Stora invests in Brazil

STORA and Odebrecht SA, Brazil, are each to own 50 percent of the Veracruz pulp project in Brazil. The project is a first step in STORA's future expansion into new high-growth markets and aims at securing a raw materials base. The cost of the project will total an estimated USD 1.5 billion. The raw material will be supplied from eucalyptus plantations close to the plant. The project has been environmentally approved by the Brazilian authorities and is expected to be completed in 2001-2002. * * * STORA has signed an agreement in principle with the Brazilian company, Odebrecht SA, to participate on a 50-50 basis in the construction of a single- line pulp mill that will have an annual capacity of 750,000 tonnes of short- fiber pulp. The estimated total cost of the Veracruz project is approximately USD 1.5 billion. It is anticipated that the mill will be completed in 2001-2002. The forest raw material will be supplied from eucalyptus plantations in the province of Bahia, where the mill will be located. The average transportation distance between the plantations and the mill is less than 60 kilometers. In order to supply the pulp mill, which will be 100-percent self-sufficient, about 160,000 hectares are needed, of which some 80,000 hectares are plantation land. Most of this has already been acquired in the area, which is situated about 1,200 km north of Rio de Janeiro and some 60 km from the Atlantic coast. Approximately 50 percent of the acquired land is being used for plantation cultivation, while the balance will remain fallow for environmental reasons. No felling operations will be conducted in the rain forest. Odebrecht has been responsible for the Veracruz project since 1991 and has already obtained permits, including environmental approvals, from the Brazilian authorities. The project is being financed partly through shareholders' equity, which will total USD 600 million (of which STORA accounts for USD 300 million) and partly through borrowing. * * * "First and foremost, the Veracruz project should be seen as part of, or a first step in, our efforts to produce fine papers in new high-growth markets," comments STORA's Chief Executive Officer, Lars-Åke Helgesson. "In addition, there will be opportunities to deliver short-fiber pulp to STORA's plants in Europe at competitive prices. One of the requirements from our side has been that the project must stand on its own merits and show favorable profitability, irrespective of paper production. The Veracruz project meets these requirements." Among other measures during the consolidation process in 1991-1996, STORA phased out all operations that were unrelated to the forest industries sector and at the same time refocused on two core product areas, graphic papers, which includes both printing and fine papers, and high-quality board for packaging applications. The investments made in recent years have concentrated mainly on these two areas. In terms of the European and North American operations, work is in progress to complete the task of concentrating production to units with long-term competitiveness. "Investments already made and in progress mean that during the years ahead we can increase our capacity by about one million tonnes, or 15 percent, compared with 1996," says Lars-Åke Helgesson. "For some time, we have also been reviewing opportunities to become involved in new high-growth markets that offer greater growth than we are currently experiencing in our main markets in Europe and North America. This is not only a question of marketing but also, and to a large degree, production in order to take advantage of the natural production potential that exists." Consumption patterns in Southeast Asia differ from European patterns. In these new markets, the consumption of fine papers accounts for 72 percent of the total consumption of graphic papers, compared with 41 percent in Europe. The pattern is roughly the same in Latin America. The demand for fine papers in Southeast Asia up to year 2010 is expected to increase from 12 million tonnes in 1995 to nearly 29 million tonnes, corresponding to an annual growth of 6 percent. "A prerequisite for the cost-efficient production of fine papers in Southeast Asia is that we secure access to long-term and assured supplies of low-cost short-fiber pulp," continues Lars-Åke Helgesson. "That is why pulp production must come first. This form of production would not necessarily have to be in the same location as the fine-paper production. However, in the case of Veracruz, the opportunities exist, at a later stage, to expand into paper production. The crucial factor is to ensure that we utilize the full value of the cheap fiber," he emphasizes. "We studied a large number of projects," notes Helgesson. "We have looked at profitability, localization, land-ownership opportunities (which are important for maintaining low costs), wood growth, infrastructure, environmental issues, possible cooperation partners, and other aspects. We have found that the Veracruz project fulfills our criteria within all areas." Note to editors: STORA is one of the world's leading forest products groups, with a total production capacity of approximately six million tonnes of paper and board. STORA also produces pulp and sawn timber and is one of Sweden's largest forest owners. The Group is also a major power supplier. In 1996, the STORA Group had sales of slightly more than SEK 45 billion, of which European markets accounted for 89 percent. Markets outside Europe and North America accounted for 8 percent of sales in 1996. STORA has approximately 21,000 employees active in some 20 countries. STORA's cooperation partner in this project, Odebrecht SA, is one of the largest corporate groups in Brazil. It has operations in the construction, petrochemicals and telecommunications fields. Odebrecht is listed on both the São Paulo and Rio de Janeiro stock exchanges and the company is controlled by the Odebrecht family. It has annual sales of about USD 4.3 billion (1996), with 39,600 employees. Short-fiber pulp is produced from eucalyptus, birch, aspen and beech. The pulp, which has high whiteness, is particularly well suited for the production of fine papers, which in turn are used as copier paper (uncoated fine paper), or for the printing of books and catalogs (coated fine paper), among other applications. STORA has more than 30 years experience of managing eucalyptus plantations. In Celbi, STORA's operation in Portugal, the Group has 60,000 hectares of eucalyptus plantations and is engaged in a world-leading research program within genetics, among other fields, to improve the growth and pulp and paper properties of eucalyptus fiber.