The project will see pulp production capacity at the mill increase from 620,000 to 800,000 tonnes a year.
The company said the new recovery island would improve cost efficiency and significantly cut emissions.
Work on the project is being carried out in co-operation with Wisapower, a subsidiary of Pohjolan Voima, which holds a stake worth about 50% of the total investment.
The main equipment to be replaced includes the evaporation plant, recovery boiler, back pressure turbine, re-caustisizing plant and lime kiln.
The recovery island should start commercial production in May 2004.
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