ENCE PULLS MILL PLANS IN URUGUAY; BLOCKADE RETURNS

C O N F I D E N T I A L MONTEVIDEO 000907

SIPDIS

SIPDIS

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E.O. 12958: DECL: 09/24/2016
TAGS: PREL PGOV SENV SOCI ECIN ETRD AR UY
SUBJECT: ENCE PULLS MILL PLANS IN URUGUAY; BLOCKADE RETURNS

REF: MONTEVIDEO 353

Classified By: Charge d'Affaires James D. Nealon
for reasons 1.4 (B) and (D)


1. (SBU) Summary. The Spanish company ENCE informed the GOU
that it will relocate its planned paper mill, but we suspect
that the mill may never be built. Reports also indicate that
Argentine protesters renewed last season's blockade of
bridges into Uruguay and called on the remaining paper mill
company, Botnia, to also move its plant. Botnia is currently
suffering a work stoppage. GOU officials are concerned about
recent developments. End Summary.

ENCE ANNOUNCES MOVE
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2. (U) The Spanish company ENCE informed the GOU that it will
relocate its planned paper mill. Various reports indicate
that ENCE may consider a location further upriver or near the
Brazilian border. It emphasized that the company will not
leave Uruguay and will build a plant of twice the capacity in
the new location. The company's president, Juan Luis
Arregui, cited company restructuring and possible traffic
congestion at the previous location as the main reasons for
the move. Although ENCE originally planned to begin
construction in December 2005, it has not proceeded beyond
grading earth at the current site.


3. (C) Comment. ENCE's reasoning is difficult to believe. A
change of location would delay the project for years during a
renewed approval process, distance ENCE from its wood
chipping facility and private port, and at least double the
distance to its oceanic shipping point in Nueva Palmira. We
have heard reports that ENCE is dependent on IFC
financing--which has been long delayed--in order to start the
project. However, we find it unlikely that ENCE suddenly
discovered a traffic problem in Fray Bentos since both paper
mills were planned since at least 2003 and have been the
subjects of numerous impact studies. A high-level GOU
official questioned ENCE's reasoning, and shared his belief
that ENCE plans to cancel the project. We agree and find it
highly likely that ENCE is weighing the possibility of
abandoning plans to build in Uruguay under the guise of
looking for a new location. End Comment.

AND MORE HEADACHES
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4. (U) According to press reports, "thousands" of Argentine
protesters renewed last season's blockade of bridges into
Uruguay. Blocking two of the three bridges, Argentine
protesters called on Botnia to change locations as well.
This week, Uruguay's tourist locations await Argentine spring
break vacationers, and protesters likely hoped to disrupt
this traffic. Reports also inferred that ENCE's decision
encouraged the protesters. Botnia has completed nearly half
of its paper mill, and a move is very unlikely. Botnia,
however, is facing a work stoppage over the importation of
European specialized workers. Local union officials maintain
that the company should hire Uruguayans instead.

REACTIONS
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5. (C) Several GOU officials expressed exasperation over
ENCE's decision, and while the GOU is officially cooperative
with ENCE's request for relocation, several officials
privately doubted its bona fides. Some in the GOU argue that
the ForMin should have responded early to Argentina's
world-wide lobbying efforts and signs of ENCE's wavering
resolve. They take the loss of ENCE as further evidence of
FM Gargano's incompetence. One commentator lamented that
Uruguay relied too heavily on multi-lateral fora in this
case, and the newspaper El Pais commented that nasty labor
leaders plaguing Botnia may be just as damaging as Argentine
protesters.
Nealon