Banks, Pulp and People A Primer on Upcoming International Pulp Projects Published by: urgewald e.V. Editing: Lydia Bartz, Heffa Schücking, Patrick Anderson Author: Chris Lang Layout by: Kirsten Everwien, [konzept+gestaltung], Köln, Germany Printed by: Darpe Industriedruck GmbH & Co KG, Warendorf, Germany V.I.S.d.P: Heffa Schücking, Von Galen Str. 2, 48336 Sassenberg, Germany Copyright: © Juni 2007 urgewald Many thanks to the following institutions for their support 2 urgewald – Advocacy for the Environment and Human Rights urgewald is a German non-profit organization, movements, which are challenging the massive whose mission is to address the underlying causes impacts of the pulp industry in their countries. of global environmental destruction and poverty. Time and again, we have experienced that both We monitor the activities of German banks and development and commercial banks are seldom companies abroad and educate the German public aware of the environmental and social impacts of about the negative impacts of our consumption the pulp industry in these countries, when they patterns on people and nature in far-away places. make investment decisions. After years of working with consumers, our forest program has therefore urgewald works closely with affected communities begun to actively reach out to financial institutions and NGOs in the global South. Over the years, we and to encourage them to recognize indigenous have become an important contact point for anti- and local peoples’ rights as well as environmental nuclear campaigners in Eastern Europe, indigenous concerns, when making decisions, that will affect people in Brazil, whose cultures are threatened by the future of communities and ecosystems. large plantation companies or farmers in India, who are being driven off their lands for big dams. We In its campaigns, urgewald cooperates closely with make sure that their voices are heard - in meetings many national and international NGOs. We are also with decision-makers, at shareholder meetings, in members of BankTrack, Taiga Rescue Network and the media or through public actions. the World Rainforest Movement. urgewald names and calls on those in charge to put For more information on the pulp sector, visit our into practice the promises of sustainability that are webpage www.pulpmillwatch.org or contact our office: made in annual reports and public statements. We call on international companies and banks to step urgewald back from destructive projects and to adopt binding Von Galen Str. 4 environmental and social standards. And we engage 48336 Sassenberg in dialog with business representatives to help Germany them develop responsible due diligence practices. Tel: (49)-2583-1031 Fax: (49)-2583-4220 Over the years, pulp and paper has become one of Email: [email protected] the focal points of urgewald’s work. We have tracked www.urgewald.de the source of pulp and paper products to Germany and analyzed the problems in the pulp production countries. And we have built close contacts to local 3 Banks, Pulp and People A Primer on Upcoming International Pulp Projects PART 1 1. INTRODUCTION 6 1.1. A visit to a pulp mill 6 1.2. Financing is part of the problem 7 2. THE IMPACTS OF INDUSTRIAL TREE PLANTATIONS AND PULP MILLS 8 2.1. Water sucking monocultures 9 2.2. Plantations increase deforestation 9 2.3. Jobs created are few and dangerous 11 2.4. Plantations increase rural poverty 11 2.5. Pulp, energy and climate 12 2.6. Pulp mills create pollution 13 3. STRUCTURAL DEFICITS OF THE PULP INDUSTRY 15 3.1. Overproduction 15 3.2. Overconsumption 15 3.3. Dependence on Subsidies 16 4. “LOW-FACT” FINANCING OF PULP MILLS 18 4.1. Public Finance 18 4.1.1. IFC: “Open for business” 18 4.1.2. EIB: Destroying livelihoods in Brazil 19 4.1.3. ADB: Increasing poverty 20 4.1.4. ECAs: Supporting profits in the North 20 4.2. Private finance 21 4.2.1. political risk 21 4.2.2. financial risk 22 4.2.3. legal risk 22 4.2.4. reputational risk 23 PART 2 1. WORLDWIDE PULP EXPANSION 26 2. COUNTRY PROFILES 28 2.1. Australia 29 2.2. Brazil 32 2.3. China 36 2.4. Indonesia 40 2.5. Laos 44 2.6. South Africa 47 2.7. Uruguay 51 PART 3 1. RECOMMENDATIONS 54 1.1. Role of Development banks and Aid agencies 54 1.2. Role of Commercial banks 54 1.3. Existing Tools 57 2. REFERENCES 59 5 Part 1 1.INTRODUCTION Pulp mills and the industrial tree plantations that country case studies and information on problematic feed them have become increasingly controversial. pulp projects in the pipeline and it makes In country after country, local people and recommendations to financiers regarding their future environmental organisations are protesting against role in this sector. the impacts of plantations. The vast areas of mono- cultures required to feed modern pulp mills have Before looking at the way pulp mills are financed severe impacts on biodiversity, water, land rights and the structure of the pulp industry, we start with and livelihoods. And the mills themselves are a look at the impacts. The best way of doing this is among the most polluting of industrial facilities. with a visit to a modern pulp mill and associated Communities around the world have seen their plantations. rivers, fisheries and drinking water ruined. Protests against pulp mills are ongoing in Thailand, 1.1. A VISIT TO A PULP MILL AND PULPWOOD PLANTATION Indonesia, Brazil, Chile and Uruguay, to mention just a few of the countries involved. The lines of eucalyptus stretch as far as the eye can see, towering over us. The trunks are straight with The major actors in the pulp industry are global hardly any branches. Inside the plantations there's players. For more than a decade, the industry has an eerie silence. No birds, no animals, few signs of been contracting in the North and expanding in the life. Nothing grows between the rows of trees South. While production of pulp is moving South, except a few blades of grass. We drive on to a vast much of the advice that governments, companies clearcut where machines are removing the trees and financiers rely on comes from northern-based mechanically and apparently effortlessly. The trees consulting firms. The machinery and equipment for are all the same age, the same species and at such pulp and paper machines is manufactured in the a risk of pest and disease attacks that they have to North. And the bulk of paper production is destined be regularly sprayed with a cocktail of chemicals. for Northern consumption. The plantations belong to Veracel, a massive new This report is addressed to the financiers of pulp pulp mill in the Brazilian state of Bahia, built as a mills and industrial tree plantations, who are also joint venture between the Swedish-Finnish pulp based primarily in the North. Between 2000 and giant Stora Enso and Brazil's Aracruz. The pulp mill 2006, pulp and paper companies raised US$ 215.5 started up in 2005. billion on the international capital markets.1 While development banks only provided US$ 1.9 billion The European Investment Bank, which lent a total to the sector over the last decade, they are now of US$ 110 million to the Veracel project, states that accelerating their activities rapidly. As funding is a the pulp mill "is expected to create significant key barrier to entry for proposed mills, funding economic benefits for the region, including institutions jointly and individually hold significant employment". In fact, Veracel's pulp mill will power in determining which projects are ultimately employ only 400 people. Built at a cost of US$ 1.25 realised – and responsibility for the impacts that billion, jobs at Veracel's pulp mill come at US$ 3.15 follow. million invested per job. At the same time, many thousands of livelihoods were lost when farm lands This report examines the pulp industry’s current were taken over for Veracel’s plantations. expansion plans as well as the implications of these We visit a village, or what's left of it. Villagers tell plans for people and the environment. It provides us that many people have moved away since the 6 eucalyptus arrived 18 months ago. In one commune 1.2. FINANCING IS PART OF THE PROBLEM everyone has moved away. "There are no jobs here now and no money from the eucalyptus," one of The bigger the pulp mill, the bigger the plantations the villagers tells us. Business at the local shop is required to feed it. The bigger the plantations, the down by 80 per cent. bigger the impact on local communities and their environments. But the scale of modern pulp mills is The villagers show us their cemetery, or what's left not only driven by the pulp industry's demands for of it. Veracel has planted eucalyptus right up to the efficiency and profits. It is partly driven by the cemetery, and even taken some of the cemetery peculiarities of global finance. land. The cemetery is completely walled in by eucalyptus. To find it, we have to drive between the Much of the funding for the expansion of pulp rows of eucalyptus. capacity worldwide comes from syndicated loans, bonds or equity offerings. In order to raise capital, Villagers tell us about the river, or what's left of it. companies need a credit rating, need to be listed The river near the village is drying up. It is polluted on a stock exchange and need an issue size of at by chemicals from the plantations. Plantation workers least US$ 100 million, all of which tends to limit clean their tractors in the river which further pollutes access to international capital markets to the larger the water.