UPM, Sveza to Invest $1.5Bln in Pulp Venture

HELSINKI -- UPM-Kymmene, Europe's second-largest papermaker, and Sveza Group, Russia's largest plywood producer, plan to invest 1 billion euros ($1.56 billion) in a joint venture to produce pulp, lumber and wood panels in Russia.

The companies will each own half of the new company, Borea, which plans to make 800,000 tons of pulp annually beginning in 2012, UPM said Friday in a stock exchange release. It will also make wood components and panels for builders.

Russia has the world's second-fastest-growing paper industry, after India, as well as 22 percent of the world's forests. Companies and analysts say pulp could be produced there at prices competitive with Latin American eucalyptus. If the new facility starts as scheduled in 2011, it may be the first greenfield pulp mill in Russia in roughly 30 years.

"Ensuring sufficient logging rights on financially sound conditions is the essential precondition for investment decisions," UPM said in the statement. "In addition, the Russian Federation should confirm financing of the infrastructure projects in the region."

UPM rose as much as 5.8 percent to 12.88 euros and closed at 12.81 euros in Helsinki. The stock had advanced earlier in the day, after UPM on Thursday released net earnings that beat analyst estimates.

Russia has tried build up its pulp and paper industry by raising duties on log exports and changing its laws to permit foreign companies to acquire forest rights cheaply. Stora Enso, Europe's largest papermaker, and a third Finnish company, Ruukki Group, have also announced plans to build pulp mills in Russia.

Decisions will be made this year on the sawmill investment and next year on the pulp mill investment, UPM said in the release. Borea will employ around 650 people in the Vologda region of northwest Russia, the statement said.

Sveza is run by steel billionaire Alexei Mordashov.