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Kondopoga mill entered into the finishing stage of the bankruptcy procedure three months ago. Andrei Shutilov, bankruptcy commissioner of Kondopoga mill, told MK Karelia about the current situation and changes on the mill.

Andrei Vladimirovich, we would like to ask you as the official Kondopoga representative about the situation on the mill.

– Despite the fact that press announced enough about the bankruptcy of the mill, very few people really understand the process. In reality, the bankruptcy procedure does not always mean liquidation of business. More often, it means financial recovery and a chance for the enterprise to get out of the crisis. As a rule, it is a long and complex process consisting of several stages. Today the mill is at final stage – bankruptcy proceedings. In other words, for that period all the creditor claims must be satisfied due to the sale of the mill assets. Taking into account the social and economic importance of the mill for the Republic and the city, it is going to be sold as one lot. The auction will take place in the middle of 2017.

I should note that there is no official list of auction participants yet. All announcements in press on intentions to buy the mill are just announcements. Of course, there is a rather impressive list of creditors. One of the largest of them is Karjala Pulp, it has consolidated around 50% of overall debts of the mill. However, other creditors may also participate in the auction and we should not forget about it.

• To buy an enterprise during the auction is one thing, but to keep such a giant is another thing. What is the most expensive cost item of the mill?

–Until the key problems have been solved, the company spends significant funds for social facilities and obligations and keeps incidental assets. Besides, the electricity tariffs have not been settled yet.

The Paper machine maintenance also needs great investments. All the machines are made by the foreign manufacturers and need original spare parts for servicing. Constant operation and maintenance of machines consume significant funds from the company’s budget.

However, the first expense item is energy. The mill was built almost 90 years ago; its infrastructure was also designed at that time. At that time, the energy efficiency was not paid so much attention. Since that time, no significant changes of the reduction of the energy consumption has been made. Let me remind you, that the mill provides electricity for both, the production facility and the city.

It’s important to remember about the city too. Some creditors, trying to return their investments, offer to stop papermaking machines in order to prevent wear-out and then sell them. However, what if we stop one papermaking machine? It will result in job cuts, lower profits, problems in the municipal housing economy and utility sector. In fact, the halt of one papermaking machine will “strike” the city.

• Now, many analysts recommend converting mills, as paper market will disappear soon. Will it be possible to convert the mill?

–Everything is possible. The machines can be converted to produce wrapping paper, but we should understand that this is a huge investment. Investments into this project will be roughly compared to the investments into construction of not such a giant as Kondopoga, of course, but a new modern plant.

It is necessary to investigate the market and understand how it can be converted with the most profits. Certainly, newsprint market is finite, but nobody knows exactly how long it’s going to exist, 5 or 15 years. Definitely, we should search for alternative solutions.

Newsprint distributors give optimistic forecasts for development of the industry, although everybody is talking about fast reduction of print production market.

The situation is complex. There is a crisis on the paper market.  The reasons for that are simple: strengthening of electronic media and reduction of newspaper circulations. The world circulation decline rate is 30% per year. In Russia, this process is slower, about 4–5% per year, though the decline is also visible.  On the one hand, the market has really shifted to Asia and the Middle East where there is a burst in newspaper production. Especially it can be seen against digital boom in Europe and the US. On the other hand, competition on these markets is intensive;   large newsprint manufacturers that had lost European markets turned their attention to the East. In order to survive, we need to offer something special for this market.

Moreover, prices for the newsprint exported to the far-abroad countries went down almost by 16% in 2015.

MK asked the experts to find out what the exact situation with the newsprint market is, whether it will develop or it is over and whether it is possible to convert the mill.     

 

Yury Lakhtikov, Vice-President of RJSC Bumprom

“The tendencies tell us that the newsprint market has shifted to India and Africa. The exporters have the best chances for development in India, as Africa has been long occupied by Chinese manufacturers. Russia competes for the Indian market with growing number of European and global newsprint manufacturers. There are too many of them willing to share the pie. The prospects for newsprint industry development are quite vague.

It’s probably better to think about production diversification, but this is also quite difficult. Special characteristics of the newsprint machines are in structurally defined allowances. They require a profound reconfiguration of the processor chain. If we do that, the paper from Kondopoga will be competitive on the market of other types of paper. First, we mean non-printing paper, paper for coating the construction panels. There is also a demand for special kinds of thermal paper and chart paper for recording equipment. Decorative types of paper for furniture and wallpapers are also quite popular. This sector is developing dynamically in Russia. If we develop such production, why wouldn’t we do that?”

 

 

Igor Levin, Paper Trading Group SA, Switzerland:

 

“Despite some analysts’ announcements, the newsprint market is alive. Europe will be facing reduction of newsprint consumption, but there will be a place for the fresh fiber products for a long time. The situation with development of markets of Asia and the Middle East may eventually change for the Russian manufacturers.  Chinese manufacturers develop dynamically and have production capacities both inside the country and in the import countries.  The Russian manufacturers will feel the influence of China already in 2017.

You can get away from the competition with China by reducing dependence on the Indian market. This requires a focus on the European market. In Europe, you can find and keep regular customers by selling 200–250 thousand tons of the product. Thus, you can stay in operation for about 3–7 years. The large advertising market in Europe will exist for a long time. It needs cheap paper grades for high-speed printing. If we think big, it will be possible to sell about 500,000 tons of newsprint for export for quite a long time.

In my opinion, investment into the production of additional volumes of newsprint does not make sense, we need to improve the quality and expand the paper grades. When it comes to the mill conversion, it is all about products for the domestic market — most likely production of packing paper.

As for announcement of Karjala Pulp about the possible conversion of the mill to production of the corrugate paper, I shell comment that producing cardboard and corrugate paper of pulp for export calls for serious consideration and investment.

 

Well, finally we have to say that things are not so simple and promising. Do not forget that the mill is still going through bankruptcy procedure and has multi-billion dollar debts, not to mention the difficult situation on export markets — almost 80% of paper are sold abroad.  Any company wishing to buy the mill must have not only significant financial resources but also sufficient experience and management team that is able to bring the company out of the crisis.