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ARGENTINA/URUGUAY: Paper Plant Row Extends to French Bank

Emad Mekay

WASHINGTON, May 22 2006 (IPS) - An unprecedented dispute between Argentina and Uruguay over two massive paper pulp factories has now spilled over to Calyon, the French private bank assisting with the financing of one of the plants, after green groups accused the lender of breaching a pledge it made to protect the environment.

The Uruguayan pulp mills, one called Orion and sponsored by Finland’s Botnia for 1.2 billion dollars, and the other called Celulosas de M’Bopicua (CMB), financed by Spain’s ENCE at 600 million dollars, have been so controversial that Argentina filed a complaint early in May against its neighbour before the International Court of Justice in The Hague.

Argentina says it wants the construction of the two paper mills halted because Uruguay improperly and unilaterally authorised their construction on the River Uruguay, a waterway that both countries share, without prior consultations.

According to court documents, Argentina claims that these plants, on the banks of the river near the Argentine town of Gualeguaychú, will “damage the environment of the River Uruguay and its area of influence zone”.

The complaint alleges that the project will affect more than 300,000 residents, who are concerned about the “significant risks of pollution of the river, deterioration of biodiversity, harmful effects on health and damage to fisheries resources”.

The filing, the first time a Latin American nation has taken another to court over an environmental quarrel, cites the “extremely serious consequences for tourism and other economic interests”.

These worries are echoed by international environmental groups who say they want to highlight the hypocrisy of private banks, especially those who have received kudos for their environmental awareness, in the dispute.

According to a press release from Calyon and the Swedish finance group Nordea, 60 percent of the funding for the Botnia plant would come from capital invested by Botnia S.A.’s shareholders, and the remaining 40 percent will be arranged through external loans.

Several groups complained this week to Calyon, the international financial investment arm of Crédit Agricole of France.

They say the bank has breached the Equator Principles, an agreement amongst dozens of private international banks to invest responsibly, when it sought to finance the Botnia plant.

This is particularly significant because the French bank claims to be one of the more “socially responsible” European banks, and boasts that it was one of the first banks to sign the Equator Principles.

The groups, including Friends of the Earth Uruguay, Friends of the Earth International, the Centre for Human Rights and Environment of Argentina, Banktrack of the Netherlands, Guayubira of Uruguay, and the World Rainforest Movement, have all vowed to confront the French bank and force its withdrawal from the project. Nordea is also under heat for its involvement.

Campaigners are emboldened in targeting the French bank because they say they succeeded in convincing the Dutch banking giant ING not to invest 480 million dollars in pledged support to Botnia.

Companies investing in both plants are also seeking more than 400 million dollars from the World Bank, which has not yet approved the funding.

The paper mills’ combined production of 1.5 billion tonnes makes them one of the largest pulp production enterprises, and the largest foreign direct investment in Uruguay’s history.

“It is unfortunate that Calyon, another Equator Bank, has stepped into this arrangement,” said says Johan Frijns, coordinator of BankTrack. “ING did the right thing and pulled its investments.”

The plants are located on the banks of the Uruguay River, an international waterway forming the natural border between Argentina and Uruguay.

The most recent protests have come primarily Argentineans living in Gualeguaychú, while Uruguayans across the river in Fray Bentos have generally supported the projects, which they believe will create many new jobs.

Residents of the area have filed complaints with the Compliance Advisory Ombudsman, the auditing body for the International Finance Corporation (IFC), the private investment arm of the World Bank, and to the Inter-American Commission on Human Rights.

In March, the audit found that IFC’s Environmental and Social Review Procedures – the processes that IFC staff are required to follow when initially studying projects to determine whether the corporation should provide project financing – were neither “rigorous [n]or robust enough to sufficiently support an outcome that is in compliance with the [IFC’s] Disclosure Policy”.

Environmentalists cite the case before the International Court of Justice as evidence of the gravity of the situation and charge that if Calyon proceeds with securing financing for Botnia, it will be complicit in “violations of human rights and environmental law”.

Environmental and rights groups say that as European legislation has become more stringent in recent years, with tougher environmental controls over pulp production, international companies are shifting their operations to poorer nations where regulations are far more lax and politicians are easily intimidated.

“This is something that’s been going one for several decades now – the idea of transferring paper mill industries to the global south,” said Jorge Daniel Taillant of CEDHA in a telephone interview from Argentina.

“They are moving these companies south to places like Uruguay where they have less strict environmental laws,” he added.