Sustainable Development Report 2003 by Empresas CMPC

Social and Environmental Annual Report 2003

Index Introduction

Empresas CMPC and Subsidiaries

Social Responsibility

Our People

The Community

The Environment

The Board of Directors and the Management of Empresas CMPC

From left to right: Bernardo Matte L., Jorge Marín C., Arturo Mackenna I., Jorge Gabriel Larraín B., Eliodoro Matte L., Patricio Grez M., Ernesto Ayala O., Manuel Mardones R.

Board of Directors

Management

Chairman Eliodoro Matte L.

Chief Executive Officer Arturo Mackenna I.

Directors Ernesto Ayala O. Patricio Grez M. Jorge Gabriel Larraín B. Manuel Mardones R. Jorge Marín C. Bernardo Matte L.

Chief Administrative Officer Jorge Araya D. General Secretary Gonzalo García B. Chief Financial Officer Luis Llanos C.

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A firm's most important social responsibility is to stay active, profitable, competitive and in production. This creates not only a financial return on shareholders' investment, but also a social return: employment opportunities as the firm expands, investment, and the provision of socially valuable goods and services. CMPC contributes to Chile's development by generating both employment and wealth. This is attained through careful and dedicated management: production and sale of high quality products; a commitment to efficiency and thoroughness in our relationship with clients and suppliers; fair competition in the market; transparency in the provision of financial information; and expeditious payment of taxes and fulfillment of legal norms and requirements. Sustainable development and a commitment to planning for the long term are central to the CMPC management approach. This is a vital component of our competitiveness, a necessary condition for the progress and existence of our business. To achieve sustainable growth, all our projects incorporate environment concerns from the earliest stages. Our older operations have been brought up to standard through investment over the last decade. We are very aware that our business makes use of soil, water and air to produce timber, wood pulp, and paper. It is because of this awareness that we focus our development so as to minimize or eliminate negative impacts that may affect future generations, generations that have the same rights as we do to a clean and healthy environment. The use of plantations, clean processes, effluent treatment plants and the recycling of waste paper are among the industry's contribution to environmental protection, and are what allows the industry to operate in a sustainable fashion. CMPC is committed not only to economic success, but also to helping the communities that surround our industrial operations and plantations. Our varied program of cultural and most importantly educational activities and sponsorship bears this out. Experience teaches that it is best to concentrate one's efforts on a more focused agenda so as to ensure the highest probability of success. We are convinced that the most effective way of combating the damaging circle of low expectations, lack of opportunities and social exclusion is through education. This is the aim of the Fundacion CMPC's programs of educational support in math and language skills for public schools in those communities in which the company carries out its operations. We strongly believe that this social investment is important: it is given a high priority and carried out by dedicated professionals in a framework that plans for the long term so as to achieve a tangible increase in the standard of living of those involved. We are proud of the reception the Foundation's programs have received in the community, a reception that stems from the professionalism and commitment to empowering education that lie behind each activity. Respect for our work, our people, and the communities to which we belong to are our guiding principles. Experience has taught us many lessons, but much remains to be learnt: it is this dedication to learning that, we hope, will allow us to continually improve all the projects we undertake.

Eliodoro Matte L. Chairman Empresas CMPC

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Founded in 1920, Empresas CMPC has pioneered pulp and paper manufacturing in Chile, and is an active participant in the forestry, pulp and paper, folding boxboard, tissue, school and office products, newsprint, and industrial paper bag industries both in Chile and abroad in fifty countries on five continents. The company's industrial operations are located in Chile, Argentina, Peru and Uruguay, and it owns forest plantations in Argentina as well as Chile. This integrated forestry group employs 8,000 workers, operating through five subsidiaries: Forestal Mininco, CMPC Celulosa, CMPC Papeles, CMPC Tissue, and CMPC Productos de Papel.

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Our subsidiaries Forestal Mininco, Crecex and Sefore are charged with the task of developing and managing our forest assets so as to support the industrial development of the group. The timber produced by the company's forest plantations is principally used to supply the wood pulp, paper and cardboard plants, and its sawmills and remanufacturing plant. The remaining the timber and derivatives are brought to market both in Chile and internationally. In Chile's extreme southern region of Aysen the company has a project underway to forest 20,000 hectares of heavily eroded areas with Ponderosa and Oregon pine.

In Corrientes Province, Argentina, our subsidiary Bosques del Plata owns over 54,000 hectares of Taeda and Elliotti pine plantations. Approximately 6,000 hectares are planted annually, with a target forest resource size of 80,000 hectares: a size sufficient to sustain a future pulp mill at a competitive scale. CMPC Maderas operates three sawmills in Chile's southern VIIIth region -Bucalemu, Mulchen and Nacimiento- producing sawn Radiata pine timber. In addition, a remanufacturing plant in Los Angeles produces products made from dry sawn timber (finger joint panels, moldings, rolled products and solid panels).

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CMPC Celulosa is a major international long and short fibre wood pulp producer. The Laja, Pacifico and Santa Fe mills produce over a million tons of pulp per annum, which is sold to over 200 clients in thirty countries in Europe, the Americas, and Asia. Approximately 20 percent of consolidated production is consumed in Chile, principally by company subsidiaries.

the Laja mill has two paper machines in operation, producing printing and writing and sackraft paper.

The wood used in our mills is sourced exclusively from forest plantations owned by subsidiaries of CMPC or small independent forestry companies that are all managed according to principles of sustainable development. The wood consumed by these industrial plants must comply with strict quality standards so as to ensure our clients receive pulp with consistently reliable properties.

In September an Environmental Impact Assessment of the planned construction of a second production line at our Santa Fe mill in Nacimiento was completed. The project will increase capacity to 1.14 million tons of bleached short-fibre Elemental Chlorine Free (ECF) pulp per annum. At the same time an Environmental Impact Declaration relating to an optimization project at our Laja mill was submitted to the relevant authorities. The central aim of this project is to improve the environmental performance of the mill.

The Laja and Pacifico mills produce long fibre pulp from Radiata pine, the bulk of which is bleached pulp. However unbleached pulp is also produced, as is rolled fluff pulp for use in the manufacture of absorbent items such as disposable diapers and sanitary towels. Furthermore,

The Santa Fe mill produces bleached short fibre pulp sourced from Eucalyptus plantations. This pulp is ideally suited to the production of both printing and writing and high quality tissue paper

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CMPC is active in this business area through five subsidiaries, producing and marketing folding boxboard, corrugating materials (testliner and fluting), newsprint, printing and writing paper, and wrapping paper. Inforsa's Nacimiento plant produces newsprint that is sold throughout Latin America as well as in North America, the Caribbean, Asia and Europe. Cartulinas CMPC operates folding boxboard plants in Maule (VIIth region) and Valdivia (Xth region). This output is brought to market in over 30 countries in Latin America, Asia, Europe and the United States.

Papeles Cordillera runs a plant in Puente Alto that is centred on manufacturing paper for corrugated cardboard boxes using recycled fibre as its principal raw material. The clients for this product are mainly located in Chile, Argentina, Ecuador and Peru. Sorepa focuses on the collection of different types of waste paper and cardboard boxes for recycling in CMPC's paper mills and has installations in Chile's major cities. The Puente Alto paper machine's growing demand has permitted Sorepa to expand its share of the waste paper collection market. CMPC Papeles also owns Edipac, a paper merchant and distribution firm focusing on paper, cardboard and paper products.

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With modern mills in Chile, Argentina, Peru and Uruguay, CMPC produces and markets tissue products in the toilet paper category (Elite, Confort, Higienol, Noble, Orquidea and Preferido), disposable handkerchiefs (Carilina de Elite and Elite), napkins (Elite, Nova and Sussex), hygienic towels (Confidence and Ladysoft) and paper towels (Elite, Nova and Sussex).

The company produces and markets the Babysec brand of disposable diapers in Chile, Peru, Argentina and Uruguay.

In Chile, CMPC Tissue has plants in Puente Alto and Talagante, while in Argentina operations are headed by the Zarate mill (the largest industrial tissue operation in South America) and a conversion plant located at Naschel in San Luis province. Our Protisa and Ipusa subsidiaries (in Peru and Uruguay respectively) produce tissue products of various types.

In Chile, Argentina and Uruguay CMPC is the market leader in tissue, while sustained growth in Peru has allowed us to place second in terms of market share. In disposable diaper markets, CMPC is a significant presence.

Moreover, in these countries the company has set up a dedicated marketing and production structure that focuses on the needs of firms and organizations for specialized non-domestic products.

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This CMPC subsidiary operates through the following companies: Envases Impresos, Envases Roble Alto, Productos Austral, Propa and Chimolsa in Chile; Fabi Bolsas Industriales in Argentina, and Forsac in Peru. In the corrugated cardboard business CMPC owns two subsidiaries: Envases Impresos with its plant in Buin, focused on producing boxes for the fruit and salmon sectors; and Envases Roble Alto, with plants in Til Til and Quilicura producing boxes for the industrial and wine sectors. Productos Austral manufactures school items and has successfully consolidated the position of its Austral and Mistral notebook brands, while attaining a high market share for its Equalit office paper brand. Additionally Productos Austral produces paper bags and laminated packing papers.

CMPC's involvement in the multiwall paper sack business is handled by subsidiaries in Chile, Argentina and Peru that supply their respective local markets, principally the cement industry. These subsidiaries also export to other countries in the region. Chimolsa manufactures molded pulp trays for apple and avocado pear exports, as well as trays and cases for eggs at its plant in Puente Alto.

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At CMPC social responsibility is central to our work and organizational philosophy, and allows us to develop our business sustainably, and we hope, over the long term. Empresas CMPC has a long-standing record of commitment to its workers and the community reaching back to the company's foundation in 1920. The company's founders were acutely aware of the importance of the "social issue" as it was then called: workers were given basic educational instruction, families at risk were visited by social workers, and medical care was provided to pregnant women. A then revolutionary program was "the paper company's" housing plan, in which whole residential areas were built so its workers could live in acceptable houses. The plan extended to a parish church that was donated to the diocese along with a company financed school for young children. Thus from the beginning CMPC's main shareholders developed a sense of social responsibility that is present to this day as an essential component of company tradition. As is natural, this attitude has adapted itself to the changing conditions in Chile, and the programs now in place extend beyond the company's workers to the communities adjacent to the firm's mills and plantations.

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At CMPC social responsibility is a commitment to proactively undertake our work within an ethical framework that pushes us to continually seek best practice in all our activities.

,Q RXU EXVLQHVV DFWLYLWLHV CMPC contributes to Chile's development by generating both employment and wealth. This is attained through careful and dedicated management: production and sale of high quality products; a commitment to efficiency and thoroughness in our relationship with clients and suppliers; fair competition in the market; transparency in the provision of financial information; and expeditious payment of taxes and fulfillment of legal norms and requirements.

2XU ZRUNHUV The company ensures good working conditions, and complies with all the relevant regulations regarding pay, social laws and conditions. Moreover, we have benefit programs for workers and their families, we are keenly aware of the importance of job security and we provide opportunities for career development through training.

7KH FRPPXQLW\ The company has developed varied programs of educational support and community development that benefit communities near the company's plants and plantations. Aiming to be a good neighbor, CMPC seeks to cooperate with and assist these communities. Fundacion CMPC has developed programs of educational support focused on public schools and training programs for adults so as to help them have access to better and more diverse work opportunities.

7KH HQYLURQPHQW Our industrial activity and forest management are based on the principles of sustainable development, as we view this as a necessary component of our competitiveness in the long term. We have an environmental policy that guides both company and individual employee performance, ensuring that such considerations are never sidelined. We view the environmental issue as an ethical challenge posed to us by future generations, as well as a vital component of competitiveness. This commitment is present both in everyday activity and in the company's strategic positioning.

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At CMPC our people are the key to the company's development and success, which is why our commitment to them is based on the following points: • Maintenance of a workplace that stimulates individual and team initiative so as to achieve the demanding objectives set by the company. • Offering stable jobs and the widest professional development opportunities through continuous training in a pleasant working environment. • Promoting a can-do attitude of personal improvement at all levels, and a constant search for greater efficiency so as to maintain our competitiveness.

7KH &03& &RPPLWPHQW CMPC signed a Global Compact agreement supporting the 9 principles highlighted by the United Nations with regard to human rights, worker rights and environmental protection. Global Compact was put forward by the Secretary General of the UN, Kofi Annan, at the Davos (Switzerland) World Economic Forum in 1999. It aims to support universal values and responsible business practice. Through this pact, CMPC re-affirmed its commitment to support and promote the following: Human Rights 1. Companies should support and respect international conventions for the protection of human rights. 2. Avoid being involved in any abuse of human rights. Work Norms 3. Companies should respect freedom of association and the right to effective collective negotiation. 4. All work based on coercion should be eliminated. 5. All child labor should be eliminated. 6. All workplace discrimination should be eliminated. The Environment 7. Companies should adopt a precautionary principle with regard to environmental problems. 8. Adopt initiatives to promote greater environmental responsibility. 9. Assist the development and spread of environmentally-friendly technologies.

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CMPC started up 80 years ago with only 40 workers, and now employs over 8,000 directly and approximately 15,000 indirectly. The company runs a series of activities for them in the following areas:

(GXFDWLRQ Training CMPC runs significant training programs for its workers in the vast majority of the industrial plants. The numbers show a steady rate of year on year growth.

Some areas in which training goes on, among others are: accounting, written and spoken English, risk prevention, financial management. Chilean subsidiaries In Chile in 2001, CMPC training amounted to 203,891 man-hours.

Scholarships The scholarship committee reviews cases in which company executives wish to extend their studies in Chile or abroad.

In 2002 this rose to 245,625 man-hours.

Thanks to this initiative, company executives have been able to study for and obtain post-graduate degrees.

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Each industrial plant has a risk prevention program which aims to protect the life and health of its workers.

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The implementation of pre-emptive and accident prevention programs helps maintain each work area free of accidents and workplace illnesses. To ensure a safe and hygienic workplace, CMPC has developed contingency plans for myriad emergency situations, attaining an enviable reputation among Chilean firms as a result.

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All company employees are members of the private health system and receive the appropriate benefits.

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In addition they may join collective insurance policies provided by the firm and special health plans that each business area provides. Food Each company subsidiary has a canteen to provide meals to our employees. The Company views food hygiene and quality as a high priority and continuously monitors food handling and quality.

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Housing

Publications

At CMPC we have always wanted our employees to have the possibility of owning their own home. Several plans are in place that help employees with this aim.

The company edits a quarterly magazine called Mi Papel which is sent to domestic and foreign employees.

Recreational and Cultural Activity

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The company aims to give its workers more than just an employment relationship, and this is especially so in areas adjacent to the company's operations and in areas without infrastructure for cultural and recreational activities. In addition the company undertakes special activities for certain national holidays and Christmas so as to celebrate such important dates as a company, with our workers and their families. Sports Activities CMPC encourages employees to organize and participate in sporting activities, believing them to be important to personal growth. At the vast majority of our plants sports teams exist that compete in leagues and championships both internally and with other companies. Recreational Centres Our different business areas own recreational centres that are open to all company employees. These are located in Vi単a del Mar, La Posada, San Sebastian, Quintero, Cartagena Los Lleuques, Concepcion, El Alamo y Niebla, as well as in other places. Family Support At many of our industrial plants we run programs of family support for our workers. Among these are sewing classes for women, factory visits and so on. Years of Service Awards The company rewards workers with more than 10 years of service at an annual ceremony.

Great Place To Work In 2002 Forestal Mininco was placed as one of the 10 best companies to work at in Chile by the Great Place to Work Institute. The credibility of its executives and pride in the company were identified by the workers as the factors behind this award. Most Admired Company CMPC was chosen - the sixth time it has won this award - as the most admired company of 2003 in an Adimark survey for the La Segunda Newspaper.

The firm's outstanding attributes were highlighted as: solvency and competence, concern for the community and the environment, and a commitment to the welfare of its workers. The company is very proud of this award, as it highlights the dedication, effort and commitment of its workers.

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CMPC has a long record of commitment to community support that is made manifest in the varied program of social assistance in place. Through the years the firm's efforts have become increasingly focused on projects aimed at helping public schools better the quality of their education. The firm's community support is developed through:

)XQGDFLRQ &03& For the Company, education has always been a high priority. This commitment led the company to create the Fundacion CMPC in 2000. Its mission is to work towards long term solutions in the areas in which the company carries out its operations.

Education in Chile: the Reality Coverage is practically not a problem in Chile at the primary level: almost 100 percent of children are enrolled at an educational establishment. Moreover they now attend for the whole day, as opposed

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to half day, which means they are under supervision and thus not at risk for most of the day. Over the last few years there has been a government funding effort to improve schools' infrastructure. However, despite these efforts, the quality of education remains discouraging. Poor results are concentrated among students at municipal (public) schools, which are non-paying and account for approximately 50% of schoolchildren. In general, these children come from poor families with associated cultural disadvantages. Administratively, these schools are subordinate to the municipalities, and educationally the relevant authority is the Ministry of Education. While the highest quintile (classified by socioeconomic status) of children has an average schooling duration of 13.1 years the equivalent statistic for the poorest quintile is 7.8 years. Year repetition and school desertion rates increase dramatically when municipal schools are taken into account. Thus it is the poorest children who receive the lowest quality education. Different national and international studies have shown that a significant group of students do not attain the minimum levels of skills and knowledge needed to function and integrate themselves into society. The Work of the Foundation An awareness of the problems besetting the Chilean educational system led to the decision within CMPC to focus our efforts on helping the children of neighboring communities through education. Fundacion CMPC is the channel through which CMPC makes donations and runs programs of social assistance. It is a non-profit organization that aims to provide economically disadvantaged children with better opportunities by

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improving the education they receive in municipal schools. Thus the underlying aim of the Foundation is to contribute towards the development of the communities that surround CMPC's operations, mills and plantations. Objectives â&#x20AC;˘ Focus the resources available for social assistance and philanthropy on educational support. â&#x20AC;˘ Develop educational support programs that: - Ensure that students acquire the minimum levels of math and language skills expected of each level of primary school education. - Assist in the effective and efficient management of schools so as to improve the quality of the education they impart. - Promote personal development and a learning environment among all members of the local educational community.

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Fundacion CMPC runs programs of educational support in economically disadvantaged schools with the aim of improving the quality of education received by primary school children in mathematics, language and non-cognitive skills. To this end the Foundation has developed programs such as teacher training in class planning, technical and direct classroom support, and has donated teaching materials and resources. These programs are accompanied by work with school head teachers and administrators. These programs are run by professionals and specialists, and their design includes rigorous evaluations and follow up efforts so as to continually improve the design of the programs. This aspect is of high priority as the Foundation aims to channel its resources towards those projects that have the greatest impact in the long term. The financing of these programs is achieved partly thanks to a law relating to educational donations, an internationally successful legal initiative that increases the resources available for activities that the State is ill-

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equipped to provide, and perhaps more importantly, fosters a real sense of social responsibility for companies. Who Has Benefited Fundacion CMPC helps over 13,000 children and 300 teachers in 50 schools throughout Chile via its educational support programs.

7KH *RRG 1HLJKERXUKRRG 3ODQ The company's awareness that it is an important neighbour in the local communities in which it carries out its operations has led it to take the initiative in collaboration with local projects and communities. An interesting example of the company's actions in this field is to be found in Chile's southern IXth region. This is a region beset by problems with the indigenous Mapuche communities mainly due to the acute poverty in which they live.

In 2002 the Good Neighbourhood Plan undertook the following actions: o 101 school scholarships were donated. o 450,000 plants were donated to neighbouring communities. o 75 schools were sponsored. o 202 courses for a total of 2,435 local people were run in the following areas: jam-making, nutrition and medicinal plants, sewing, knitting, livestock handling and sanitation, use of greenhouses and ecological beekeeping. o 20 plant nurseries for schools were developed, with a total of 140,000 plants. o Support and advice for 120 greenhouses. o 3,000 apple trees were donated to 1,500 families. o Support and donation of 330 apple trees of 6 species to the newly created Juana Manqui単ir community orchard. o Creation of forest nurseries for communities benefiting over 200 people. o Creation of tagasaste (a leguminous fodder plant) nurseries of direct benefit to 300 people. o Educational visits to 420 schools covering 21,000 children and 4,000 adults.

CMPC's subsidiary Forestal Mininco has actively developed its "Good Neighbourhood" Program, which is designed to assist neighbouring farms and communities.

o Visits to Forestal Mininco's seed orchard and the Carlos Douglas plant nursery by 4,170 children and 177 teachers.

In the main these programs provide jobs: last season, 800 jobs were created for members of the Mapuche community.

o Our language and math support program covered 17 schools in the VIIIth and IXth regions, helping 4,860 primary school children.

Four times a year the firm publishes a bulletin called "The Good Neighbour" which, among other things, informs local communities of activities underway.

o An open door policy allowing Forestal Mininco's neighbours to collect plants, mushrooms, etc, on company land. Additionally, neighbours may arrange with the firm for their animals to graze on company land.

o The twelfth version of our renewable natural resources course was taken by 120 teachers from rural areas.

o Throughout 2002 the company has built bridges with neighbouring Mapuche communities that are specially hostile, developing work agreements of benefit to both parties, thus re-establishing trust and safeguarding the management of large areas of forest.

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7KH -RUJH $OHVVDQGUL (GXFDWLRQDO 3DUN CMPC inaugurated this educational park in 1993 with the aim of promoting awareness of the forest ecosystem in the public and especially in students. A more general aim is to promote the development of the forest sector in Chile through a heightened awareness of the benefits of working with renewable natural resources and respect for the environment. The park is split between the 11 hectares located 18km from Concepcion, and the 235 hectares of native forest to be found 12km towards the Nahuelbuta hills. When the so called "Natural Amphitheatre" is taken into account this park makes up an educational, tourist and cultural attraction of renown in the VIIIth region. The park has gradually come to be focused on educational activities, and now offers a varied program of recreational and educational activity, from guided walks in the native forest, art and cultural activity in the "Cultural Amphitheatre", to group work in the educational nursery.

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o CMPC actively supports other social and business organizations such as ICARE, SOFOFA, Confederacion de la Produccion y el Comercio (all business related), the CEP (a public policy think-tank), Paz Cuidadana (crime and safety institute) and others.

This is a new activity that aims to educate visitors of all ages, while also entertaining and surprising them. The idea is to transmit a feel for the knowledge acquired by the company in over 80 years in the forestry business.

o The company is an active patron of the arts in Chile, supporting the Artequin Museum, the Municipal Theatre (Chile's principal opera and classical music venue) and the literary competitions of the Mercurio newspaper's book magazine.

Visitors to the Sala del Arbol are made to feel they actively participate in the entire process of the transformation of a tree into final products such as wood pulp and paper thanks to videos, displays, games and other interactive activities.

o The company also supports many fire stations throughout the country, helping what is in Chile a partially voluntary organization.

o Through our educational website www.papelnet.cl CMPC provides a valuable resource to the students of Chile and others abroad by providing a wide range of information relating to forests, paper and wood pulp.

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The company plans for the long term in relation to the environment, guided by principles of sustainable development. This approach is essential to our competitive strategy over the long term. As a result of this approach the company works to preserve the ecological balance, to conserve natural species and maintain a pollution-free environment. All our personnel are evaluated on their strict adherence to legal norms and requirements relating to the environment.

(QYLURQPHQW 3ROLF\ 1. CMPC believes in the real application of the principle of sustainable development to its productive activities. The development of our business must be compatible with the rights of future generations to live in a clean and diverse environment. 2. Care of the environment has an ethical dimension at CMPC: strict compliance with legal requirements is a moral duty. Our operations must avoid harming people, and the environment in general. 3. For the company appropriate environmental management is integral to the forestry business. The soil and water must be protected, and levels of biodiversity must be maintained in areas of native forest or vegetation. 4. Environmental considerations must be present at the earliest stages in all company projects and their implementation must proceed at the highest level of competence. 5. The company's environmental policy is designed to make explicit the company's commitment to shareholders, workers, clients, providers and the community in general. 6. The company ensures that workers are given the training necessary to fully and responsibly apply these principles. 7. CMPC must have a full and detailed environmental impact inventory for each of its operations in terms of legal and physical issues and risk management. 8. To measure the effectiveness of this policy and the resources involved the company applies a regular and comprehensive system of environmental impact auditing. 9. As part of its environmental policy the company is committed to the following: a.- Create and provide products that do not cause inappropriate damage to the environment. b.- Use electricity and natural resources efficiently. c.- Promote respect for and adherence to the company's environmental policy in our suppliers. d.- Have emergency plans in place for processes which involve a level of risk that requires such a plan. e.- Contribute to the formulation of reasonable and necessary public environmental policy. f.- Promote research and development of environmentally sustainable technology in the forestry sector.

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&HUWLILFDWLRQ The quality of the products we deliver to our clients is not the product of chance. The company has worked hard to attain those levels and to maintain them over time with the ISO quality control system. A recent and noteworthy case is the ISO 14001 certification obtained by Forestal Mininco, highlighting the good practice and hard work employed by our workers.

The company obtained this certification in January 2002 from SGS, accredited by ANSI-RAB (USA). This certification covers all the activities undertaken by the firm (Forestal Mininco), from the purchase of land and forests to the transport and arrival of processed timber to clients and ports.

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+RZ WKH )RUHVWU\ ,QGXVWU\ &RQWULEXWHV WR WKH (QYLURQPHQW 3ODQWDWLRQV Forest plantations are well known for their efficiency in supplying wood needs with the use of a relatively small area: only 2.7 percent of Chile's land is sufficient to supply 95 percent of the forestry sector's internal and export market needs. However plantations have a series of additional benefits:

• In Chile they limit erosion over a vast area of land. It is because of a widespread erosion problem that over 90 percent of plantations were established on land that suffered from varying degrees of erosion. • They contribute to the recovery of and make productive sandy soil of volcanic origin and dunes that were of no productive value to the country. • They improve the scenery of deforested areas, providing an alternative habitat for woodland fauna. • They generate economic activity outside of Chile's central regions, counterbalancing the extremely high concentration of economic activity in Santiago and other major cities, with the congestion and pollution that this entails. • Thanks to their rapid rate of growth they are extremely efficient at capturing carbon from the atmosphere: it is estimated that they fix over 65 million tons of carbon dioxide per year, thus making a significant contribution to mitigating the greenhouse effect. • The efficiency of plantations also permits the preservation of native forest on a highly significant scale, thus preserving biodiversity: each hectare of plantation allows the preservation of 15 to 20 hectares of native forest in Chile, while still supplying the wood products required by the world economy.

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5HF\FOLQJ Virgin fibres from forest plantations and recycled fibres are complements, not substitutes, in the paper manufacturing cycle. This is because by recycling waste paper we extend the useful life of the fibres contained therein, thus making more efficient use of the products of our forests. Nonetheless, as paper is successively recycled its fibres deteriorate, and virgin fibres must be added to produce new paper, thus demonstrating their complementarity as inputs in the production of paper.

6 Good Reasons to Recycle The environmental benefits of recycling paper and cardboard are clear: • Optimizes the use of plantations as recycled fibres are substituted for virgin fibres in paper manufacture. • Saves energy, as recycling fibres from waste paper requires less energy than obtaining virgin fibre from timber. • Gives value to waste paper and cardboard, thus creating a market that provides incentives to collect such materials and avoids their accumulation in rubbish dumps. • By reducing the volume of rubbish the useful life of existing dumps is prolonged and methane gas emissions associated with rubbish decomposition are reduced. • Provides work for the least qualified sectors of the urban labor force. • Contributes to the cleanliness of the city.

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)RUHVWDO 0LQLQFR Forestal Mininco's operations are based on products 100 percent derived from wood, a renewable natural raw material produced from sustainable forests.

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&03& V 5DZ 0DWHULDO &RPHV IURP SHUFHQW 0DQ 0DGH 3ODQWDWLRQV The forestry cycle begins with meticulous selection and genetic improvement of seeds that develop into trees with exceptional structure, volume and resilience. The company runs the Carlos Douglas nursery, sporting the latest technology: highly mechanized, it has an innovative fertilization system as part of the watering process. It is located in Cabrero in the VIIIth region, and produces approximately 30 million plants per annum for use in plantation and reforestation. After diligent care, plants obtained by reproduction techniques are transplanted to their final location when they are between 5 and 10 months old.

The care of plantations as a whole includes complex systems to protect against fire, infections and pests. Once the plantations have attained adulthood they are harvested with low impact techniques that minimize the amount of waste left in the forest so as to reduce the risk of a subsequent fire to a minimum. The land is then replanted as soon as possible so as to avoid erosion and to recommence the forest cycle.

The company has always aimed to increase the size of its forest resource, and thus we have always planted more than we harvest. During 2002 18,000 hectares were planted while only 9,000 hectares were harvested: two trees were planted for every tree harvested. CMPC is committed to continued forestation, and our average plantation rate is 22,000 hectares per annum, which means that over 250 million trees have been planted over the last decade.

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The volume of timber generated by this harvest supplies the firm's three sawmills -Mulchen, Bucalemu and Nacimiento-, the pulp mills -Pacifico, Laja and Santa Feand CMPC Papeles' plants: Inforsa, Maule y Valdivia.

The planting process takes into account the characteristics of the location and utilizes techniques designed to minimize overall environmental impact.

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This rate of growth of the forest mass will double our harvest in a decade, from 4 to 8 million cubic metres, but it must be made clear that this growth in harvest volume is entirely consistent with sustainable forest management.

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&03& KDV &RQWULEXWHG WR 0LWLJDWLQJ WKH ,PSDFW RI &KLOH V 0RVW 6HULRXV (QYLURQPHQWDO 3UREOHP 6RLO (URVLRQ It is not common knowledge that Chile's most serious environmental problem is soil erosion in the central valley of the VIIIth region. This problem not only radically alters the scenery, it also renders the land unusable for agriculture and livestock.

forestry industry. Ninety percent of current plantations were established on heavily eroded land. The company's forest plantations have created and maintained a planted area of over 350,000 hectares spread over regions VII, VIII, IX and XI: the regions most severely affected by soil erosion in the past.

The problem dates from the beginning of the twentieth century, when the region's forest coverage was practically eliminated to free up the land for agricultural use. Early reforestation was in response to a law encouraging reforestation so as to resolve the soil erosion problem and create a

Aysen Project

$ 5HVHUYH IRU WKH )XWXUH In 1988 Forestal Mininco began to study the feasibility of establishing a forest resource around Coyhaique in the XIth Region (extreme south). The evaluation spanned a variety of potential tree species from eucalyptus to northern hemisphere conifers appropriate to the latitude. In 1990 the Aysen Project was born, focusing on forestation with Ponderosa, Contorta (Lodgepole) and Oregon pine. The land chosen for the project was highly eroded as the result of deforestation early in the century to allow the rearing of livestock. Currently the project extends over 14,000 hectares. One of the chief environmental contributions of the project is the clear recovery of the soil, especially in the region of the Cajon river which had been transformed into a desert-like area as a result of the half metre of ash deposited on it by the eruption of the Hudson volcano. Plantation on this land has been successful. Additionally these forests will fix large amounts of carbon dioxide from the atmosphere, and their clearly beneficial effect on the soil has stimulated local farmers to reforest parts of their land. Finally, the timber generated from these planted forests will help reduce the demand for timber from the area's native forests, which are especially rich in second growth native forest.

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&03& 3URWHFWV LWV 1DWLYH )RUHVW Currently, forests cover 15.6 million hectares in Chile. Eighty six percent of this is native forest (13.4 million hectares), an area which if continuous would stretch from the central metropolitan to the IXth regions. Approximately 29 percent of this native forest is protected by the National Protected Forest Areas Service (SNASPE), making Chile one of the countries with the highest rate of native forest protection in the world. Fast growing plantations are particularly helpful in protecting the environment as they produce -using relative little surface area- very large volumes of timber, able to satisfy local and global demands for this resource without recourse to irreplaceable native forest. Timber from these plantations supplies 90 percent of annual Chilean demand for domestic consumption and export (a highly significant component of demand). Using plantation sourced timber allows society's

needs to be met, and allows the use of native forest to be limited to conservation and recreation. This is not simply of local benefit: globally, the production of timber in high productivity areas through plantations allows other native forests to be conserved and not exploited. Approximately 20 percent of CMPC Forestal's forest assets are native forests. These forests are protected, serving to conserve biodiversity and to protect waterways and soil from erosion. In December 2002, as part of an improvement to the existing environmental management system, Forestal Mininco formalized its commitment to maintaining and not replacing its native forest with plantations. This commitment is formal and as such may be externally audited. Forestal Mininco identified, registered, and formally separated the native forest from its plantations, and classified it according

to use: protection, or conservation and production. In both cases native forest cannot be replaced by plantations of other species. In addition, the firm is committed to avoid encouraging the replacement of native forest with plantations by third parties in accordance, in principle, with the findings of the National Survey and Evaluation of Chilean National Native Vegetation undertaken in 1997 by CONAF-CONAMA (government agencies). This will of course be modified according to the final findings of the National Forestry Agency (CONAF) in accordance with current legislation.

&03& &RQWULEXWHV 6LJQLILFDQWO\ WR 6ORZLQJ WKH *UHHQKRXVH (IIHFW The Greenhouse Effect is an alarming global menace: the sustained increase in planetary temperatures caused by increases in Carbon gases at low atmospheric altitudes. In this regard forests' contribution is clear and direct: they naturally absorb carbon dioxide and filter it, returning pure oxygen to the environment. Thus one of the most effective ways of combating the Greenhouse Effect is through forestation.

&03& &RQWULEXWHV WR %LRGLYHUVLW\ &RQVHUYDWLRQ Over time the wild flora and fauna within CMPC's forests have grown and increased in number thanks to advances in current management systems that permit the development and growth of other plant life, thus allowing bird and animals to feed and live in the forest. Plantations permit the growth of thicket habitats ideal for pumas, foxes and pudus. Moreover it has been found that many species of bird and insect that had abandoned the central valley when it was

One hectare of Radiata Pine or Eucalyptus absorbs, on average, 9 tons of Carbon Dioxide per annum, releasing Oxygen in its stead. 350,000 hectares, make a real contribution to the solution of this global problem.

used for agriculture have now returned to the forests. The biodiversity within CMPC's forest assets is of value not only locally but also globally. Additionally, by focusing timber production in small, highly productive areas the planet's most valuable native forests may be spared exploitation, serving instead to protect biodiversity. Within CMPC's forest resources biodiversity is specially protected in the company's

large areas of native forest that serve to conserve and foster a large variety of Chilean flora and fauna.

&03& (IIHFWLYHO\ 0LWLJDWHV WKH 3RVVLEOH 1HJDWLYH ,PSDFWV RI LWV )RUHVWU\ $FWLYLWLHV Like any productive activity, Forestry may affect the environment to some extent. However it is in our commitment to mitigating these effects that we stand out from the crowd.

the environment and to reducing to a minimum the impact our activities may have on the environment at any point in the production cycle. The operations potentially most hazardous to the environment, such as harvesting or road construction, have been carefully

By certifying its environmental management system under the ISO 14001 protocol the company has formalized a commitment to

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7KH *UHHQKRXVH (IIHFW The increase in Carbon Dioxide concentration in the atmosphere contributes significantly to a gradual increase in planetary temperatures. This is because Carbon Dioxide, along with other gases generated by human activity such as Methane (CH4) and Nitrous Oxide(N2O), prevent surface heat from escaping into space. Thus this gas appears to surround the Earth in a manner very similar to a greenhouse, hence the name "Greenhouse Effect". The source of the growing volume of Carbon Dioxide in the atmosphere is growing fossil fuel consumption via natural gas, carbon and above all, oil. When these are burnt they release carbon that has been trapped in the Earth's crust for millions of years. Biological fuels also release carbon into the atmosphere, but this is carbon that is already part of the natural carbon cycle: the same amount is released if the wood is burnt or left to decompose in the forest. The biological fuels used by the wood pulp industry are thus in balance with the natural carbon cycle and do not contribute to the greenhouse effect, as the carbon they contain would have been released even if the material was not used as fuel. CMPC contributes to reducing the Greenhouse problem by sustainably managing growing forest assets that fix significant and increasing quantities of carbon.

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studied and all necessary measures for carrying out these activities in the most low impact manner available have been put in place.

&03& &HUWLILHV WKH 6XVWDLQDELOLW\ RI LWV 0DQDJHPHQW WKURXJK ,QGHSHQGHQW $XGLWRUV DQG &HUWLILFDWLRQ During 2002 the firm's management has taken important steps in its certification process. The certification firm SGS (SociĂŠtĂŠ GĂŠnĂŠrale de Surveillance) has certified that the environmental management system in place complies with ISO 14001 standards. Moreover two follow up audits have taken place, the results serving to confirm the company's commitment to responsible environmental management.

The same certification firm has completed the first stage of the Work Health and Safety certification process known as OHSAS 18001. At this stage the implementation of this standard has focused on the company's production operations, and it will be extended to all areas of the firm in later stages to make clear that our people are a high priority. Until recently the international consensus was that the locus of certification was a company's management system. This consensus has shifted towards a certification that focuses instead on seals of sustainable forest management. From 2003 we face the challenge of

implementing the Chilean sustainable forest management system CertforChile, a certification system that we expect will be ratified by early 2004 at the latest as equivalent by the PEFC system, the system with the widest coverage by area in the world. This will allow CMPC products to bear a seal that assures the final consumer that the wood that has been used as raw material is sourced from sustainably managed forests. The Integrated System of Environmental Management currently in place is set to continue in operation and to include the social, environmental and management aspects demanded by society and the markets.

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Sawmills

This subsidiary makes up the industrial component of the CMPC Forestry business area and its mission is to add value to the company's forest assets. To this end it produces and brings to market green and dry sawn radiata pine timber, and remanufactured products in various lines, tailored to individual country and market specifications. CMPC Maderas constantly seeks high and sustainable profit margins through optimization of its product and price mix and worker productivity.

The first stage involves a selection and classification of the pieces of timber. The sawmill production lines can be distinguished mainly by the product demands they aim to satisfy. For example, some production lines require as an input wood that has been carefully managed so as to obtain a final product that is visually of high quality for use in panelling. At the other extreme, there are lines that focus on producing sawn timber for packing: the final product is dependent on the raw material.

CMPC Maderas operates three sawmills in Chile's south -Bucalemu, Mulchen and Nacimiento- and a remanufacturing plant in Los Angeles.

The plants have drying units in order to supply the remanufacturing plant's demand. Remanufacturing Plant

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This plant transforms the dry sawn wood supplied by CMPC Maderas' sawmills into higher value products such as blocks, blanks, mouldings, panels and posts through techniques such as planing, cutting, finger jointing, moulding, panelling and painting. Sawmill Environmental Performance Indicators The ISO 14031 standard presents a wide variety of Environmental Performance Indicators (EPI) that may be adapted to suit the particular circumstances of each industrial sector. The firm has defined a set of minimum EPI to assist in management and monitor of the progress of clean production measures being implemented in the sawmill sector. Indicators worthy of note include the sustained increase in timber sold by the cubic metre of solid wood from de-barked logs, reduced consumption of adhesives and fungicides, the reduction in steam emissions per cubic metre of timber and the almost total elimination of oils in the production process.

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&03& &(/8/26$ *HQHUDO 'HVFULSWLRQ This business area has been present in international markets from 1959, pioneering the export of wood pulp from Chile. Wood pulp is the principal raw material required for paper and cardboard manufacture. CMPC Celulosa runs 3 pulp mills in Chile, with a total annual production of 800,000 metric tons of long fibre (softwood) and 360,000 metric tons of short fibre (hardwood) kraft pulp. Subtracting the pulp sold to other subsidiaries, CMPC Celulosa

sells 650,000 tons of long fibre and 270,000 tons of short fibre pulp per annum on world markets. Of this total the majority is bleached pulp, with only a small minority sold unbleached. Our modern pulp mills are part of an ecologically balanced system made up by paper and forest products. Our goal is to eliminate or treat mill emissions so as to comply with all environmental norms and thus allow them to be sustainably absorbed into the natural cycle.

(QYLURQPHQWDOO\ VLJQLILFDQW DVSHFWV RI WKH SURFHVV To understand a pulp mill's environmental impact we must take a general look at its production process, that aims to free -as delicately as possible- the pulp fibres

contained in the wood and held together by a substance known as lignin. The process may be broken down into the following stages:

• Electricity from the grid (generally self-sufficient) • Oil, Na tural Gas • Bark • Wood Waste

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2a. Wood preparation In this stage the logs are de-barked and converted into chips. The bark is used as fuel in what is known as a biomass boiler.

The wood chips are then treated in digestors with a substance based on caustic soda and known as white liquor. This serves to dissolve the lignin, freeing the pulp fibres. Lignin makes up about 50 percent of the weight of dry wood. At the end of this treatment, or "cooking" process two products may be distinguished: pulp paste and a residual called black liquor, made up of white liquor, lignin and other wood components. This black liquor is used as fuel in the recovery boiler, which generates steam and recovers the chemicals required to recreate the white liquor used to treat the chips. Only a very small proportion of the solid residue left in the digestor is not recovered.

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2b. Production of Pulp Paste

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Boiler Ash Lime Kiln Re jects Sand and Stones Green Liquor Sludge Sludge from Treatment Plants I and II Domestic Waste Others Small quantities of dangerous waste delivered to third parties for processing

The chips are then piled up and sorted by size, with those of acceptable size passing to the next stage. Those found to be overlarge are returned to the earlier chip-making stage, while those that are too small are sent to the biomass boiler to be used as fuel along with the bark.

The pulp paste that emerges from the digestor is classified and washed. The rejects of the classification process, usually wood knots and bundles of fibre, are returned to the digestor. The paste (brown stock) that is not rejected is what is known as raw or unbleached liquid pulp. This pulp paste still contains a significant amount of lignin, as is evident from the brown, woody colour of the paste. 2c. Production of Bleached Pulp Given that pulp is the main raw material in the production of white paper the unbleached liquid pulp must be treated to extract the remaining lignin, resins, metal ions, and other substances that could affect the paper production process. Chemicals such as Chlorine Dioxide, Oxygen and Hydrogen Peroxide (concentrated oxygenated water) are added to bleach the pulp. This allows the production of paper with the required levels of whiteness and shine, and ensures that this effect lasts over time. The water used in this process is purified in dedicated treatment plants before being returned to the environment. Once bleached, the water must be extracted from the pulp so as to reduce its weight and preserve its characteristics, in particular its whiteness.

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Once the drying process is complete the pulp has reached the format in which it is sold: rectangular sheets of standard size in 250 kg packets which are then grouped into 2 ton units. 2d. Chemical Recovery Systems This important process recovers valuable chemicals and avoids their release into the atmosphere with the associated environmental cost. The process works as follows. The black liquor that is produced by the digestor is passed through evaporators to extract the water. Sulphur compounds (known as TRS) are also extracted, as is "Tall Oil" and Turpentine. The latter two are condensed and treated for later sale or for use in other parts of the mill. Once dehydrated and condensed the black liquor passes into the recovery boiler where the organic component (lignin and other wood compounds) is burnt, producing steam which is used to generate electricity or used directly in other parts of the mill. The inorganic components and the mineral salts (ash) are recovered after combustion. The main chemical components of the ash are Sodium Sulphide (Na2S) and Sodium Carbonate (Na2CO3). The ash is dissolved in water to form what is known as "green liquor." This liquor undergoes a caustification process, which is essentially caused by the addition of quicklime (CaO). As the result of several chemical reactions two compounds are produced: white liquor which is stored for use in the cooking process, and slaked lime (CaCO3) in the form of sludge. The latter is dried and then burnt in special kilns to produce the quicklime needed for the caustification process.

2e. Energy Generation Systems Modern pulp mills are not only self-sufficient in energy terms: they generate an electricity surplus. Essentially this is a solar power based industry, as the energy produced comes from the wood components that are not used to produce pulp, principally lignin and bark. This avoids reliance on fossil fuels such as oil, coal and gas. The forest fixes solar energy through photosynthesis, requiring principally light, carbon dioxide and water as raw materials. It is this process that makes the forest a source of renewable raw materials, the most important of which are wood fibre and energy. Wood fibre is transformed into pulp, which is used to produce paper and paper products. If the paper is recycled

after use the same fibres may be reused many times. On the other hand, if waste paper is burnt the energy contained therein may also be used constructively. Paper is a biological fuel that may serve to reduce our reliance on fossil fuels. Whether waste paper is burnt or deposited in a rubbish dump, it releases the same amount of carbon dioxide into the atmosphere. Forests close this circle and begin the cycle anew by recapturing this carbon dioxide in photosynthesis to create new wood.

7KH (QYLURQPHQW DQG &03& &HOXORVD V ,QGXVWULDO $FWLYLW\ The company serves a select group of clients in Europe, Asia, America and Oceania for whom our pulp serves as raw material for a wide range of papers and paper products. At the next stage in the value chain our clients face consumers that exhibit a growing sensitivity to the environmental performance of the companies producing the goods they purchase. This is reason enough for CMPC Celulosa to be constantly up to date as to technological advances in environmental protection.

This is an industry that is both highly capital intensive and highly automated, while the equipment used in production is designed to have a long useful life. All CMPC's plants are periodically submitted to a period of intense technical maintenance and testing so as to improve productivity and environmental performance.

,QYHVWPHQW LQ ,PSURYHG (QYLURQPHQWDO 3HUIRUPDQFH DW RXU ,QGXVWULDO 3ODQWV 6$17$ )( 0,// 2002 - 2003 - 2005 Plan (*) Description Improved Combustion in the Recovery Boiler Energy Saving Program Operational Improvements to the Lime Kiln

$ 1(: (19,5210(17$//< 5(63216,%/( &21680(5 Throughout the world, and especially in the most developed economies a new type of consumer has emerged as a significant force. This consumer makes an effort to buy environmentally friendly products and requires guarantees of environmental acceptability from the product's earliest stages until its disposal. In the case of paper, consumer requirements begin with sustainable forest management and extend to environmentally conscious disposal of waste paper: a product is evaluated all along its life cycle. A series of seals and certifications have been developed that are placed on the final product to inform consumers of a product's environmental qualifications. These certify that the product does not damage the environment throughout its life cycle. To qualify for these certifications producers must submit to rigorous external audit processes not only regarding their own production process, but also that of their suppliers, wherever they are located.

Separation Plant for Chloride from Recovery Boiler Acquisition of laboratory instruments for gas and particulate material measurement Optimization of electricity generation and consumption Recovery of non-condensable gas

Effect Reduced Carbon Monoxide and smell emissions Reduced oil consumption by Biomass Boiler Reduced smell and particulate material emissions Avoids corrosion of boiler tubing and reduces loss of Sodium Sulphate via effluent Monitors particulate material and smell emissions at source Reduced consumption of electricity from National Grid Reduced TRS emissions

Total Investment plan 2003-2005

Investment (US$) 100,000 225,000 75,000 1,405,000 60,000 210.00 640.000 2,715,000 700,000

(*) Does not include the project for a new pulp line at the Santa Fe Mill

/$-$ 0,// 2002 - 2003-2005 Plan Description Development and implementation of Environmental Management System Turpentine recovery from pulp effluent Conversion of N째1 Boiler and N째2 Lime Kiln to natural gas combustion Transport duct for percolated material from dump site to effluent treatment plant

Effect Obtained ISO 14000 certification Recovery of valuable sub-products Drastic reduction in particulate material and greenhouse gas emissions Reduced cost of preventing contamination of underground watercourse

Total Investment plan 2003-2005

Investment (US$) 50,000 750,000 26,000 826,000 30,500,000

3$&,),&2 0,// 2002 - 2003-2005 Plan Description New equipment for quality control laboratory Increase in height of dissolving tank chimney Construction of Controlled industrial landfill (PROPAC) 2nd stage of delignification (PROPAC) Non-condensable gas incinerator and improvements to dissolving tank scrubber (PROPAC) 4 mechanical water cooling towers (PROPAC) 5th cooling tower for effluent treatment plant (PROPAC) Superconcentrator in evaporators (PROPAC)

Effect Gas measurement equipment for monitoring environmental parameters Increased dispersion in atmosphere, minimizing local effects Controlled industrial landfill for solid residues

Investment (US$) 7,700

Reduction in use of chemicals in bleaching process with no change in product quality Ensures compliance with TRS norm, avoiding venting of these gases (incinerator) and improved scrubbing of gases emitted from dissolving tank Cooling water recirculates, optimizing its use Improved capacity and operation of effluent treatment plant Minimization of TRS emissions

7,400,000

Total Investment Plan 2003-2005

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47,000 450,000

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2,450,000 180,000 3,000,000 14,474,700 9,600,000

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&03& 3DSHOHV CMPC is active in this business area through 5 subsidiaries: INFORSA, Papeles Cordillera, Cartulinas CMPC, SOREPA and EDIPAC.

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*HQHUDO 'HVFULSWLRQ INFORSA produces and brings to market 190,000 tons per annum of newsprint, making it the market leader in Chile and Latin America's largest newsprint exporter. The main raw material for newsprint is wood fibre sourced from Radiata pine forest plantations, managed according to principles of sustainability.

(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV INFORSA is actively involved in two programs run by Concepcion University's EULA Center in the Bio Bio River valley: (1) A water quality monitoring program that collects quarterly data on 30 indicators and makes this information available to industrial concerns in the valley.

component of the plant's modernization was the introduction of thermo-mechanic pulping technology for separating the wood fibre necessary for newsprint production. This technology has two environmentally friendly attributes: (1) It uses no chemical products.

(2) A water quality computer model that allows simulation of river conditions under different flow, seasonal, and industrial and city effluent levels.

(2) It is energy efficient, as the energy generated by pulp production is used to generate steam which is then used to power our two paper machines.

The Modernization of INFORSA's Nacimiento Plant Ensures a More Efficient Use of Energy Resources

Solid Residue Management that Prioritizes Recycling

The introduction of more environmentallyfriendly technology at INFORSA's Nacimiento Plant in 1997-1998 has resulted in water and energy savings, and has reduced emissions and the residue left by the newsprint production process. This has been achieved at the same time as a production increase from 130,000 to 190,000 tons per annum. A key

Our solid residue management prioritizes recycling and segregation. Moreover, the adoption of new technology has allowed us to minimize wood fibre losses, which in turn has reduced the waste generated by the effluent treatment plant in its treatment of liquid industrial residue. The latter plant has an automated control and instrumentation system that continually

monitors suspended solid content so as to ensure it complies with environmental norms. The industrial waste is then mixed with residual biomass (mainly sawdust and bark) from the newsprint manufacturing process and used as fuel for the steam generating boilers. The wood waste from an adjoining sawmill belonging to the company is also used as fuel. Fuel: Mainly Biomass and Natural Gas The residual biomass and the industrial waste from the newsprint and sawmill production processes are all legitimately considered renewable energy, and their recycling as energy allows us to avoid using fossil fuels. Moreover clean energy will be generated via natural gas from April 2002. The steam generated in the boilers is used, as mentioned earlier, to power the sawmill, and also as an energy backup for the main Nacimiento plant.

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3DSHOHV &RUGLOOHUD *HQHUDO 'HVFULSWLRQ Papeles Cordillera was founded in 1920 in Puente Alto and produces 225,000 tons per annum of corrugating materials, and printing, writing and wrapping paper. It currently operates five paper machines that run on recycled paper and pulp to produce paper for different markets.

(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV A new paper machine came into operation in November 2001 producing corrugating materials and making use of recycled fibres. Its capacity of 180,000 tons per annum has allowed us to significantly increase our utilization of recycled fibre from waste paper. The paper produced is used to make corrugated cardboard boxes for packing industrial products, fruit and vegetables, wine and salmon products. Papeles Cordillera tripled consumption of recycled fibres in the period 2000-2002, consuming 156,000 tons of recycled fibre in 2002 thanks to the presence of the new paper machine mentioned above. Environmental Certification Successes Reflect Continuing Progress Papeles Cordillera has been ISO 14001 certified since 2001 and was declared an environmentally friendly business by the Metropolitan Health Service for the Environment in 2000. Daily auditing of our operations thanks to our Environmental Management System ensures that Papeles Cordillera stays within the norms required by both certification systems. Efficient Use of Water Water is essential to paper manufacture, and the new paper machine's technology has allowed water use per ton of paper produced to fall by 70 percent in comparison to the technology previously in place.

In 2002 water consumption was 19 cubic metres of water per ton of paper, but we expect this to fall sharply as this number reflects the period of adjustment to a new machine: in the first quarter of 2003 water consumption fell to 13 cubic metres per ton. Efficient Use of Recycled Fibres and Additives Used in Paper Manufacture Our two waste paper treatment plants and our paper machine contain technology that minimizes fibre loss and the use of additives in the production process. This is reflected in the drop in fibre loss from 7 percent in 2002 to 6 percent in the first quarter of 2003, a level comparable with international best practice. Solid Residue Management that Prioritizes Recycling The use of new technology has allowed a drop of 70 percent in industrial sludge generated per ton of paper produced in comparison with the technology previously in use. This sludge is the result of treating liquid industrial residues at the effluent treatment plant that is used by Papeles Cordillera, CMPC Tissue Puente Alto and Chimolsa. It has a monitoring program approved by the Sanitary Services Superintendent's office. Industrial sludge is considered harmless by the environmental authorities, so it is used as fuel in the steam generating boiler, a device whose aerostatic precipitators reduce aerial emissions to a minimum. This

boiler is operated by a firm with a certification allowing it to provide a thermal energy generation service using biomass and industrial sludge as inputs. Fuel: Clean and Renewable Energy is Used At the Puente Alto plant we have completely eliminated the use of contaminating fuels such as fuel oil, replacing them with clean energy from natural gas and renewable energy obtained from the biomass residual of the paper manufacturing process. Reduction in Aerial Emissions The intensive use of natural gas has allowed us to reduce our emissions of particulate material, CO2 and NOx, thus complying fully with current atmospheric emissions standards. In addition the new steam generating boiler that came on-line in 2002 has a natural gas burner with technology that reduces NOx emissions by 45 percent per ton of paper. Papeles Cordillera is ahead of current environmental legislation in this regard, as there are no applicable norms as to NOx.

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*HQHUDO 'HVFULSWLRQ SOREPA, a CMPC subsidiary, was created in 1979 and focuses on the collection of waste paper and cardboard for recycling in CMPC's paper mills. Through its work SOREPA has created a market that has given value to previously worthless waste paper and cardboard, materials that were staples of city rubbish dumps. This reduction in rubbish volume has resulted in SOREPA being awarded The National Health Service's Environmental Certification in the Metropolitan region.

(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV SOREPA has substantially increased the volume of waste paper and cardboard it collects by expanding into all Chile's major cities, and mechanizing processes of classification, bundling and transport. 230,000 tons of waste paper and cardboard were consumed by CMPC

subsidiaries in 2002, and this figure is expected to grow in coming years as the proportion of recycled fibres used increases in the production of fruit, vegetable, and industrial wrapping paper and tissue products.

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&DUWXOLQDV &03& *HQHUDO 'HVFULSWLRQ Cartulinas CMPC runs two plants: the Maule Plant in Yerbas Buenas, VIIth Region, and the Valdivia Plant in the Xth Region, with a combined capacity of 200,000 tons per annum of multi-layer coated folding boxboard made from renewable wood fibres. This boxboard is used to make folding boxes to contain a wide range of products such as dried and frozen foodstuffs, detergents and medicines among others. As may be expected, each client has special requirements which are satisfied by this plant's production.

(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV Cartulinas CMPC has clients in over 30 countries in Latin America, Europe, Asia and North America, some of which are known to be highly demanding with regard to sanitation. It is because of this that CMPC's boxboard products are certified by international organizations as appropriate packing containers for foodstuffs. Environmental Certification Successes Reflect Continuing Progress Cartulinas CMPC's Environmental Management System is ISO 14001 certified for both plants. This certification is in addition to the ISO 9001 Quality Management System certification achieved in 2000. New Technology Permits a More Efficient Use of Energy at our Maule Plant The Maule plant's paper machine utilizes the latest boxboard production technology so as to make maximally efficient use of the wood fibre, water, energy and additives that make up its raw materials. In addition the plant's modern water treatment systems allow the recycling of fibres and coating pigments and the reuse of water.

Efficient Use of Water The Maule plant's technology has allowed a continuing drop in water consumption per ton of boxboard produced, currently at 25 cubic metres per ton. This is expected to fall to 20 cubic metres per ton as the result of upcoming modifications to nine separate areas of the production process. Solid Residue Management that Prioritizes Recycling The industrial sludge generated by treating liquid industrial residues at the effluent treatment plants at both our Maule and our Valdivia plants is used as fuel for the steam generating boilers. The latter are equipped with technology that minimizes their aerial emissions. These boilers are operated by firms with a certification allowing them to provide a thermal energy generation service using biomass and industrial sludge as inputs. In both plants the industrial sludge is added to the residual biomass from the boxboard production process, which is made up mainly of bark and sawdust. Wood waste purchased from third parties is added to this mix, which as a whole satisfies 80 percent of the Maule plant's thermal energy

needs and 100 percent of the Valdivia plant's needs. Fuel: Mainly Renewable Energy Both industrial sludge and biomass may be considered renewable energy sources, and their use as fuels avoids the use of more contaminating fossil fuels. At the Maule plant three thermal energy generating boilers operate with biomass and industrial sludge as fuel, and they are equipped with electrostatic precipitators that minimize aerial emissions. The two boilers at the Valdivia plant operate in a similar fashion. All These Boilers Comply With a Strict Emissions Monitoring Program A project aiming to improve the quality of the mechanical pulp produced at the Maule plant is due to be completed by the end of 2003, and once operational it will recover the heat given off in production and transform it into steam for energy generation. This will further reduce the already limited fuel oil consumption levels.

&03& 7LVVXH *HQHUDO 'HVFULSWLRQ CMPC Tissue produces and markets mass consumption paper products such as toilet paper, paper handkerchiefs, hygienic

towels, paper towels and napkins, and disposable diapers. With production and distribution facilities in Argentina, Uruguay, Chile and Peru we are market leaders in all these countries with the exception of Peru, where we have an important share of the market.

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(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV CMPC Tissue's main environmental impact is positive thanks to its intensive use of waste paper as a source of wood fibre raw material. This is made possible thanks to specialist knowledge and advanced technology.

use natural gas (with a high level of recirculation) to fuel the drying process. In addition they are equipped with gas scrubbers to ensure minimal emissions and full compliance with environmental standards.

The use of waste paper represents an extremely significant proportion of total wood fibre used as raw material: in general over 80 percent of the wood fibre used is recycled from waste paper.

Liquid Effluent

The process makes use of: • Wood fibre (recycled waste paper) • Water • Electricity • Fuel (natural gas)

The water used in the paper making process is treated and purified in effluent treatment plants at each and every CMPC plant, and subsequently returned to their original watercourses in compliance with all relevant environmental norms. Solid Residues

The process generates: Aerial Emissions These are the product of the steam boiler and the paper drying process. CMPC Tissue's main plants in Chile and Argentina

These are made up of non fibrous materials contained in waste paper such as plastics, textiles, and minerals. These are separated in the recycling process. Possible destinations for this residue (considered benign) are:

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This is effectively returning to the rubbish dump a fraction (15 percent by weight on average) of what was extracted when the waste paper was removed.

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The residue may be used as fuel in high technology boilers that are equipped to handle these materials as fuel without generating harmful emissions.

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An aerobic process as a result of which much of the organic content of the residue is mineralized and stabilized, allowing its use as a soil enhancer.

7LVVXH 3ODQWV 7HFKQRORJ\ DQG (QYLURQPHQWDO ,PSDFW Zarate Plant Buenos Aires Province, Argentina This plant belongs to a CMPC subsidiary -La Papelera del Plata- and has from its earliest days been environmentally certified by Buenos Aires province's relevant authorities. The plant's emissions and effluents are under continual monitoring. Ninety percent of the plant's fibrous raw material is made up of recycled fibres from waste paper. The plant is equipped with primary and secondary effluent treatment stages for water used in production, which once treated is discharged into the Parana River. Solid residue is not a problem for the plant as it composts 100 percent of this byproduct on its own land. Puente Alto Plant Metropolitan Region, Chile

discussed as the plant was under construction. As a result the plant was built with emissions and risk control as central considerations, and incorporates a rigorous monitoring system. Santa Anita Plant, Protisa, Lima, Peru In 2002 a new, high technology paper machine was installed at the plant in addition to the existing five conversion lines and diaper machine. The recycling plant also in operation allows the use of recycled paper as a raw material (up to 100 percent in some products). The plant is equipped with advanced effluent minimization technology. Ipusa Plant, Pando, Uruguay Industria Papelera Uruguaya (IPUSA) produces paper, tissue products and disposable diapers. Two paper machines

are in operation, working mainly with recycled fibres from waste paper. Effluents are treated in a dedicated plant that also recovers sludge.

The CMPC Tissue plant in Puente Alto satisfies over 90 percent of its fibre needs with recycled fibre from waste paper. Aerial emissions are limited by the technology in place: the drying processes are powered by natural gas and are equipped with combustion gas scrubbers, resulting in insignificant overall emissions levels. Effluent is minimized by internal recovery processes, and what remains is treated by the specialized treatment plant near the Maipo River where treated effluent is discharged at quality levels in compliance with environmental standards.

6OXGJH &RPSRVWLQJ DW WKH =DUDWH 3ODQW Three years ago the plant decided to experiment with industrial sludge composting as it was an attractive proposition: authorized rubbish dumps were relatively distant, and the plant site was large and well suited for composting. The process implemented includes: â&#x20AC;˘ A piling and accumulation area â&#x20AC;˘ Tanks and dosage providers for bacteria and their nutrients â&#x20AC;˘ An intensive ventilation system for the compost heaps

Finally, solid residue -sludge- which had previously been deposited in authorized landfill sites are use as fuel in a modern steam generating boiler equipped with the latest aerial emissions technology.

The process consists in degrading and stabilizing the organic matter contained in the piles with the use of bacteria that digest and transform the organic component. This process takes a month to complete on average, after which the heap has similar properties to soil, and is used as landfill to recover a low-lying 200 hectare site that has no current use as a result of its vulnerability to flooding.

Talagante Plant, Metropolitan Region, Chile

The program has been so successful that the plant is now composting 100 percent of its solid residues and is currently investigating the commercial uses of compost and its derivatives.

This plant was the first industrial installation in the Metropolitan Region to comply with a new environmental law that was being

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&03& 3URGXFWRV GH 3DSHO This subsidiary owns Envases Impresos, Envases Roble Alto, Productos Austral, Chimolsa and Propa with subsidiaries in Chile, Argentina and Peru.

7KH &RUUXJDWHG &DUGERDUG %XVLQHVV (QYDVHV 5REOH $OWR DQG (QYDVHV ,PSUHVRV *HQHUDO 'HVFULSWLRQ CMPC operates in the corrugated cardboard business through two firms: Envases Roble Alto and Envases Impresos. The former specializes in the industrial and wine sectors, with plants in Quilicura and Til Til, while the latter focuses on the fruit, vegetable, salmon and export cardboard markets, working from a plant in Buin.

The cardboard box production process basically consists in producing sheets of corrugated cardboard with a corrugating machine and subsequently converting them into boxes with a stamping machine. The main by-product of this process is cardboard waste, which is 100 percent recyclable, and is later converted into cardboard.

(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV CMPC subsidiaries have always sought raw materials that avoid damage to the environment or health, which is reflected in the use of inks that do not contain heavy metals and the use of biodegradable starches by way of example. Corrugated cardboard boxes can now be produced using 100 percent recycled fibres from waste cardboard and the cardboard scrap by-products of the production process, which mean that virgin fibre is no longer necessary. Thus our boxes are 100 percent recyclable: a major saving in energy and natural resources. Moreover, jobs are created as a cardboard collection industry starts up, and the city has less waste to dispose of.

The corrugated cardboard plants at Til Til, Quilicura and Buin fully comply with environmental norms and legislation and are constantly developing emissions prevention and reduction programs through studies and pilot programs in every area of production. Work is underway in several areas in order to obtain the Chilean environmentally friendly industrial company certification given by the SESMA agency.

As cardboard boxes are designed to be disposable and recycled they have a clear advantage over returnable plastics: the latter require a complex process of collection, sorting and sanitization before they may be reused.

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In production for both industrial and mass consumption markets no environmentally harmful processes or raw materials are utilized. In fact, most of our products are recyclable as they may easily be re-pulped and used to make other products such as tissue.

Austral is focused on producing paper products for both industrial and mass consumption. In the former area Austral is the market leader in the production of sacks with a capacity of 10 kilograms or below for the sugar, flour, pasta and coal industries and is also a major producer of coated sacks for the fruit and vegetable industry. In the mass consumption market Austral's main products are office paper, sold under the Equalit brand, and a wide range of notebooks that have quickly become market leaders.

The company has a special collection process for offcuts generated at different stages of production.

Liquid effluent emissions are monitored and controlled, and inks with heavy metal content are avoided if possible. If they are used the resulting effluents are appropriately treated. In 1996 the SESMA agency certified Productos Austral's industrial operations as environmentally friendly.

Offcuts that have not been printed on, known as white offcuts, are sold directly to tissue manufacturers. Mixed offcuts, an assortment of white and kraft paper both printed and blank, are used by specialized firms to make brown paper.

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7KH 0XOWLZDOOHG 6DFN %XVLQHVV CMPC pursues this line of business through plants located in Chile, Argentina and Peru. As these plants are essentially only conversion plants they are entirely harmless to the environment: the plants serve to transform paper into sacks, adding only printing and adhesives. Inks: over 99 percent of the inks used are water based, and the ink and adhesive content of our effluent is minimal, coming as it does from the washing of the recipients and tools used to apply them. All inks used are heavy metal free and the adhesives used are starch based. Both our Chilean and Peruvian plants have a solid decanting chamber in operation, while our plant in Argentina is planning such an installation.

The destinations of solid residues are: o Paper: sold to third parties for recycling (such as SOREPA). o Coated paper: this is considered waste residue. In Chile it is sold to SOREPA, while in Argentina and Peru it is sent to authorized rubbish dump facilities. o Other residues: as these are environmentally harmless they are sent to authorized rubbish dump facilities.

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*HQHUDO 'HVFULSWLRQ Chimolsa focuses on producing moulded pulp and paper derivative products at competitive cost in the food storage, transport and display market.

(QYLURQPHQWDOO\ 6LJQLILFDQW $VSHFWV RI WKH 3URGXFWLRQ 3URFHVV Chimolsa's main environmental impact is a positive one thanks to its intensive use of recycled waste paper as a source of wood fibre. This is made possible thanks to advanced technology and the specialized knowledge of our personnel. The process makes use of:

drying installations are equipped with natural gas burners. Effluents In the treatment of liquid industrial effluents Chimolsa makes use of the treatment plant operated by Papeles Cordillera thanks to a service contract.

• Recycled fibres from waste paper • Electricity • Fuel (natural gas) • Wrapping and other raw materials Aerial Emissions Emissions of particulate material and gasses from the moulding lines' drying systems are periodically monitored according to SESMA agency norms. All

Solid Residue The solid residue generated by the pulping plant is deposited in authorized rubbish dumps, thus complying with SESMA norms regarding solid industrial waste.

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AOX: is a surrogate measure of the amount of chlorinated organic compounds in pulp and paper effluent discharge. This amount is directly related to the amount of elemental chlorine used in the bleaching process. Currently almost all the pulp produced in Chile is ECF (see below).

Energy generated in production: the generation of electricity at the Pacifico, Laja and Santa Fe pulp mills from the steam produced by the recovery of chemical compounds used in production.

Biomass: this is non-fossilized organic matter that may be used as a renewable energy source. The aerial emissions generated by using biomass as a fuel are considered neutral with regard to CO2 levels in the atmosphere.

Residual Biomass from the process: in the pulp and paper manufacturing process organic waste is generated such as bark, sawdust, wood waste and industrial sludge. These are used as fuel in the mills and plants to generate thermal energy.

Bleaching: the bleaching process aims to eliminate residual lignin that darkens the pulp. Bleaching changes the color of the pulp, improves its suitability for printing and gives it greater durability.

Soil erosion: in Chile this process has caused large depressions and holes that render land unsuitable for cultivation or livestock rearing. This may be halted and even reversed by re-forestation.

Compost: this is the product of the composting of sludge, an anaerobic process of bacterial digestion through which industrial sludge is mineralized and stabilized.

Conversion: process by which a paper reel is transformed into an intermediate or final product such as cut paper sheets for printing or a roll of toilet paper.

CO2 (Carbon Dioxide): chemical compound generated by burning carbon compounds. One of the gases that causes the Greenhouse Effect.

De-inking: the elimination of coloured inks and other impurities during the recycling process of waste paper. This waste paper, once recycled, is used to make new paper.

BOD (Biochemical Oxygen Demand): effluent resulting from the pulp production process contains organic material in suspension, material whose biodegradation requires oxygen consumption. This oxygen is obtained when the effluent is released into a watercourse such as the river or the sea.

ECF (Elemental Chlorine Free): ECF pulp is bleached without using either elemental Chlorine or Chlorine gas.

Effluent: liquid industrial residue resulting from pulp and paper production. These residues are treated in specialized treatment plants before being returned to rivers or the sea.

Aerial Emissions: Emissions into the atmosphere product of thermal energy generation through steam, and of the drying process in pulp and paper production. These emissions contain solid particles in suspension, CO2 and NOx. White liquor: aqueous solution composed of Sodium Sulphide (Na2S) and Sodium Hydroxide (NaOH). It serves to break the bonds of lignin that hold wood fibres together.

Black liquor: at the end of the cooking process a residue called black liquor is generated along with the pulp paste. This is used as fuel in the recovery boiler, generating steam, which allows the recovery of chemical products used to make the white liquor used to cook the wood chips.

Lignin: natural adhesive that holds wood fibres together and gives them rigidity. Pulp's whiteness depends inversely on the lignin levels present.

NOx (Nitrogen Oxides): product of the combustion of fossil fuels in energy generation, it is among the causes of acid rain. Natural gas is the fossil fuel that releases the lowest levels of NOx.

Mechanical Pulp: wood fibres produced by the direct or mechanical processing of wood: no chemical cooking process is used, which means this pulp includes lignin along with fibres.

TCF (Totally Chlorine Free): TCF pulp is bleached without using elemental Chlorine or Chlorine Dioxide.

Tissue: lightweight creped paper. This paper is soft to the touch and extremely absorbent, and because of this is used to make toilet paper, napkins, towels and other absorbent paper products.

Effluent Treatment: a physical and chemical process through which suspended and dissolved solids and organic material are removed from liquid effluent. This makes the water safe to return to the watercourse from which it was originally extracted.