Paper giant keeps beady eye on energy

Norske Skog is happy with its New Zealand investment despite plummeting profitability - due mainly to the strong dollar and rising energy costs, chief executive Jan Oksum says.

Oslo-based Skog, founded in 1962, takes an investment view that far exceeds the three-to-five-year "long-term" span of most local managers.

"This is a long-term industry with horizons of 30, 40 or 50 years and not for next year," Oksum said.

Although behind Canada's Abitibi in paper production, Skog claims a greater global reach and, every year, the directors visit one of their outposts to help gain a wider view of the world.

"They want to make the right decisions on a global scale and not be biased towards the local home turf in Europe."

And while content with the state of play here, Oksum made it plain Skog is not about to invest more despite an abundant availability of fibre coming on stream - the so-called "wall of wood".

As well as an uncompetitive exchange rate against the United States and the Australian dollars, Oksum said energy prices here made new investment unattractive.

The exchange rate was "not a decisive factor but it certainly has a negative impact", while energy costs were crucial.

"The main concern we have as to the future of business in New Zealand is the availability of energy and, obviously, the cost of energy related to that situation."

While here, the Skog board firmed plans for its Australasian unit to negotiate a deal with state-owned Mighty River Power on a geothermal power station to address some energy problems.

Skog would not put any equity into the project but would sign a long-term off-take agreement if a power station proved to be viable.

For 18 months, Mighty River has been investigating a 50MW-plus generation plant and been drilling wells to assess the viability and potential size of any power station.

Skog hopes to cover at least half of its power requirements to insulate it from some of the price fluctuations that have dogged big power consumers in the 2000s.

Skog New Zealand general manager Peter Chrisp said the geothermal project had now moved from "possible to probable".

Pulp and paper mills such as the Norske Skog Tasman plant at Kawerau are the second-highest energy users after the Comalco aluminium smelter at Bluff.

Skog has no interest in buying plantation forests. "There are questions about competitiveness here compared to other places. Today, based on the market in Asia, New Zealand is not a first priority."

The priority in New Zealand is mainly about improving efficiency and reducing costs.

Last year, at its June strategy meeting, the Skog board decided to invest A$160 million ($175 million) in Australasia with the bulk of that going to upgrading its Albury plant in New South Wales.

About A$30 million was committed to rationalising operations at its Tasman plant in Kawerau. It has upgraded its No 2 and No 3 paper machines but will close the 50-year-old No 1 machine next year.

That would see Tasman's annual capacity reduced to 315,000 tonnes from 365,000 tonnes.

Oksum does not believe all production will shift to low-cost producers in Asia. He noted Asian countries lacked suitable fibre or an abundance of energy, "so they are really only competitive in their own markets, not for exports".

There were opportunities in New Zealand, Australia and South America where there was the fibre, know-how, competitively priced energy and political stability. But they had to ensure they were cost competitive.

- NZPA