Uruguay Ready to Back UPM’s Pulp Output Plan, Mujica Says

Uruguay’s President Jose Mujica said he’s prepared to allow a pulp plant owned by Finland’s UPM-Kymmene Oyj to boost production if it meets stricter environmental requirements.

The plant, on the Uruguay River that borders Argentina, will probably be allowed to raise production from its current 1.1 million tons per year, Mujica said in an interview. He declined to say if output could climb as high as the 1.4 million tons sought by the company. He said he will discuss his decision with Argentine President Cristina Fernandez de Kirchner Sept. 30 before making a final announcement.

“I’m going to make a decision in the middle,” Mujica said yesterday in New York, adding that Helsinki-based UPM will have to ensure the plant lowers the temperature and amount of phosphorus in the water it returns to the river. “The decision is not simple. It’s a give and take.”

Shares of UPM, Europe’s second-largest papermaker, rose 0.4 percent to 10.43 euros in Helsinki trading and have gained 18 percent year-to-date.

Mujica, who said he’s already shared his decision with UPM, is betting on foreign investments in the country’s natural resources to sustain growth in the $49 billion economy. The government is seeking to exploit iron ore reserves that will require a new deep water port on its Atlantic coast that will begin construction in 2014.

Iron-Ore Project

Minera Aratiri, owned by Dubai-based Zamin Group, has been since 2007 seeking government approval to carry out a project that would allow exports of 18 million metric tons a year of iron-ore. Mujica said his government will sign in two months the contract that Aratiri says would convert Uruguay into the world’s eighth-largest producer of the mineral.

The government will invest about $400 million into a breakwater for the new port to facilitate the exports and could tap local and global debt markets, private investors and regional governments to complete the project, he said.

“We have the ability to issue local debt, we have access to global credit markets,” Mujica said. “We don’t have any doubts” about being able to make the investment, he added.

Uruguay’s dollar bonds have lost 13 percent so far this year, double the 6.5 percent decline in emerging market debt, according to JPMorgan Chase & Co.’s EMBIG index. The country has an investment-grade BBB- rating from Standard & Poor’s, putting the country of three million people in the same category as Spain and the Philippines.

Growth Forecast

Mujica said Uruguay is on track to expand 3.8 percent this year. The South American nation grew 5.6 percent last year.

Consumer prices in Uruguay rose 8.86 percent in August from a year earlier, above the central bank’s target range of 4 percent to 6 percent.

“We don’t want inflation to shoot up on us beyond 10 percent,” Mujica said, adding that he thinks consumer prices are under control. Finance Minister Fernando Lorenzo said Sept. 18 that inflation will end this year close to the 7.48 percent recorded for 2012.

UPM’s $1.1 billion pulp plant was the South American country’s biggest investment ever when it began operations in 2007. The project fueled protests by Argentine environmental groups, who blocked bridges connecting the countries because they said it would pollute the river.

Before it's here, it's on the Bloomberg Terminal.