Wood you be­lieve it

Swedish com­pany to build R1bn plant at Richards Bay

Finweek English Edition - - Business strategy cars - GUGU­LAKHE MASANGO

THE ROTTNEROS GROUP, a lead­ing man­u­fac­turer of pulp for the open mar­ket (mar­ket pulp), plans to close down its strug­gling Utan­sjo mill in Swe­den and move its pro­duc­tion to South Africa af­ter build­ing a R1bn plant at Richards Bay.

The Swedish man­u­fac­turer of mar­ket wood pulp is an­tic­i­pat­ing bet­ter mar­gins in SA than in the Swedish mar­ket, which has been ex­pe­ri­enc­ing steep in­creases in elec­tric­ity costs. Un­rea­son­ably high elec­tric­ity prices af­fect the pro­duc­tion of pulp.

Rottneros, which is listed on the Nordic small cap list of the Stock­holm Stock Ex­change, an­tic­i­pates that SA will pro­vide it with lower and more stable elec­tric­ity prices than Swe­den can. It re­cently signed a let­ter of in­tent with SA forestry co­op­er­a­tive NCT to in­ves­ti­gate fur­ther as­pects re­lated to the cost of in­vest­ing in a new plant, the tech­ni­cal and com­mer­cial side of the mill.

Peter Key­worth, GM spe­cial projects at NCT, says the first phase of the fea­si­bil­ity study is ex­pected to be com­plete by end-July this year. “We’re hope­ful that we’ll meet the dead­line, as nec­es­sary work re­lated to the project has been fi­nalised. We hope to move the process quickly.”

The pro­posed plant at Richards Bay is to be built and op­er­ated by a yet-to-be es­tab­lished joint ven­ture be­tween Rottneros and NCT. The mill will have its own man­age­ment.

Hope­fully, NCT has fi­nally found a part­ner that won’t pull out of the project. In 2005 it suf­fered a set­back when Swedish part­ner So­dra Cell with­drew from a sim­i­lar project af­ter 18 months. Asked why So­dra ducked, Key­worth says that at the time the cost of the in­vest­ment was high and there was un­cer­tainty con­cern­ing fu­ture elec­tric­ity prices in SA. “We’re now con­fi­dent that the sit­u­a­tion has changed and can be man­aged.”

What at­tracted Rottneros to in­ves­ti­gate mov­ing its pulp mill to SA was this coun­try’s good sup­ply of eu­ca­lyp­tus wood and other raw ma­te­ri­als at com­pet­i­tive prices. “We’ve found favourable con­di­tions – par­tic­u­larly on the en­ergy side – in SA,” says Rottneros Group CEO Lars Blecko.

Asked why NCT is part- ner­ing Rottneros, Key­worth says: “We have to have an op­er­at­ing part­ner. They’re in­volved in this kind of project. That al­lows us to en­ter the mar­ket with con­fi­dence.”

Rottneros’s con­tri­bu­tion to the joint ven­ture will be eq­uity and ex­pe­ri­ence in run­ning a me­chan­i­cal pulp plant. Both com­pa­nies an­tic­i­pate that if the plans are ex­e­cuted, the Swedish plant will be moved to SA and the new mill could be op­er­a­tional by 2009.

Pulp United, a sub­sidiary of NCT, has al­ready ob­tained en­vi­ron­men­tal reg­u­la­tory ap­proval to build the plant from SA’s De­part­ment of Agri­cul­ture & Land Af­fairs. Key­worth says Pulp United is also ne­go­ti­at­ing an elec­tric­ity sup­ply con­tract with Eskom.

En­ter­ing the mar­ket

with con­fi­dence.

Peter Key­worth

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