China Co-Financing Fund for Latin America and the Caribbean provides $50 million loan to LD Celulose S.A. for Amadeus Dissolving Wood Pulp Project.

On May 29, 2020, LD Celulose S.A. (“LD Celulose”), a special purpose vehicle and joint venture of Lenzing (51% equity stake) and Duratex (49% equity stake), signed several loan agreements for the Amadeus Dissolving Wood Pulp Project: (i) an A Loan of up to US$200 million to be jointly funded by IDB and IDB Invest with a tenor of up to eleven years, including a 42-months grace period; (ii) an IDB-administered loan of up to US$50 million to be funded by the China Co-Financing Fund for Latin America and the Caribbean with a tenor of up to eleven years, including a 42-months grace period; and (iii) B Loans of up to US$250 million to be funded by international financial institutions with a tenor of up to nine years, including a 42-months grace period (all together, the "Loan"). The proceeds of the loan are to be used by the borrower to finance part of the construction of an integrated $1.8 billion industrial plant that will produce 500,000 tons per year of dissolving wood pulp (“DWP”) that will be exported and used to manufacture textiles and non-woven fabrics. More specifically, the project will build and operate a total chlorine free (“TCF”) dissolving wood pulp (“DWP”) mill (the ”Project”, or the ”Amadeus Project”) with a capacity of 500,000 tons per annum (TPA). The DWP mill will be located in the municipality of Indianópolis, state of Minas Gerais, Brazil. The Project components include: i) pulp production (wood preparation, fiber processing, drying and baling; ii) chemical recovery (evaporation, recovery boiler, causticizing, lime kiln); iii) utilities (biomass boiler, water treatment plant, boiler feed water treatment plant and effluent treatment plant); iv) cogeneration unit with a nominal capacity of 144 MW; v) area for unloading, handling and storage of sodium hydroxide, hydrogen peroxide, sulfuric acid and magnesium sulphate; vi) dedicated plants for the production of oxygen and ozone; vii) natural gas storage tanks; viii) fuel oil storage tanks for boilers start-up; ix) area for waste treatment; x) spur for connecting to the existing rail line crossing inside the Nova Monte Carmelo (“NMC”) Forest Unit; xi) administrative areas (first aid post, laboratory, and restaurant); xii) 5-km access road from state highway LMG-748 to the mill site; xiii) 23-km effluent emissary and water intake from the Araguari river; xiv) 22-km 138kV transmission line connecting LDC’s cogeneration unit to substation; and xv) two substations, one located close to the water intake site and another at the plant site. The Project will also include the following associated facilities: i) a 4.2-km transmission line and substation to connect LDC’s transmission line to the transmission line of the electric power distribution company (Companhia Energética de Minas Gerais S.A – “CEMIG”), located on the opposite bank of the Araguari river; and ii) workers’ accommodation camps with capacity for up to 600 workers, close to Araguari. Amadeus will require 2.9 million cubic meters of wood per year to produce some 500,000 tons of DWP, sourced from 44,000 ha of existing eucalyptus plantations from Duratex’s NMC Forest Unit comprised of Fazendas NMC, Furnas and Brejão; and 26,000 ha of additional eucalyptus plantations in leased lands. The site is expected to be released for construction on June 2020 and the DWP mill is expected to start operating in March 2022. The production of the dissolving pulp will be carried out through the kraft process, similar to the papermaking obtained from processing the common pulp. However, the DWP process requires a higher content of cellulose in its composition (>92%) and this means a longer cooking process with an associated lower yield when compared to that of the common pulp. Because it is a high-purity pulp and has lower level of contaminants, it is used for four major product groups: viscose (cut rayon, industrial and textile filaments, cellophanes, etc.), acetates (cigarettes filter, acetate filaments and films), ethers (binders, detergents, glues, foods, pharmaceuticals) and nitrates (explosives, varnishes and celluloid). The DWP pulp has this name because it is dissolved in a caustic solution to form the viscose and then extruded into a baffle to form rayon filaments. The Amadeus Dissolving Wood Pulp Project also involves the construction of a power co-generation plant with nominal capacity of 144MW/h of electricity, making LD Celulose a net exporter of energy. The Municipalities in the Amadeus Project’s area of influence include Indianopolis, Estrela do Sul, Araguari and Uberlandia. The mill site will be located in Indianópolis, and the water intake and treated effluent disposal pipelines will be located in Araguari, near the federal BR-365 highway and about 35 km from the city of Uberlândia. The mill (industrial plant) will be built within Duratex’s Nova Monte Carmelo Forest Unit, in a selected 150-ha site currently occupied predominantly by large fields of eucalyptus plantations for commercial purposes, and from which approximately 72 ha will be occupied by industrial installations. The mill site is crossed by the Ferrovia Centro-Atlântica (“FCA”) railway that connects to the Araguari Terminal, one of the largest cargo trans-shipment terminals of Latin America, currently being used to transport grains and fertilizers. The alignment of the Project’s transmission line and water intake and effluent pipelines traverse a mosaic of mixed crop and cattle farming landscapes. Whereas Uberlandia is the second most populous city in Minas Gerais (approximately 700,000 inhabitants), Araguari is a mid-sized city (approximately 120,000 inhabitants) and Indianópolis is a small rural town (approximately 7,000 inhabitants). A significant proportion (>40%) of the gross domestic product (GDP) of the municipalities in the Project’s area of influence (Araguari, Indianópolis, Estrela do Sul) comes from the agribusiness sector in terms of eucalyptus forest plantations and cash crops (coffee, soybeans, and maize). Construction was originally expected commence in early April 2020 and last for 28 months (August 2022). As of May 2022, IDB Invest indicated the project implementation was underway.

Additional details

1. This transaction won Loan of the Year and Infrastructure Deal of the Year Awards from LatinFinance Magazine. 2. Founded in 1938 and headquartered in Austria, Lenzing is a world market leader in the production of wood-based cellulose fibers. It has operations in 17 locations and employs over 6,800 worldwide. It has two DWP plants with a total production capacity of 600,000 ton/year and seven factories to produce fiber for various applications, with a total capacity of over 1,000,000 tons. 3. Founded in 1951 and headquartered in São Paulo, Brazil, Duratex engages in the manufacture of wood panels, sanitary ware and metals and ceramic tiles. Duratex ranks within the top 10 manufacturers of wooden panels globally and the largest player in the Southern Hemisphere, with 16 industrial units and seven forestal units located in Brazil, and three industrial units in Colombia. Duratex exports to over 50 countries and employs over 11,000 employees. 4. The IDB project identification number is 12710-01. 5. The Project has been classified as a ‘Category A’ Project, pursuant to the IDB Invest Environmental and Social Sustainability Policy, because it may cause significant adverse E&S impacts that may be diverse and irreversible 6. During its peak construction period, the Project will directly employ nearly 8,000 workers with resulting impacts on public services, security of nearby municipalities, and the increase of occupational health and safety risks. During operations, the mill will require large quantities of inputs (i.e. wood, chemicals) with the associated risks of vehicular accidents from log hauling and hazardous materials transportation. Wood will be secured from 44,000 ha of existing plantations but the Project will require the acquisition (through lease) of additional 26,000 ha. The mill will also generate large amount of air and effluent emissions, with the potential to impact the air and water quality in the Project’s area of influence. The Project has triggered the following Performance Standards (“PS”): i) PS-1: Assessment and Management of Environmental and Social Risks and Impacts; ii) PS-2: Labor and Working Conditions; iii) PS-3: Resource Efficiency and Pollution Prevention; iv) PS-4: Community Health, Safety and Security; v) PS5 Land Acquisition and Involuntary Resettlement; and vi) PS-6: Biodiversity Conservation and Sustainable Management of Living Natural Resources.

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