Paper mill cost soars
THE COST of building what it is claimed will be the UK’s biggest paper recycling plant at Wilton has spiralled by about £100m as a worsening financial climate made investors nervous.
But chief executive officer Marcus Moir, the man who has spent the past nine months bringing a patchwork of banks and private equity firms to the Teesside table, said construction of the £500m Ecco Newsprint plant would now go ahead by the end of the year.
At 420,000 tonnes, the plant, which will produce high quality newsprint for national and regional papers printing in the north of England, will significantly add to the amount of environmentally friendly paper on the country’s news stands. It also promises to reduce costs and improve service levels for the newspaper industry.
“We import two thirds of what we consume - this is all about import substitution and it’s very difficult for importers to offer the same service levels as we can,” said Mr Moir.
He said that finding backers for the development, which followed a land deal with One NorthEast on 66acres for which Ecco was given a 125-year lease, had “taken a lot longer than we expected”.
“The largest single chunk will be debt in the form of a project finance loan from a leading European bank. We are now in the process of raising the equity.”
He hoped to restrict the number of investors to “five or fewer”, including large finance infrastrucutre funds and private equity firms.
He said tough trading conditions and the emergence of a rival plant in East Anglia had led to strict due dilligence demands from potential backers, which had delayed the process further. But despite the £100m hike, which had largely been caused by a worsening Euro exchange rate which had pushed up the cost of mainly German-built equipment, forecast return on investment was still healthy, he said.
“The figures have carried on going up - most recently the exchange rate hasn’t helped. Because we have to buy from Euroland, it’s probably added £40m-50m to the cost.
“The returns have taken a bit of a hiding, but if we thought that they had dropped to a level where it was not going to be appealing to investors we would have drawn stumps by now,” said Mr Moir.
The paper mill, which is expected to employ about 175 staff when complete, was originally projected to cost £275m in 2006, but had risen to £350m by January this year.
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