PHASE 01 AUDIT REPORT IN CELULOSA ARAUCO Y CONSTITUCIÓN S.A

VALDIVIA PLANT, CHILE

Consultants of the National Cleaner Production Center

- CNTL SENAI -

DR. Celso Foelkel DR. Wagner Gerber MS. Rosele Neetzow

PHASE 01 : MAY 2005

Address: Av. Assis Brasil, 8450 – CEP 91140-000 Porto Alegre – RS -Brasil

Email: cntl.att@dr.rs.senai.br Phone (55-51)3347-8406

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1. INTRODUCTION CNTL SENAI – Centro Nacional de Tecnologias Limpas is a Brazilian organization with solid environmental expertise, both operational and management. As a result of an international selection among similar entities, the CNTL SENAI received the task to perform a careful and detailed evaluation of the mill owned by Celulosa Arauco and Constituición in Valdivia – Chile.

The purpose of this environmental auditing procedure is to evaluate Valdivia mill design and mill performance. Several objectives have been chosen to become the result of this auditing, to be realized in four steps. After each step a report will be issued.

This means that this is the first report of this auditing. It is a brief description of the initial findings, with suggestions and recommendations to the mill management and to the environmental control agencies involved in this subject. Besides the fact that other recommendations will be included in the second report, these initial suggestions are oriented to improve mill performance in terms of more easily achieve the restrictions imposed by the environmental permits. The restricted limits that the mill is working close to the limits are: temperature, pH, chlorates, nitrogen and suspended solids. For this reason, some operational and project design suggestions have been included in this report. The second report will complement this actual one, after a deeper evaluation of the data and reports which were made available to the auditing team. Also, some other demands were requested to the company, and they are related to the operation of the mill. A copy of the questionnaire that the auditing team is submitting to the company is attached to this first report (Attached 01).

2. OBJECTIVES

It was clearly understood by the auditing team, arising from the COREMA term of reference “Carta N 0440, Puerto Montt, April 2005,18th” and by the meeting with local authorities and CELCO on 14/05/2005, that the audit has to provide answers to the following objectives:

Objective 1: To know the Arauco Valdivia plant kraft pulping technology and to verify whether or not it is a “State-of-the-art”, “Best Available Technology”, and “Environmentally Sound Technology”; Objective 2: To know pollutants charges and environmental performances indexes (end-of-pipe, clean production, consumption of raw materials, toxicity) , both hydric, solids and air emissions; Objective 3: To benchmark Arauco Valdivia plant environmental performance with the most Environmentally Sound Performances in the pulp business in a worldwide basis; Objective 4: To suggest technological modifications in the mill to guarantee a safer environment, if needed; Objective 5: Evaluation of the parameters and restrictions the mill has to fulfill; Objective 6: To evaluate the possibilities that the mill may achieve the required restrictions imposed by the local legislators, based on today’s or planned technical measures under implementation or to be implemented;

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Objective 7: Evaluation of the technological stage the mill has and the potential to successfully achieve the targets

2.1 General Information

Company: CELULOSA ARAUCO Y CONSTITUICIÓN S.A

Mill address: Ruta 5 Sur, Km 788, comuna de San José de Mariquina, provincia de Valdívia, region de los Lagos

Activities: Kraft Pulp

Contact: Sergio Carreño Moscoso

Position: General Manager Valdivia Plant

Phone number: +56-63-271400

E-mail: scarreno@arauco.cl

Lead auditor: Dr. Celso Foelkel

Auditors: Dr. Wagner Gerber and Ms. Rosele Neetzow

Date of the first auditing:

2005 May, 13th to 17th

2.2 Mill environmental permits

The company has the following permits to the operation of the Valdivia mill:

Permit Number Mill Issued by Valid Observation

Resolución Exenta – Resolución de Calificación Ambiental - RCA

279/98 Valdivia mill Comisión Regional del Medio Ambiente – Décima Región de los Lagos

Permanent

Exenta 1259/2005 Valdivia mill

Superintendencia de Servicios Sanitarios – Unidad de Reglamentación y Control Ambiental

New monitoring plan

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2.3 Confidentiality This report is restricted to the interested parts, and its contents will not be disclosed by CNTL to any requesting person or entity, unless with express authorization from CONAMA and CELCO.

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3. EVALUATION OF MILL IMPLEMENTED TECHNOLOGY

3.1 Comparing mills and process technologies & performances Under the scope of the question does or not CELCO Valdivia mill have the best available technology to manufacture kraft pulp in an environmentally sound performance, two tables were prepared. Table 01 is a collection of all technological processes that are being implemented by modern world-class mills, and running in a safe and environmentally friendly manner. These mills are renowned as minimum impact mills, and they may be found both in developed and developing countries. For this reason, Table 02 was prepared, comparing CELCO Valdivia mill with other state-of-the-art mills, in selected countries. The reference mills are some of those considered by international experts in the kraft pulp manufacturing as leaders in environmental performance, from the design to the operation.

Table 01: Environmentally Sound Technologies & Clean Technologies

(Best Available Technologies to the Pulp & Paper Industrial Segment – Kraft Process)

Best Available Process Technologies CELCO Valdivia mill

WOOD HANDLING / BIOMASS FUEL

Dry debarking of logs Yes

Biomass fuel to save NRF (No Renewable Fuels) Yes

Composting or other utilization of the wasted biomass from wood yard

Not fully implemented now, but recommended

Low energy conveyors Yes

Bark dryers or presses to improve fuel quality Yes

PULPING

Cooking modifications to reduce bleaching chemicals (extended cooking, higher yield, etc )

Yes

Additive utilization to speed up delignification (surfactant, antraquinone, etc)

Not relevant to the this technology

Oxygen delignification Yes

ECF (Elemental Chlorine Free) or TCF(Total Chlorine Free) bleaching

Yes (ECF)

Highly efficient closed cycle brown stock washing Yes

Washing presses to better remove carry-over of chemicals

Yes

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BLEACHING

Enzyme bleaching No, but not required to this particular mill

Acid stage - pre bleaching No, but not required to this particular mill

Highly efficient washing presses Yes

Bleaching with low AOX generation Yes

Partial recovery of bleaching stages filtrates No, but not required to this particular mill

Filters to recover fibers and solids from bleaching effluents

Yes

RECOVERY OF LIQUOR; ENERGY plus STEAM CONSUMPTION

Low odor or odor less recovery boiler technology Yes (low odor)

Extra capacity in the recovery boiler and evaporation plant to cope with extra demands such spills

Yes

Totally indirect heating evaporators, with no direct contact

Yes

Reuse of main part of evaporation condensates Yes

Collecting and burning odor gases in lime kiln, captive incinerator or boiler

Yes

Burning or absorbing vent gases in captive burner or scrubber

Yes

Black liquor oxidation Not relevant to this technology

Methanol recovery Yes Efficient multiple effect evaporators Yes

Fluidized bed boilers Yes

Flash dryers to lime kiln Yes

Tall oil and turpentine recovery Yes to turpentine

Condensate stripping and gas management Yes

Process conditions for minimum SO2 generation or emissions from boilers and lime kiln

Yes

NOx reduction by optimum design and operation of combustion

Yes

High performance electrostatic precipitators Yes

Total electricity consumption (less than 0,7 kWh per ton of pulp)

Yes

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Total steam consumption (less than 7 ton steam per ton of pulp)

Yes

PULP SHEET MANUFACTURING

Closure of water systems Yes

Recovery of fibers Yes

CHEMICAL PLANT

Closed cycle chemical manufacturing Yes

Membrane cells to caustic soda making Not applicable

Elemental chlorine free manufacturing of chlorine dioxide

Yes

EFFLUENT TREATMENT

Effluent treatment plant Secondary activated sludge

Yes

Effluent treatment plant Tertiary flocculation / flotation / clarification

Yes

SOLID WASTE TREATMENT

Sludge presses Yes

Reverse osmosis Not required

Anaerobic digestion Not required

Recycling of solid residues (bark, ashes, etc) Not demanded by authorities, but recommended

Hazard wastes management Yes, but may be improved

Landfill design and operation Yes, but may be improved

GENERAL CLEAN TECHNOLOGIES

Adequate automation and process control for environmental parameters

Yes

Spills recovery system Yes, but may be improved

Relatively closed water system Yes, but may be improved

Gas collection from tank vents, scrubbing and/or incineration

Yes

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Table 02: Comparisons of modern minimum impact mills with Arauco Valdivia plant (Best Available Technologies to the Pulp & Paper Industrial Segment)

Unit

BAT IPPC

Ref 1

Ref 2

Ref 3

Ref 4

Ref 5

Valdivia actual 2005

Effluent: Flow m3/t 30-50 32 32 50-60 25 29.8 31 BOD kg/t 0.3-1.5 0.2 0.2 0.2 0.27 0.14 COD kg/t 8-23 8 9 7 9 (4 – 5) 2.5 AOX kg/t < 0.25 0 0.13 0.05 0.06 0.06 0.06 Chlorate kg/t No 0.05 Suspended solids

kg/t 0.6-1.5 0.3 0.8 1.7 0.5 (0.6-0.9) 0.5

Nitrogen kg/t 0.1-0.25 0.10 0.13 0.05 (0.06-0.08) 0.07 Phosphorus kg/t 0.01-0.03 0.006 0.011 0.006 0.006 <0.006 Color kg/t 9.2 1.5 Air emissions:

Particulate or dust

kg/t 0.2-0.5 0.24 0.22 2.3 0.9

SO2 (as SO2)

kg/t 0.4-0.8 0.5 0.5 0.5

NOx kg/t 1.0-1.5 1.1 1.7 1.7 TRS kg/t 0.1-0.2 < 0.1 0.07 0.02

• Bleached air dry tons in all cases • Blanks mean not available or not restricted issue at the mill site • IPPC – European Commission on Integrated Pollution Prevention and Control,

December 2001 – Reference Document on Best Available Techniques in the Pulp & Paper Industry

ftp://ftp.jrc.es/pub/eippcb/doc/ppm_bref_1201.pdf

Reference bleached kraft pulp mills: High environmental performance leading pulp mills have been selected for this comparison. The mills are: - Ref 1 is Mönsterås mill, a 700.000 tons per year mill manufacturing softwood and hardwood TCF bleached pulp in campaigns. The mill was completely rebuilt and expanded some 5-7 years ago. It is recognized as the environmental leader in Sweden, with the lowest reported specific emissions. - Ref 2 is Joutseno mill, a 550.000 tons per year mill for softwood ECF bleached pulp. The mill is new, in operation since 4 years. There are modern pulp mills in Finland with state-of-the-art environmental technology and low specific emissions on about the same level, Joutseno is one of them. - Ref 3 is Alberta Pacific mill, a 500.000 tons per year ECF bleached pulp from aspen.

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The mil is one of the best in Canada in terms of environmental performance. The mill was built about 10 years ago, with best possible environmental technology. The data are not the most recent. - Ref 4 is Stendal mill in Germany, a new 550.000 tons per year “ECF-light” bleached softwood pulp mill, started mid 2004. Germany has the toughest emission requirements of all countries in Europe. The permit for the mill is very strict, and the best environmental technology was used in the mill design, particularly the air emission design that is more advanced than most of the other pulp mills. Data are from few months after start. - Ref 5 is the former Riocell mill in Brazil, now also known as Aracruz - Guaiba unit mill. The mill had tremendous environmental pressure in the past, and thanks to appropriate measures, has overcome the problems and it has been renowned as a worldwide example of environmental performance. Thanks to mill upgrades, the mill produces 440.000 tons per year of eucalyptus pulp in a modern manufacturing unit. Data were obtained at Aracruz website, and are 2004 average (http://www.aracruz.com.br/ra2004/pt/rsa_ambientais_industriais_producao.html) Older data, about 4 years ago, are showed between brackets

3.2 Comments on points representing opportunities for improvements detected under the evaluation of the Best Available Process Technologies From the evaluation of the most advanced process technologies being taken by world-class mills, it is clear that the CELCO Valdivia mill is a modern and updated mill. The great majority of the advanced process technologies are in use in the mill. There are points that the BAT process technology is not applicable to the mill and there are other points that the audit team is suggesting further evaluation by the company to implement, for additional improvements and safety. All points in red in Table 01 are individually discussed, showing the new possibilities that the company may have for additional upgrades as a minimum impact mill. The term MIM – Minimum Impact Mills is destined to identify mills that have outstanding performance in terms of environmental control technology, clean production and environmental management. At the final of this first report, the audit team will bring the overall conclusion of the first phase of this audit. Items in red in which CELCO Valdivia mill has as opportunities to develop even further the process in relation to its environmental performance and design:

• Composting or utilization of the wasted biomass from wood yard : a suggestion is made ahead.

• Recycling of solid residues (bark, ashes, etc): a suggestion is made in the next chapter.

• Hazard wastes management: a suggestion for improvements is made ahead. • Landfill design and operation: a suggestion for improvements is made ahead.

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• Spills recovery system: a suggestion for improvements is made ahead. • Relatively closed water system: the system is relatively well closed, similar to

the best modern mills, but the technological level of this particular mill surely allows more improvements along the time.

3.3 Comments on other points observed during the inspections on the mill site In this phase of the report, several contributions are presented with the aim to provide new thoughts and reflections to the mill improvements. These points are presented in two formats:

• other written comments and suggestions; • tables with photos and comments.

Written comments and suggestions:

1. Some of the data for effluents and emissions show a wide variability, although within the permit ranges. This variability needs to be understood. The causes may be located in process operations, in the sampling techniques, in the laboratory analysis, etc. Recommendation is to establish an inter-laboratorial scheme to confirm data, and to identify the operational causes. In general, variabilities are related to stop-and-go procedures. More this plant works in a stable operational production, better will be the environmental performance.

2. One important recommendation the audit team has is that the company implement an artificial wetland as a bioassay for monitoring the behavior in controlled additions of effluent, etc.

3. Another recommendation for research is to evaluate the influence of flooding and groundwater in the growth and survival of the Luchecillo. Aquatic plants are very sensitive to long term flooding due to the absence of light to them during these periods.

Comments in tables with photos:

Spill collecting system

Comments: the mill has a good system for routine spill management, but it has some weak points in case of accidents or great emergencies, such fires, explosions, heavy leaks, etc.

Impacts: Contamination of the soil and potential contamination of the river through the rainwater/storm sewer.

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Suggestions: review of the spill system, reducing weakness in case of potential malfunctions of the operation

Benefits: minimum risks of contaminations

Environmental Risk: inappropriate dimensions of collectors in relation to tank sizes

Environmental Risk: tank without protection and close to the rainwater/storm sewer

Wood yard and rainfall/storm sewer

Comments: the mill has a system to recycle water from the wood yard. In case of heavy rains, the excess water goes to the spill pond and/or to the river.

Impacts: inappropriate use of the spill pond; possibility of river contamination through the rainfall/storm sewer. This water is rich in suspended solids, organic matter specks, sand, etc.

Suggestions: combine all rainfall sewers to be managed in a way that it may become water to be utilized by the Water Treatment Plant (recycling use)

Benefits: reduction of water intake from river, better utilization of the spill / emergency pond, reduced river contamination with suspended solid in the rain season

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Environmental Risk: Excess of contaminated rainwater/storm sewer may be discarded to the river

Composting or other utilization for the wasted biomass from wood yard

Comments: the company has no other solid waste management than discard then in a landfill. Some of the materials discarded in the landfill could be oriented to other environmentally friendly uses.

Impacts: wastes generated in the wood yard are heavy and abundant. They are being dumped unnecessarily in the landfill.

Contamination of the soil, enormous movements of materials, utilization of a huge volume on a landfill that will soon be exhausted

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Suggestions:

Implement a better management policy in the wood yard and in the forest area. Wood logs should come cleaner to the mill, not bringing so much contamination.

Implement a recycling police to all of these organic matter coming from the wood yard.

The possibilities are:

• composting and recycling as a organic fertilizer;

• move the bark, branches, leaves, and soil back to the surrounding forests, adding nutrients and carbon to these soils, promoting soil improvements, and

not pollution;

• cleaning and burning at the power boiler

Benefits: cleaner production and reduced solid wastes to dispose

Hazards wastes and landfill management

Comments: the mill has an old style landfill, managed only as a “mixed garbage area”. In this case, all mixed wastes bring a very unpleasant situation, turning all wastes as hazards wastes, offering risks to workers, and generating an unknown future behavior.

Impacts: occupational health impacts, landscaping ; unpredictable effluents, contamination of soil, etc.

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Suggestions: modify the landfill design, management and operation, changing the procedure to recycle what is recyclable, such as boiler ashes, bark, dregs & grits, and to dump only the remaining hazardous materials. Utilize separated cells and

never blended wastes. Unpredictable reactions may happen when different wastes are combined in such way.

Ashes from the biomass boilers are important mineral fertilizers to the forests. It is a potential use to this ash, as source of nutrients to plants.

Benefits: reduction in the generation of wastes, generation of valuable by-products, reduced risks to workers, better landscaping, improved soils in the region, etc.

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Atmospheric emissions in the mill

Comments: the mill has many sources of smoke, some are only steam (from pulp machine and process water cooling towers), others are air emissions containing odorous compounds, controlled gas emissions and dust. The global appearance is unpleasant, and it provides to the community, an idea of pollution.

Impacts: company image affected by the not clear understanding by communities.

Suggestions: to reduce number and to increase the height of stacks; condensation of steam and water in the cases it is technologically feasible.

Benefits: improved image, better dispersion of emissions in the area of influence of the mill.

Tertiary sludge

Comments: the mill has a tertiary sludge that is being land filled. This sludge contains aluminum sulfate, and because of this, the destination has been the landfill.

Impacts: accumulation and concentration of aluminum at the landfill.

Suggestions: evaluate other organic flocculants and polymers, such tannin compounds. This could even be in association with alumen. The resulting sludge could be eventually good to combustion, as the other are (primary and secondary sludge are burnt in the biomass boiler)

Benefits: reduced solid residue generation.

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Monitoring landfill effluent

Comments: the landfill is being managed in a way that generates a strongly contaminated effluent in rainy days. This effluent is heavily contaminated with metals and phenols. It is a typical low flow / highly contaminated effluent.

Impacts: odor, metal contamination, dangerous gases emissions, etc

Suggestions: It is advised to monitor this effluent more often and to evaluate the impact of this metal outlet to the wastewater treatment plant and final effluent. The new landfill design and management, proposed in another item of suggestion, may be developed to restrict the generation of this effluent to a minimum. This will be achieved by changing the landfill concept.

Benefits: reduced risks and contaminations.

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Optimization of the wastewater treatment plant operation

Comments: the wastewater treatment plant is outstanding, but it has potential to be even better in terms of performance

Impacts: metal contamination, physic-chemical and biological parameters out of permit

Suggestions:

• Reduce the perforation of the screen in the coarse particle removal equipment. The today’s diameter does not remove too much, and solids are sent to primary clarifiers, instead of being previously removed;

• Implement a policy to use the spill pond, avoiding to send to there flows as the effluent from the log washing, and the effluent from the counter washing of the sand filters (Water Treatment Plant). Emergency ponds have to used only to spills and emergencies;

• Improve the distribution of oxygen in the secondary reactors;

• Improve flocculation conditions (pH, aeration, etc);

• Other measures will be informed in next report.

Benefits: improvements in the final effluent quality, mainly suspended solids and nitrogen.

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Cooling tower being used for the raw effluent

Comments: a cooling tower is being used to reduce effluent temperature. Although a contradictory issue, the utilization of cooling towers to reduce raw effluent temperature brings an atmosphere of effluent sprayed to the environment. In the case of this particular tower, around 5% of the raw effluent is sprayed to the atmosphere.

Impacts: spray of effluents and gases to the atmosphere

Suggestions: evaluate the issue and consider the possibility to replace for a indirect contact heat exchanger.

Benefits: reduction of contaminations of the air with raw effluent. Better visual look of the mill.

Wastewater discharge in the river

Comments: the effluent outlet is located down-river in relation to the water intake.

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Suggestions: evaluate to invert this location. When water intake is located downwards the discharge of mill effluent, the overall understanding by the public is that the mill effluent has no problems and it is well accepted by the mill due to its low impact and good quality.

Impacts: commitment of the company to have the best performance in the effluent treatment because part of it will come back to own use as process water

Benefits: public image and more reliability in regard to local authorities

4. FINAL COMMENTS IN PHASE 1 REPORT After a first evaluation of the documents and a visit to mill process operations, the audit team was able to conclude that:

1. CELCO Valdivia mill is a modern manufacturing unit and it has in its design the most modern kraft pulping technologies available today in this particular industrial field;

2. The mill is running well in the capacity it is allowed to do, both with regard to operational and environmental performances;

3. The mill has several opportunities to improve environmental performance and some are presented in this report. It has to be clearly understood by the readers, that these suggestions are provided for further improvements of the performance, and to offer safer operations;

4. It was also the purpose of this report to provide suggestions to the CELCO project team in case another Environmental Impact Assessment be demanded;

5. The mill managers have mentioned that an environmental management system will be implemented soon, and the target is the ISO 14001 certification. This is a fundamental issue to be implemented as soon as possible. The audit team strongly recommend a fully dedicated person to manage environmental issues at the mill site.

6. The mill environmental parameters were showed to be respected and evidences exist that some of them were occasionally exceeded in the period. However, a deeper analysis will be done by the audit team during Phase 2.

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5. NEXT STEPS In the Phase 2 of this auditing service, the team will concentrate efforts in:

• To evaluate the requested limits to the mill for the legislated parameters, in comparison the other country’s legislation; to comment on them, and to make suggestion of new limits or other parameters.

• Identification of other impacts or opportunities that were not evaluated in this first report;

• To suggest new technological measures to the company for future expansion plans.

• To complement the report of Phase 1.

The CELCO Valdivia received a document (Attachment 01) to be filled with additional information to the Audit Team. In the coming days some other information may be requested or provided both by CELCO Valdivia or the Control Agency.

Audit Team of Centro Nacional de Tecnologias Limpas – CNTL SENAI:

Lead Auditor Dr. Celso Foelkel

Auditor Ms. Rosele Neetzow Auditor Dr. Wagner Gerber