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PÖYRY POINT OF VIEW BLOG / 23 Apr 2015

Top Five Considerations for New Pulp Plants

New pulp plant developments are high-cost ventures. The risks for investors and owners can be substantial if new plants are not developed with some critical considerations front of mind. Through Pöyry’s extensive international pulp project expertise, we have developed five key considerations for a major pulp mill investment.

1. Critically evaluate the business concept

Our experience from working as consultants in the industry for nearly six decades shows that the development phase cannot be emphasised enough. The costs of this phase are only a few percentage of the whole investment – but the value magnitude is enormous. Critically evaluating the business concept is fundamental for any industrial investment – large-scale or small. 

In a large scale project the investment sum is naturally considerable and the stakes are high. Thorough feasibility and engineering work in the development phase lays the rock-solid fundaments for the implementation and the final project outcome. How does the future look like, is the product right, can there be other side products, is there a market for them, do we have enough raw material, is the site in an optimal location, can we get the infrastructure in place, how is the water supply, is the mill most efficient compared to other mills, what is the project implementation method? These are just some of the coefficients that must be considered for a successful project.

2. Choose the correct technology concept

Conducting a product and market analysis, doing a solid feasibility study, scoping the product and production volume, and defining the mill technology concept before investing in the main machinery is paramount. Without a solid technology concept – taking into consideration that a pulp mill is a >30 year investment – there is room for many costly errors down the lifecycle of the plant, not just for the project implementation phase. 

3. Choose the correct people and ensure a safe environment

The right people are essential throughout the lifecycle of the project but getting the items correct at the beginning during project implementation can ensure you avoid costly knock-on effects down the line. The correct people and partners are critical. A big project can have 10,000 or more people on site which makes safety a paramount issue - accidents and putting people at risk cannot happen. Furthermore, competent managers are the lynchpins to avoid costly overruns as are proficient suppliers and partners. Effective communication internally between staff and externally with partners is essential to ensure clear division of responsibilities. Importantly in our globalised economy, it is crucial to bring in expertise to ensure your project meets rigorous international standards or the economic, environmental and social damage for the investment and investor can be significant. Expertise is one key criterion for successful use of people, while continuity is the other. We cannot emphasise enough the benefit of having the same key people throughout the project – from feasibility study, engineering, field engineering to commissioning and start-up. A skilled team working towards clearly defined, structured goals, measuring progress and using common efficient tools – this is a winning combination.

4. Understand the ‘triple constraint’

Scope, time and cost - these three elements in a project work in tandem with one another. If one is restricted or extended, the other two elements will then also need to be either extended or increased in some way. Changes during the implementation phase such as amends in the mill technology or layout results in delays. This means that the positive cash flow of the project is moved further away – something that is not in the interest of investors or owners. Keeping to the technology concept, strict project management and timely procurement are key factors to ensure the optimal time scope. Naturally identifying and mitigating risks that can have an effect on the project outcome before they take place will ensure set-backs are dealt with in a way that minimises disruption.

Delays have significant negative impact on the mill profit

5. Plan for the future

A mill today has potential far beyond traditional pulp production. The world is changing as are demand patterns. New opportunities are arising and consumers want new and different things. Fibre has a versatility of end-uses and we encourage our clients to think long-term and from a variety of angles, for instance, investing in flexo mills that can switch between different types of bio-products depending on the market demand. With a broad insight into the pulp and paper industry – not only of the design and implementation phase but all the way down to the end consumers – we share our thinking with clients about what might benefit them in the future and how they can plan for this today.

Fibre has a versatility of end-uses and we encourage our clients to think long-term and from a variety of angles

Conclusion

Pulp mills are large and expensive projects that are being developed at a time where the industry is going through great changes. Investors and owners that want to minimise disruption to a project must ensure they have taken into account some of the essentials to ensure a problem-free implementation phase and to develop a mill that will be efficient throughout its lifecycle. The above list is not exhaustive, but it is the bedrock on which a successful mill is built. A rough calculation estimate shows that, for example, a 3 month start-up delay for a 1.5 million t/a market pulp mill can cause a USD 88 million loss in the EBITDA margin.

This article was originally published in the March/April 2015 issue of PaperAsia.

Contact information

Nicholas Oksanen
President, Industry Business Group