The loan, to be handed over in October, will enable the plant to set up by 2007 "a closed water circulation circuit" and it will then stop ejecting toxic effluent into the lake, the plant's deputy director Yury Shmayev said.

The company will add 11.1 million dollars of its own funds to the project, he said, adding that the company would stop producing cellulose, which is particularly dangerous for the environment, by 2015 and concentrate on paper and wood production.

Local ecology groups however voiced doubt that the money would be used for the purpose for which it was intended.

The modernisation of the plant is just as likely to lead to an increase in cellulose production, according to groups such as Greenpeace which on Monday erected a "monument" on the road between Baikalsk and the regional capital Irkutsk to the "promises which have not been kept" by the Russian authorities.

Previous promises to halt cellulose production on Lake Baikal have not been put into effect.

"The government promised to phase out cellulose production at Baikalsk in 1993" but the company is "still polluting Lake Baikal," two banners in Russian and English read, attached by Greenpeace militants to large white marble stones.

The head of Greenpeace Russia, Ivan Blokov, who attended the "inauguration" of the monument, said he hoped that President Vladimir Putin "who comes to ski at Baikalsk" will read its message.

The Baikalsk cellulose plant, built in 1966, produced 187,000 tonnes of cellulose and 10,000 tonnes of paper last year.

Most of its production is sold to China.

TERRA.WIRE