Spain's ENCE announced Thursday that Uruguay remains a strategic player for its pulp industry interests in spite of having cancelled the construction of a pulp mill until a new area is agreed with Uruguayan authorities.
Ence was planning to build the mill just across from neighbouring Argentina, next to another mill under construction belonging to Finland's Botnia, in an area which was being challenged by the Kirchner administration for alleged environmental reasons.
Juan Luis Arregui, ENCE's CEO arrived in Montevideo Thursday to confirm what had been rumoured for some time since he first visited the construction area months ago.
"Uruguay is strategic for us but you can't have two pulp mills together (six miles apart), because there's insufficient infrastructure to support two such large undertakings. Therefore in the coming weeks we will be proposing Uruguayan authorities a new location for the pulp mill", said Mr. Arregui.
Ence has vast interests in Uruguay including thousands of hectares of forested land and several chip mills which have been under production for several years.
However Ence and Botnia's mills on the border river Uruguay next to neighbouring Argentina triggered a dispute between Buenos Aires and Montevideo because the water resources, according to a 1975 agreement, are jointly managed and the Kirchner administration spurred by local environmentalists challenged the decision alleging it was never consulted on the huge investments needs for water.
Locals from the Argentine city of Gualeguaychú argued that the pulp mills' chlorine bleaching technology would pollute water and air and destroy their main tourism industry.
The construction of both pulp mills originally was estimated to demand an investment of 1.8 billion US dollars, Uruguay's largest private investment in half a century.
The dispute between Uruguay and Argentina became increasingly sour as environmentalist, with Kirchner administration complacency, established pickets blocking bridges linking the neighbouring countries distorting normal traffic, trade and in summer months the influx of Argentine tourists who flock to Uruguayan Atlantic beaches.
The case ended in the International Court of The Hague with a first ruling which was hailed as victory by both sides. The court effectively admitted the blocking of bridges was harmful for Uruguay but did not condemn the Kirchner administration or specifically warn about pickets in the future as Uruguayan authorities were expecting.
On the contrary it simply asked Argentina to be more expedient in deactivating the pickets.
And the core of the matter whether the joint administration of the shared Uruguay river water resources had been violated was left for further on.
A Mercosur tribunal convened by Uruguay admitted Uruguay had suffered losses because of the "blockade", but refused to quantify them and called on both sides to find a "good neighbours" way out to the dispute.
Uruguayan authorities said the fact Ence decided to change the site of the mill was not a defeat, because the company confirmed it was staying in the country and only looking for some other place.
However off the record officials admitted that Ence had been under huge pressure from Argentina to move somewhere else and financing for the project had been stalled both in private banking sector and in multilateral institutions because of the risk factor, (pending international court ruling) and an environmental assessment study demanded by the World Bank and which will not be known until the end of October.