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Construction of Uruguay’s second pulp mill begins with concern on costs in Pesos

Thursday, May 26th 2011 - 19:53 UTC
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Erwin Kaufmann, General Manager of the Montes del Plata project Erwin Kaufmann, General Manager of the Montes del Plata project

The scarcity of qualified labour and the increase in costs have become a growing concern for the pulp mill that Chilean and Scandinavian investors are building in Conchillas, Uruguay.

“It has become hard to find sufficient qualified labour both for us and for the construction companies, particularly when in the rest of the country there is such activity”, said Erwin Kaufmann, General Manager of the Montes del Plata project which is jointly owned by Chile’s Arauco and Swedish-Finnish Stora Enso, (SEOAY, STERV.HE), two leading world companies from the pulp and paper industry.

“More than ever it is essential to be aware of the costs of the project so that the enterprise is profitable for the investors”, added Kaufmann.

On Wednesday a ceremony was held in Conchillas to mark the beginning of the construction of the pulp mill which will demand an overall investment of 1.9 billion US dollar and is expected to create 6.000 jobs at this stage of the project.

Uruguayan ministers of Finance, and Industry and Energy, Fernando Lorenzo and Roberto Kreimerman plus other regional officials attended the ceremony.

“This project is far more expensive than the Botnia mill in Fray Bentos (the first pulp mill to be built in Uruguay and which has been in production since 2008) because of the exchange rate and soaring costs in Uruguayan pesos, for example the salaries item”, said Kaufmann.

Once in full production sometime in 2013 the mill should have an annual production in the range of a million tons annually and 500 permanent jobs at the plant.

Regarding the financing of the mill, Kaufmann said the company has its own funds plus international loans, particularly from European export agencies that support overseas sales from their countries with direct loans for capital goods.

“Most of the machinery and equipment most probably will come from Finland and we have Finnish institutions that provide credit if capital goods exported come from that country”, pointed out Montes del Plata general manager.

Uruguayan financing is not expected during the construction and mounting of the mill but once the mill is running.

“We will need an important sum for daily operations once we are in business”.

Kaufmann also revealed that Uruguay’s pension funds, AFAPs, are interested in participating in the project.

“Montes del Plata probably would have never taken off if we had not been awarded the ‘free zone’ status which is an important tax relief” admitted Kauffman, which “by the way is similar to that enjoyed by Botnia”.

Finally Kaufmann underlined that in the current situation of costs, the location of Conchillas on the River Plate from a logistics point of view has become Montes del Plata main challenge.

“We have an average distance of 250 kilometres to the forests that will provide the necessary wood to the pulp mill and that in Pesos can be very expensive”, concluded Kaufmann.

Categories: Economy, Investments, Uruguay.
Financial Tags: SEOAY.

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  • GeoffWard

    Nice, hard-headed analysis by Kaufmann.

    Any restriction on the import of foreign workers ?

    There are hundreds of thousands of educated and skilled Indian construction workers available and willing to work in SA.
    The Arab world hires them by the tens of thousands, in preference to Chinese itinerant workers.

    Kaufmann would be hard pressed to find sufficient quantity and quality available from within Mercosur. The same problem of scarcity in economic boom-time, is widespread.

    May 27th, 2011 - 11:36 pm 0
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