Paper plans

Vedomosti — 8 august — 

Ilim Group plans to invest USD 2 billion and expand its capacities by 25% over the next five years. The Group intends to manufacture cut-size paper and export more pulp to China.

According to Paul Herbert, the Company's CEO, at the end of July Ilim's Board of Directors approved a corporate development program for 2009 — 2013 with a value exceeding USD 2 billion.

He believes that by this time the existing capacities of Ilim mills will have been expanded by 25%, i.e by about 600,000 tons of products a year. Almost half of those tons will be pulp produced at a new facility to be constructed at the Bratsk Pulp Mill. There are also plans to upgrade the Ust-Ilimsk Mill. Investments into pulp projects will approximate USD 975 million, Mr. Herbert says.

Both mills are situated in the Irkutsk Oblast and the Company intends to increase pulp exports to China . Mr. Herbert does not disclose the volume of fiber presently sold in China by Ilim Group.

Anastasia Kopylova, an analyst from Lesprom Network, thinks this plan has potential: China consumes about 5 million tons of pulp per year, but there are virtually no pulp manufacturing facilities in the country. She remarks that an increase in export duties for round wood has also increased the willingness of foreign companies to buy Russian pulp (see insert).

Also, according to Mr. Herbert, the paper manufacturing facilities of Ilim Group will be expanded by 300,000 tons a year firstly owing to manufacture of cut size and printing paper. Ilim plans to launch a paper project with a value of USD 700 million at the Kotlas Pulp and Paper Mill: and namely, a new cut size paper machine will be started up and three existing ones will be upgraded.

Besides, Ilim Group will spend about USD 160 million to build packaging facilities, Mr. Herbert relates. The program provides for construction of four corrugated box packaging plants in the European part of Russia. The first box plant was launched by Ilim Group in June this year in Kommunar (Leningrad Oblast). The CEO of Ilim Group has mentioned that all five corrugated box plants will produce about 700 million sq. m. of corrugated boxes. He says Ilim also plans to spend USD 310 million to purchase logging equipment.

Mr. Herbert maintains that the program will be implemented with a debt-equity ratio of approximately 50:50. Kopylova acknowledges that these investments are unprecedented for the Russian forestry industry; and that no other company has initiated such large-scale pulp and paper investment programs over the last two decades. They became feasible only after the US Corporation International Paper had obtained control over 50% of Ilim Group stock the year before. Heinz Zinner, Chairman of the Board of Directors of the Archangelsk Pulp and Paper Mill, confirms that Ilim and its existing capabilities can only be envied. He says that the need for investments in the upgrade of Russian pulp and paper mills has been a long-felt one.