose, which is being built in Eunápolis, Southern Bahia, in partnership with Swedish-Finnish group Stora Enso, the world's largest paper

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Aracruz Celulose and the construction of the
Luciano Villas Boas Machado Barge-Ship Maritime Terminal

Because of the high demand of wood and early an Odor Perception Network program, it wood management technologies, the pulp controls gaseous emissions from the mill with industry had a bumpy relationship with help from local dwellers living in areas distant environmentalists. The development of new up to 70 km from the manufacturing site. wood handling and monitoring techniques Further actions are taken to prevent and contributed to a more productive dialogue. control atmospheric emissions, effluent Added to this was a growing awareness of discharges and waste generation, in addition companies about their impact and the need to environmental education activities. to minimize it. According to Aracruz Celulose's Corporate Communication Manager, Luiz Fernando Brandão, the company's challenge is to "be as big as its III – THE ARACRUZ EXPERIENCE IN customers," supporting their growth and CARAVELAS always "supplying the market from
We arrived at Caravelas with the mission to sustainably managed forests."

get to know and report Aracruz Celulose's

experience in the city both before and during
Aracruz's Environmental Management

the construction of the maritime terminal. We
System is certified by ISO 14001. The

were to begin by interviewing Mr. Alberto certificate was achieved in 1999 and sustained

Carvalho de Oliveira Filho, the company's ever since. In addition to maintaining one

Industrial Safety and Environmental Manager, hectare of native forest area for each two

who had experienced first hand the port hectares planted with eucalyptus, the

implementation process. company runs biodiversity monitoring

projects on its reserves. Moreover, since 1993 it has been studying the relationship between "The person who actually had the insight about eucalyptus plantations and the regional this place was Mr. Lorentzen, a great leader and

• environment, under its Watershed Project.
• one of the best environmentalists I've ever met,"

he said, praising one of the company's
In the last ten years, investments made in shareholders. "Mill A was built in 1978 from a state-of-the-art equipment and technologies perspective of sustainable development, at a have enabled Aracruz to achieve significant time when few people even knew what that improvement in key indicators of meant. That was a major advance and all eco-efficiency in the production of pulp. The thanks to him. He is often on the mill floor, he company uses steam generated from the knows the engineers well, he has been the burning of eucalyptus and industrial process Chairman of the Board for years, and he's indeed waste as fuel, and it is self-sufficient in electric a man with a broad vision," he proceeded.

• power generation.
• "Then he came up with the idea of starting

forest plantations here, and bought the land
The pulp bleaching process, formerly where Aracruz Celulose's maritime terminal is accomplished by using chlorine, has been located today, already thinking ahead about modified. The old technology was proven to ocean transportation," he reported. cause environmental impacts in other countries where it was used, with resulting The company already possessed some effluents being discharged into closed plantation lands in Bahia when a new law ecosystems such as lagoons and lakes. approved in Espírito Santo forbade any Although no such impacts had been expansions of the company's eucalyptus demonstrated to occur in Brazil, a choice was plantations in the state. The investments

• made to replace the technology.
• needed for increasing its productivity in already

planted areas and the idea of expanding its
Also as part of its Environmental Management Bahia plantations thus gained more System, Aracruz monitors the marine importance. But there was already a concern environment near its facilities and, through about transportation. "One of the risks

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Casos FDC – CF 0402

involved was the possibility of the federal centers in the world, would be necessary highway being privatized. If tolls had to be because the existing access could only be used paid, the cost of timber would increase a lot. during high tide. Besides, construction of Fiberline C meant an increased demand for wood, with "We felt that the biggest problem would arise transportation by land becoming unfeasible. when the community realized what we were Costs would be high and the road would be going to do. We went talk to the mayor to seriously jammed with almost 500 trucks show the project publicly, because we at transiting everyday, considering only those Aracruz thought that it would be important

• working for Aracruz," explained Alberto.
• to do so even before starting the licensing

process," said the company's Industrial Safety
It was necessary to make an alternative mode and Environmental Manager. feasible, so as to reduce costs, while preventing increases in accident rates and road traffic jams. "We gathered about 400 people at the 'Clube Then, Aracruz realized that it was time to put dos 40' (the town's largest venue for such into practice the idea of maritime events), and off we went to present our case. transportation. In 1998, the Forest Manager But we had just limited information at the Tadeu Mussi de Andrade, responsible for the time. This was perhaps our biggest mistake. project, and the Transport and Wood Handling We should have got better informed ourselves Manager, Fábio Velloso, started the technical before presenting the project," he admitted. and financial studies to verify the feasibility of "For instance, they asked us what would the

• the maritime terminal in Caravelas.
• barge's speed be, and we didn't know the

answer. Then someone said "48 knots," which
Concluded the first stage of the analysis, the is an absurd figure, four times the actual project was presented to the Aracruz speed, and the people attending the meeting shareholders, who approved it. At that point, were really impressed." the environmental licensing process that depended directly on the approval of the nation's But the population did not seem to be much environmental agency was iniatiated. "That was concerned about the barge's speed. "What when I got in the loop," said Alberto de Oliveira. happened was that the population really cheered the terminal as an opportunity for new
At that point in the interview, we were jobs to be offered, in addition to representing a interrupted by Ismail, an Aracruz employee new source of tax revenues," according to who carried with him a "budião," a fish Alberto. Councilman Hideraldo Beline Passos commonly found in Southern Bahia, for confirmed the story. "The city was hoping for dinner. Alberto requested that the fish be left something like that, to put an end to apathy marinating in seasoned sauce, while he told and morbidity. In the past, Caravelas had

• us how the whole story had begun.
• already been involved with transportation of

timber, salt, coffee, it had a port, airport, railway, but, bit by bit, it lost it all. It was doomed to become a ghost town. So, the entire population wanted the terminal."

ARACRUZ PRESENTS ITS PROJECT TO THE COMMUNITY

"But the NGOs came all over us," Alberto remembered, recalling a meeting they had with the community:
In order to render the maritime terminal operation feasible, it would be necessary to dredge a canal linking the Caravelas River to the sea, totaling 3.8 km in length, 90m wide and 5m deep. Two dredges would haul out 880,000 m3 of underwater sediment. That work, planned by Danish Hydraulic Institute(DHI), one of three main water study
"The Baleia Jubarte Institute (or Humpback Whale Institute), the IAPA, the Ecological Patrol and the Conservation International. They came all over us. The Baleia Jubarte Institute was especially aggressive. They said

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Aracruz Celulose and the construction of the
Luciano Villas Boas Machado Barge-Ship Maritime Terminal

the project was unfeasible, for this region was A process then began in order to verify the risks sacred and must be preserved. And we still posed to the region's coral by the dredging did not know what to say, at that point. This works. Upon a suggestion made by Prof. Clóvis was when we started to realize that they, too, de Castro, the coral located north of Caravelas had scarce information, as deeper studies on were also monitored, despite the fact that the the region were lacking. So, Aracruz ocean currents move north-southwards and, committed to providing all the answers to the therefore, coral reefs located south from the

• questions raised."
• city in places such as Nova Viçosa and

Sebastião Gomes, were under greater threat.
Alberto then explained that the NGOs' participation became extremely important, as Monitoring was to be done as follows: a glass they put forward the issues for which Aracruz is placed on the reef, and later it is removed then strove to find consistent, satisfactory and taken to the lab in Rio de Janeiro, for

• answers.
• analysis. In case it shows similar sediments

as the ones taken from the dredged region, it has been proved that the work would damage the reef. The main NGOs from the South of Bahia, still skeptically, watched the process from really close up.

FIRST CHALLENGE: THE CORAL REEFS

Initially, the main concern was in regard to the region's coral reefs, which might be affected by sediments removed during the dredging process. First, studies on that issue were conducted by the Danish Hydraulic Institute, which designed the canal. After that, Aracruz started monitoring the influence of dredging on local coral.
When this class about coral monitoring ended, the hotel waiter came to tell us that the "budião" was already soaked in marinating sauce and the grill was ready for the fish. He then asked us if we would like anything to drink. "Not now," we said. And proceeded with our conversation.

"If there was any threat to them, we would have given up. One of the NGOs approached Mr. Lorentzen during the process, and he THE PARTNERSHIP WITH THE BALEIA assured them that, if it was demonstrated that JUBARTE INSTITUTE the company would cause any damage, then
"The NGOs stood united and it seemed that he would himself take the project away from

all they wanted was to find arguments against
Caravelas," recalled Alberto.

the project," Alberto recounted, visibly with

less resentment than pride in his company
"We then went out looking for the best coral

having overcome that challenge. "But, when experts in Brazil. We found two of them:

we brought Prof. Clóvis before them, the
Professor Zelinda, from the Federal University

Baleia Jubarte Institute saw that Aracruz work of Bahia, and Professor Clóvis de Castro, from

was serious, and decided they wanted to read the Federal University of Rio de Janeiro. We

the project," he recalled. went talk to them, and Professor Zelinda said

that she would agree to review the project, but she would not work for Aracruz, as she "At the time, there were opinions against our wouldn't for any corporation. Professor Clóvis participation, as the image of companies – not de Castro said he accepted it, but he only in Brazil but worldwide – is not too good, demanded guarantees that, whatever his in part due to their own history. But, in findings were, they would be published as he internal discussions, we took the decision to wrote them, without any changes. Aracruz participate," according to Valério Arbex, agreed to his demands and we brought him manager of the Baleia Jubarte Institute. "We

• to Caravelas," he said.
• saw that Aracruz had a level of concern

beyond the IBAMA requirements, and was

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Casos FDC – CF 0402

keen to preserve the company's good image. THE LICENSING PHASE Our intention was to help minimize the impact caused by the terminal, for there will always be some impact," he added.
"So, with the partnership with the BJ Institute things became easier?" we asked. "No, when we went for the licensing phase, things got complicated," he remembered. In a meeting with the CRA (Environmental Resources Center), a state body, and with the IBAMA (Brazilian Institute of the Environment and Renewable Natural Resources), a federal body, it was decided that the license for dredging would be up to IBAMA, while the CRA would be in charge of licensing the port.
"For us, the important thing is to have independence. We are sponsored by Petrobrás, and have already taken position against the exploitation of some oil blocks that, in our opinion, would be damaging to the environment. Aracruz never asked us to change a report, either," Valério assured us.

The first question raised by the Institute was in regard to the barges' route. They feared that they would cause discomfort to the On the first project of the terminal delivered whales, or even run over them. Aracruz then to the Environmental Resources Center, a rocky volunteered to finance studies that would dam was scheduled to be constructed, which enable the BJ Institute to determine the best would destroy part of the mangrove swamps route for the barge-ships, and assured them in the region. The technicians from CRA were

• they would follow the route as indicated.
• immediately against this and that caused

Aracruz, in a partnership with Jaakko Poyry
This marked the beginning of a partnership Technologia, the company responsible for the that would help biologists to learn more about port project, to change the idea and replace the the habits of humpback and franca whales, dam with a bridge over the mangrove area. The which annually come to the coastal waters cost was higher, but with that they could of Southern Bahia and Northern Espírito reduce the opposition from CRA's technicians. Santo, from July to December. The humpback is the fifth largest whale species in the world, Once the Environmental Impact Assessment

• and is currently endangered.
• (called EIA/RIMA) had been completed, it was

registered at the CRA, at IBAMA and with the
With investments amounting to R$700,000 Navy, which soon demonstrated its support of (approximately US$240,000) in six months, the the initiative, saying that Brazil needed to researchers had adequate conditions to carry explore its coast more intensively. Two public out a complete study, which included hearings were held in Caravelas, one as part of overflights to count whales and boat trips to the proceedings at the CRA and the other identify each individual from its tails, which, relatively to the request for licensing by IBAMA. for this species, are like a fingerprint. In possession of findings from these studies, the "We attended the hearings and took a lot of Baleia Jubarte Institute could define safe routes pressure from the politicians, who wanted the

• along which the barge-ships should navigate.
• company to come to Caravelas by any means,"

recalled Henrique Horn Ilha, chief of the
"It does increase our costs and travel time, but Abrolhos Marine National Park, a body we follow the route strictly. Even knowing subordinate to IBAMA. "They saw it as an that an accident involving whales is a very opportunity to regain their former economic rare event, and that about three thousand relevance, and feared that, should it get too ships cross these waters every month and troublesome, Aracruz would look for other nothing happens, we are taking no chances," alternatives. The population was also in favor

• Alberto explained.
• of the project, today the number of local

people against it is larger, as some of their initial requests could not be met. At that time, only I was bold enough to oppose it," he