24202 - Stora China

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Summary of Proposed Investment

Project Number

24202

Company Name

Stora Enso Oyj

Date SPI Disclosed

Apr 18, 2005

Country

China

Industry

Agribusiness and Forestry

Projected Board Date

May 19, 2005

Status

Completed

Sector

Other Paper (Including Multiple Types)

Department

Regional Industry - MAS Asia & Pac

Environmental Category

B - Limited

Previous Events

Approved : Jun 9, 2005
Signed : Jun 14, 2005

Project Description

Stora Enso Oyj (Stora Enso or the sponsor), the world’s largest paper and board producer in produced tonnes and number three sawn timber producer, has approached IFC for a loan facility to finance the development of its timber plantation and related investments in China. China is the second largest and fastest growing paper market in the world, yet it is critically short of timber/fiber. China accounts for over 1/3 of the total increase in global paper capacity for the period 2001-2006, however the country’s short supply of fiber has led it to import unsustainably harvested fiber from neighbors such as Russia or the Pacific Rim. Stora Enso’s current projects in China include expanding its plantation in the Guangxi province of Southern China, which began operating in 2002 as well as a paper mill in Suzhou, which was acquired by Stora Enso in 1998. Stora Enso plans to further develop both operations, with an immediate financing need to help development of their plantation. These investment projects, combined with Stora Enso’s other possible investment projects in China comprise an estimated $125 million investment program over the next five years. Stora Enso has thus requested IFC for a flexible debt facility for to help it with its investment program financing needs.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.0
Equity

Development Impact

The proposed IFC investment would assist Stora Enso, a global leader in the forestry industry with a strong brand name, to pursue an aggressive investment program in China. The proposed investment program would have a strong developmental impact. First, despite the fact that 24% of the world’s plantations are in China (representing 28% of China’s forested areas), China’s plantations remain underdeveloped for industrial use. Measures to improve this include a higher timber growth rate and more efficient forest management. China’s logging ban in effect since the late 1990s has further curtailed access to fiber. Given the resultant lack of internal fiber capacity, Stora Enso’s creation of a sustainable plantation would help reduce the country’s reliance on imported fiber. Second, Stora Enso will transfer technical know-how and, given the labor intensity of plantation work, create up to 7,000 jobs. As important, since the plantation project is in Guangxi province, whose estimates $616 per capita GDP in 2004 was 87% less than that of Shanghai ($5,255) and nearly 40% less than that the average per capita GDP for China ($1,058) as a whole, Stora Enso’s operations in China will help promote more balanced economic development. The plantations and related entities would also have strong linkages with local distributors through sales of timber and other fiber resources, encouraging their further growth and development. Finally, the sponsor’s application of its high environmental standards should have a demonstration effect on the rest of the industry, especially on local companies.

The proposed investment program also complements the new Chinese government’s objectives for its less developed regions. One of the government’s primary goals is to balance China''s development success to better support the inland regions and the agricultural economy. IFC''s support to this project will lead to increased cash flows for farmers as well as the creation of jobs in rural areas.

IFC’s Role:

IFC will assist the sponsor in the project by:

-assisting with its strong local presence in China and IFC’s local knowledge in the country;
- providing long term financing which is tailored to the project’s disbursement requirement and payback profile, in particular with its plantation project, whose growth cycles, to a great extent, define its financing needs; and
- supporting the Sponsor as it applies world class environmental and social practices to its high profile, sustainable forestry project.

IFC will also provide political comfort to the sponsor: as one of the poorest and more under-developed provinces in China, Guangxi is in need of substantial investment to contribute to its development. As a lender to Stora Enso in Guangxi, IFC will provide its client with needed financial and political support as it expands in this unfamiliar and difficult province.

This is a category B project according to IFC’s Environmental and Social Review Procedure.

Environmental Information may be reviewed at IFC’s website- www.ifc.org or at the locations indicated below.
Location of environmental documents In locally affected community
Environmental documentation will be made available at the following locations:

- http://www.storaenso.com/asia
- Beihai Forestry Bureau, rm 501, tel: +86 779 6809 981 attn.: Zou Ee
- Hepu County government''s office, 5th floor, +86 779 7205505, attn.: Liu Zhicong
- Guangxi Stora Enso Forestry Company
Nanning office receptionist, tel: +86 771 5535 288*0
Beihai office receptionist, tel: +86 779 7193333*0
- Environment Protection Industry Association of Huqiu, District of Suzhou High-tech Center, tel: +86 512 68414965, attn.: Kang Ke
- Stora Enso - Suzhou Paper, receptionist, +86 512 6825 1060*0

Contacts

For Inquiries About the Project, Contact

In Suzhou:
Jukka Kantola, Managing Director,
Stora Enso Suzhou Paper Co., Ltd.,
600 Binhe Road Suzhou New District,
215011, Jiangsu, China

In Guangxi:
Kari Tuomela, President,
Stora Enso Guangxi, Rm. 1102,
Investment Building, 109 Minzu Avenue, Nanning,
Gyangxi, 530022 China

This Summary of Project Information (SPI) is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

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