Massive Russian pellet plant to start soon

July 26, 2010, London, UK – Russian pulp and paper company Vyborgskaya Cellulose will
start production in September 2010 at its 900,000 tonne/year wood pellet plant
in the western Russian city of Vyborg, it says. The new facility, which is
being built near the border with Finland, represents a substantial rise in
global pellet production and will be the largest plant in the world.

Global
forestry marketing firm Ekman is exclusive sales agent for the plant. Long-term
supply deals have already been secured for most of the production, according to
Ekman vice-president of bioenergy Arnold Dale. “Most of the supply will go to
Scandinavia, and the majority of it is already signed off for in long-term
contracts,” he says.

Many
biomass power plants have found difficulty financing their projects unless they
have long-term supply contracts locked in and secured. A lack of sizeable
suppliers capable of fulfilling contracts beyond five years leaves many
prospective biomass power generators with no option but to secure the entire
chain. The new Vyborgskaya plant should help some of these projects.

On the
issue of price, Dale says that the new plant will have a major say in
determining future pellet prices, but current levels are not sustainable. “The
market has bottomed out just now and it could be a year or so before we see
things pick up, but some buyers see the arrival of such a large plant as an
opportunity to get prices even lower, but that is not realistic,” he says. “We
have major outlays for raw materials, building costs, and logistics, so current
levels of €115–120/tonne [for cif delivery into Europe] are not sustainable. We
agree with many of the producers out there that need a minimum cost of around
€130/tonne.”

The
plant, which is financed by French bank VTB, is still being constructed, but
all the equipment and logistics are in place. “The whole thing is still in the
process of being erected, but this part of the construction happens quickly,”
Dale says. “Once operational, it takes around 12 months to get the plant fully
up and running at capacity. We expect to produce 600,000 tonnes in the first
year and then 900,000 tonnes from 2012.”

The
facility, which is located about 25 km from the port of Vyborg, consists of two
dry barking lines, four driers, 16 hammermills, and 36 presses. The company is
also building a 300-m berth, as well as a 130-m pontoon pier capable of docking
four vessels. The plant will have a 25-ha timber yard, one of the largest in
Europe.

The
Russian government does not allow the sale of forests, so Vyborgskaya Cellulose
has signed a 49-year forestry contract that secures 1.2 million m³/year of
round wood. Vyborgskaya Cellulose will transport the wood by rail and truck to
the port of Vyborg.

The
Russian firm plans to transport 400,000 m³/year of wood from the Leningrad
region and the rest from Pskov. Leningrad produces around 16 million m³/year of
wood waste, but less than 3% of energy is produced from wood in the region, so
there is scope for Vyborgskaya Cellulose to secure more raw materials.

The
long-term contracts with the Russian government will help to ensure that the
sustainability requirements of large utilities are met, with full certification
of the wood critical to consumers in terms of not only sustainability, but also
requirements on receiving subsidies.

Austria-based
Andritz is supplying equipment worth €40 million to build and complete the
pellet plant. It will spend the next month constructing the plant and testing
it before operations begin in September.