Brazil's hidden talent

Over the past few years, Orsa has been slowly notching up acquisitions and expansions in the pulp and paper sector. The Brazilian company is definitely one to keep an eye on in the future

by Marcella Moohan

Sergio Amoroso can afford to look pleased with his performance at Orsa

Orsa's president and CEO, Sergio Amoroso, has come a long way since he began his career in the forest industry in 1981, with just one small sheet plant in Sao Paulo. Some 20 years later, Amoroso's office is located in the penthouse suite of Orsa's Crystal Tower, a 25-story luxury real estate development which the group founded in 1996. The impressive offices in the Sao Paulo suburb of Alphaville are the headquarters of what is now a vertically integrated forest products company and one of the country's biggest paper producers with sales of $400 million in 2000.

In February last year, the Brazilian producer closed the loop on the production cycle to become a more integrated operation with its acquisition of the 305,000 tonne/yr bleached eucalyptus kraft (BEK) pulp mill, Jari Celulose. With the pulp mill, the company also acquired 160,000 ha of plantations and 1.7 million ha of forest.

The Orsa group bought the debt-ridden Jari from the Frering brothers' CAEMI holding company. Under the deal, the group agreed to pay back Jari's $415 million debt to a group of 17 banks led by the Brazilian development bank, the BNDES, by 2010. On top of the debt repayment program, Orsa is committed to investing $416 million in Jari over the same time period.

Orsa is the third group to hold the title deeds to Jari since Daniel Ludwig launched the project in 1967. Some industry observers have hinted that the BEK plant will not appear on Orsa's balance sheet for much longer. But Amoroso silences these rumors, saying, "The people that say we will sell Jari are not facing up to the fact that we are tied into a 10 year agreement with the banks."

Orsa has devoted $120 million of the $416 million investment to building a hydroelectric plant for the Jari mill. The group plans to install the plant in Santo Antonio, which is 24 km from the pulp plant near Monte Dourado on the Jarí river. The company expects the project to take three years to complete.

The investment is aimed at increasing energy production for the Jari region, as well as reducing the cost of energy from $59/tonne of pulp to $30/tonne. But Amoroso stresses that the company did not just buy a pulp plant with the Jari project. The hydroelectric plant is part of Orsa's aim to establish a sustainable model for economic growth in the region.

The remaining balance of the budget will be poured into pulp production and forestry assets. During 2000-2001, Orsa will invest $54 million to stabilize pulp production. The group plans to spend the lion's share of the budget, $220 million, on developing a sustainable business model for Jari's forestry assets.

The Orsa group made a number of investments and acquisitions in the packaging arena before taking a step back along the production chain to snap up the pulp mill. Starting off with just one sheet plant, the group took its first step forward with the construction of a box plant in Suzano, Sao Paulo state, in 1986. The unit produces 144,000 tonnes/yr of corrugated boxes, plate board and packaging papers.

In the 1990s, the Orsa group picked up the pace on the expansion trail with a total of four acquisitions. The group took another step toward vertical integration with its takeover of the Nova Campina mill in Sao Paulo state. The Nova Campina plant produces kraftliner and white top liner on two paper machines. The unit's output feeds Orsa's converting units and the surplus is sold to export markets.

Then in 1992, Orsa expanded its paper production capacity even further when the company merged with the Paulínia mill in Sao Paulo state. The Paulínia site houses a paper machine which produces a total of 132,000 tonnes/yr of waste-based testliner and fluting. The integrated plant also churns out 48,000 tonnes/yr of corrugated boxes and plate board.

Three years later, Orsa went straight to the source of paper production with its acquisition of slash pine forests in Itapeva, Sao Paulo. The group then moved north for its next startup. In July 1999, Orsa opened a 24,000 tonne/yr corrugated box and plate board plant in Manaus, in the Amazon region.

There has been no slowdown in the acquisition pace since the new decade opened its door, either. Orsa's big news of 2000 was the group's takeover of the Jari pulp mill and forests. This was followed in March this year, with the opening of a new 78,000 tonne/yr box and plate board plant in Rio Verde, Goiás state. In early 2001, the company started work on a Real 35 million ($14 million) investment program on its Nova Campina mill's PM 1. Work on the 2.5 m wide PM will focus on the drying section. Orsa aims to have the project wrapped up by June 2002. PM 1's kraftliner output is due to rise from 35,000 tonnes/yr to 50,000 tonnes/yr. The main suppliers for the project are Voith Paper and ABB. The plant's other machine, PM 3, produces 94,000 tonnes/yr of kraftliner.

Crossing borders

Although Orsa has carried out all of its merger and acquisition activity and capacity additions in Brazil to date, Amoroso is keen to expand his empire to other Latin American countries. In fact, the Orsa group already had a stab at gaining a foothold in the Argentinean market when it made a bid for the packaging producer, Zucamor, a few years ago. The group lost out to Union Camp which is now part of International Paper.

Amoroso still has his eye on more acquisition activity outside Brazil. In the meantime, though, the company has its hands full with Jari and Amoroso is committed to turning around the fortunes of the troubled pulp plant. "We have a contract with the bank and 100,000 people," he emphasizes. It is a huge project but one that is well within the capabilities of a man who has pushed his company from being a single plant operation to one of the biggest producers in Brazil.