Consumables

Construction of paper machine in Brazil temporarily halted

Wednesday 05. March 2008 - Following an audit of the Pisa PM2 project, major cost overruns have been identified, making it necessary to halt the project until further notice.

Norske Skog is working to move a used paper machine from the closed paper mill Norske Skog Union in Norway to Norske Skog Pisa in Brazil.
 
The project has a cost limit of NOK 1.3 billion (USD 210 million). The plan is for the project to be completed in the first half of 2009.
 
The project management team in Brazil reported minor budget overruns early this February. Based on these reports, the group management decided to hire an expert team to audit the project and the budget.
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The report following the audit shows that the project costs will be significantly higher than budgeted, mainly due to strong cost increases in Brazil and currency factors. The potential total costs are now estimated at USD 380 million, or around NOK 2 billion at the current exchange rate.
 
“We have very strict priorities for the use of investment funds. Based on the report, which shows that we may see major cost overruns, we have unfortunately been forced to stop further progress in the project until a new overall assessment has been prepared,” says chief executive Christian Rynning-Tønnesen.
 
The entire project will be reviewed to analyse the opportunities for modifications to reduce costs. At the same time, the possible consequences of halting the project will be assessed. The costs paid up till the end of January amount to approx. NOK 450 million (USD 80 million). No further contractual obligations will be incurred by the project while the review is underway.
 
The board has been briefed on the matter, and will discuss the project again as soon as the consequences of the various options have been analysed.
 
Due to the cost overruns, Antonio Dias, senior vice president for magazine paper and Norske Skog’ s operations in South America, has decided to resign from corporate management. Dias will remain at Norske Skog’s disposal. The responsibility for Norske Skog’s magazine paper business will be transferred to senior vice president Jan Clasen, while senior vice president Vidar Lerstad will be responsible for South America.