27 April 2015 by Michael Holder

RWE biomass plant could lose main customer

Tullis Russell Papermakers Ltd – the Fife paper mill supplied with heat and power by RWE Npower’s waste wood biomass energy plant – has fallen into administration with the loss of 325 jobs.

A further 149 jobs are also at risk at the mill after Blair Nimmo and Tony Friar of KPMG LLP were appointed joint administrators of the stricken firm today (April 27) at the request of Tullis Russell’s directors, with cumulative losses of £18.5 million over the last five years.

Tullis Russell Papermakers Ltd (top left) pictured from the RWE Npower biomass plant (bottom right)

Tullis Russell Papermakers Ltd (top left) pictured from the RWE Npower biomass plant (bottom right)

The news will be a major blow to RWE Npower, which only officially opened the biomass plant last month. And, in consequence to the administration announcement, industry insiders also predicting there could be an impact on gate fees for waste wood with a rise likely in both the short and long term.

Suez Environnement (formerly SITA UK), which supplies the waste wood feedstock to the plant, will also be concerned at the news.

Tullis Russell

Based in Markinch, Fife, employee-owned Tullis Russell was founded in 1809 and produced paper and board for use in cards, covers and premium packaging. 471 of the firm’s 474 staff are based at the Markinch site.

In the year to 31 March 2014, the company sold 126,000 tonnes of paper and board. It recorded a turnover of £124.6 million, but suffered a pre-tax loss of £3.4 million. Directors began searching for a buyer in October 2014, but no party has been found.

According to KPMG, Tullis Russell’s losses have come “largely as a result of weakening demand and pressure on its margins” and the firm’s market is in “long term decline as media and other outlets move from paper to digitally-based products, resulting in worldwide oversupply and price competition”.

KPMG also highlighted the recent strengthening of the pound against the Euro affecting competitiveness. Furthermore, the company recently suffered the insolvency of a major customer, while its main raw material, wood pulp, is trading at “consistently higher levels than previously experienced”.

Official opening

Energy firm RWE npower officially opened the £200 million waste wood biomass plant on the site only last month. The plant began construction in 2010 and has the capacity to process between 400,000 to 425,000 tonnes of wood each year, with around 90% of the feedstock comprised of recovered wood.

According to KPMG, the partnership with RWE for the biomass plant, which also supplies electricity to the National Grid, was agreed in part “with the aim to reduce Tullis Russell’s energy costs”.

Blair Nimmo, joint administrator and head of restructuring for KPMG in Scotland, said: “This is a sad day for the employees of Tullis Russell Papermakers, who have worked hard against the significant headwinds facing the global papermaking sector.  Whilst we will be exploring whether a sale of all or part of the business and asset of the company can be achieved, we have had to take steps to significantly reduce the company’s overheads.

“Unfortunately, with trading effectively ceasing, we have had no option but to reduce the size of the workforce.  We will be working with government agencies to minimise the impact on employees. We would encourage any party with an interest in acquiring all, or parts, of the business to make contact with us as soon as possible.”

Tullis Russell Papermakers

Tullis Russell Papermakers is wholly owned subsidiary of Tullis Russell Group Limited, but the Group’s Coating business in Bollington, Cheshire, and its Image Transfer business based in Ansan, Korea, are not affected by the administration and “continue to trade as normal”.

RWE Npower

Should the administrators fail to find a buyer for Tullis Russell, RWE npower will be left with a number of potential headaches, as the energy firm would no longer have any taker for the heat and steam produced by the Markinch plant.

With the biomass plant having only recently officially opened after investment in the hundreds of millions, RWE is yet to reap much revenue from the facility.

In the event of the paper mill closure, RWE could modify the Markinch plant to produce solely electricity for the National Grid, but the firm would also lose revenue through its renewables obligation certificates (ROCs) for no longer producing renewable heat.

Another option for RWE would be to pipe the heat and steam further afield, but this would be costly and an off-taker may be hard to find.

Additionally, the Markinch plant is situated on Tullis Russell’s premises, meaning RWE may have to seek changes to planning or buy the land for itself.

RWE said they would continue to operate the plant independently of Tullis Russell. However, others in the sector consider that a sale by RWE is also a possibility.

Wood recycling market

SITA UK supplies around 240,000 tonnes per year of waste wood to the Markinch plant, which is the largest waste wood biomass facility in the UK and has the capacity to process around 10% of the UK waste wood market.

Therefore, any changes at Markinch could have a potentially significant knock-on effect on the wood recycling market, with some in the industry already predicting a rise in waste wood gate fees in the north of the UK as a result of today’s news.

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