A GLOBAL / COUNTRY STUDY AND REPORT on

PAPER INDUSTRY OF SOUTH AFRICA

Submitted to
(N. R. Institute of Business Management, Ahmedabad) IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ASMINISTRATION

In

Gujarat Technological University

UNDER THE GUIDANCE OF

Faculty Guide Prof. Juhi Shah Prof. Shweta Bambuwala Prof. Neha Rohera

Submitted by Ravi Shah - 117350592016 Mohammed Bharmal - 117350592042 Pratik Govani 117350592057 Zil Shah - 117350592062 Vaibhav Chauhan 117350592115 Kandarp Thakkar - 117350592155 [Batch: 201113] MBA SEMESTER IV
(N.R. Institute of Business Management)
MBA PROGRAMME

Affiliated to Gujarat Technological University Ahmedabad April, 2013 DECLARATION

We, Ravi Shah, Mohammed Bharmal, Pratik Govani, Zil Shah, Vaibhav Chauhan and Kandarp Thakkar hereby declare that the report for Global / Country Study Report entitled PAPER INDUSTRY OF SOUTH AFRICA is a result of our own work and our indebtedness to ot her work publications, references, if any, have been duly acknowledged.

Place: Ahmedabad Date:

NAME

SIGNATURE

Ravi Shah Mohammed Bharmal Pratik Govani Zil Shah Vaibhav Chauhan Kandarp Thakkar

117350592016 117350592042 117350592057 117350592062 117350592115 117350592155

Page | i

N. R. Institute of Business Management (GLS-MBA)

Certificate

This is to certify that Mohammed Bharmal, Vaibhav Chauhan, Pratik Govani, Ravi Shah, Zil Shah, Kandarp Thakkar Enrolment Numbers 117350592042, 117350592115, 117350592057, 117350592016, 117350592062 and 117350592155 respectively student of N. R. Institute of Business Management (GLSMBA) have successfully completed their Global Country Report titled on Paper Industry of South Africa in partial fulfillment for the requirements of the MBA programme of Gujarat Technological University. This is his original work and has not been submitted elsewhere.

Director

Faculty Guide

(Dr. Hitesh Ruparel)

Prof. Juhi Shah Prof. Shweta Bambuwala Prof. Neha Rohera

Page | ii

PREFACE
To be an MBA student is a matter of pride which helps you to develop from a normal human being into a disciplined and dedicated professional. In the management field you cannot create success storied if you are not well learner. Mere theoretical knowledge cant help you in any field whether it is management, technology, research or any other field. The only thing that can help you is having a sound practical knowledge of the concerned field is a part of my learning in management field and also fortunate of the MBA programme. We have been fortunate to receive practical knowledge in one of premier organizationNRIBM. We have tried to present whether knowledge we gained and learned at NRIBM during our project period in a very systematic manner.

Page | iii

ACKNOWLEDGEMENT

We express our heartfelt gratitude towards the people who have been of great help to us in carrying out this project in the best manner possible. We are obliged to N. R. Institute of Business Management which has given us an opportunity to get practical knowledge in the field of management and also for helping us to undergo this project. The learning during this project has been a great experience. Most importantly we would like to thank Prof. Juhi Shah, and her support in the preparation of this project and guiding us. Finally, we should like to thank all those who directly and indirectly contributed to this project. This project was an excellent opportunity for us to relate our classroom course to the real business. Last, but not the least we would like to thank our parents, who had directly or indirectly helped us in preparing this project report and gave their valuable time to help us.

Page | iv

EXECUTIVE SUMMARY
SOCIAL ANALYSIS
South Africa is one of the most diverse countries among the world. Many urban areas in South Africa have a different ethnic group that reflects the whole population. The population of South Africa includes the original black peoples and European, Chinese, Indian and many more from rest of the world have migrated to South Africa. The South African culture and etiquettes is much complicated and not easy describe due to its diversity. THE FAMILY IN SOUTH AFRICA: The South African family consists of the small nuclear families and extended families. The colored and more conservative/conventional Afrikaans cultures gives more importance to extended families than the small and nuclear families, while the white English-speaking community gives more importance to the nuclear family. THE RURAL/URBAN DICHOTOMY: In South Africa a huge differences is seen between the rural and urban areas. More than half of the white people living in rural areas are Afrikaner farmers who are descended from the Calvinists descended. They view world as narrow, and they give value to human civilization above materialism. Many rural black people of South Africa are still attached and follow their old traditions; on the other hand the urban black people are more and more influenced by the urban environment and international and modern life style that surrounds them. ETIQUETTE IN SOUTH AFRICA: Several greeting styles are prevailing in South Africa, it depends on the type of person you are meeting and also on the culture and tradition the person follows. While meeting or gathering with foreigners, most of the South Africans shake hands and maintaining their eye contact with a smile on their face. There are two main occasions in the South Africa when the tradition of gift giving takes place. Birthdays and Christmas are the two main occasions for giving present to someone. The South African people celebrate their 21st and 40th birthdays by giving huge party and a lavish gift for the near ones.
Page | v

South Africans do not believe in long relationships or creating a personal relation in conducting a business. These people are more of a transactional nature. Major differences are seen in communication style

prevailing in South Africa; it purely depends on the cultural heritage on an individual. In most part of South Africa the people keep harmonious working relationships among each other and avoid conflicts. These people often use the metaphors and sporty language to demonstrate a point. Most of the South Africans, although ethnic, prefer to meet face-to-face above common communication means such as telephone email, letter, etc. It is very important to develop mutual trust and understanding before any business negotiation. DEMOGRAPHY: The population numbers approximately more than 50 million, which comprises of formally recognized Bantu-speaking groups; the white Afrikaners the Dutch descendants, the German people speaking Afrikaans, the French, and a variety of Dutch; the English speaking descendants of British; a multiracial that speaks Afrikaans and/or English; and the Indian immigrant who primarily speaks Tamil and Urdu. Seventy percent of the populations in South Africa are the black Africans, whereas the white people make up eleven percent of the total population, Coloureds are eight percent, more than two percent are Indians, and other minorities come under less than two percent of the population. HISTORY AND ETHNIC RELATIONS: The South Africa has rich abundant of early human fossils which are found in Sterkfontein and other places. The earliest modern citizens were the San known as Bushman hunter gatherers and the Khoi people called the Hottentot, who herded domestic animals. The San are said to have their presence in South Africa since thousands of years and the rock art, the ancient cave paintings give the evidence of their presence in South Africa. After the annihilating the San and Khoj, the Bantu speaking people and the European colonist had many conflict against each other which continued till democratic transformation of 1994. The black African rulers founded a large, powerful kingdoms and nations at the time of colonial expansion possible through
Page | vi

incorporating neighboring leaders. The result of this incorporation was the emerging of the nations like Zulu, Xhosa, Pedi, Venda, Swazi, Sotho, Tswana, and Tsonga, along with the white Afrikaners. History says that Afrikaners considers themselves as the true South Africans, and while giving the citizenship to all the inhabitants of European descent, denied that status to people of colored until the democratic transition of 1994. These European decent retain a connection to Europe and also maintain their identity of being the South Africans.

There is a strong sense of cultural separateness and individuality which coincides with the practical forms of cooperation and common identification of population. The diversity and division within cultural groups and the balance of problems between those groups throughout the 20th century prevented civil conflict among the ethnic groups in the country.

So uth Afri ca s Paper and Pul p I ndus try

The paper packaging industry in South Africa is said to have been started in 1780, when a Cape Town woman, used paper to wrap fruit and send it to the Dutch East Indies. By the turn of the nineteenth century, there were scores of cardboard box makers in Cape Town, and on the Reef. In 1910 the newly formed Government of the Union of South Africa set up a commission to investigate the extent and nature of manufacturing in South Africa. The packaging industry grew and diversified along with the growth of the South African economy. In the post World War 11 years, in particular, the industry expanded rapidly, with new factories opening almost every year in the 1950s. During the 1970s and '80s, the packaging industry became increasingly concentrated, and now dominated by a few large companies. The manufacture of other converted paper products, such as tissue products and printed articles, followed a similar history. South Africa is the nation, which is only African producer of pulp and paper after Swaziland. South Africa produces approx. 370,000 tons of mechanical wood pulp, 1,400,000 tons of chemical wood pulp, 315,000 tons of newsprint, 960,000 tons of printing and writing paper and more than million tons of other paper and paperboard each year. South Africa imports $US 400 mn of paper and paperboard each year. The major pulp and paper companies operating in South Africa are Sappi and Mondi. Margins in South Africa have traditionally been 6% higher than overseas making it a very lucrative $US 2.5 bn market. As a result Mondi is reconsidering major investments following the downturn in the international pulp price. The

Page | vii

company planned to spend R500 mn including R 268 million on upgrading the Kraft Piet Retief Linerboard plant and the Merebank mill. In 2009, the forest and forest product sectors value-add was R23 billion, equating to 1.4% of South Africas gross domestic product (GDP). A total of 207,967 people are employed in the sectors value chain. Pulp and paper sectors direct contribution to South Africas balance of payments (BoP) in 2010 was an impressive R4.5 bn.

Major Grades of Paper are printing, writing, packaging, personal products, etc. others are

Page | viii

Paper Production & Consumption in South Africa 2011

(All values in metric tonnes) Paper Paper Paper Paper

Production Newsprint 316,725

Import 13,900

Export 55,512

Consumption 275,113

Printing/writing

473,759

562,060

173,265

862,554

Corrugated materials/containerboard Other wrapping papers 993,235 89,169 87,211 302,025 0 778,420 89,169

Tissue

203,480

58,119

11,247

250,352

Other paper

98,411

65,008

43,984

119,435

Board

27,876

27,876

Total

2,202,655

786,298

586,034

2,402,919

Major Players of the industry are: Mondi Group Sappi Nampak Mpact South African Paper Mills Major Products offered by the Industry are: Containerboard Kraft Paper
Page | ix

Corrugated Packaging Industrial Bags Extrusion Coatings Consumer Goods Packaging Advanced Films & Components Office Paper Professional Printing Paper Coated and Uncoated Paper Present trade with quantity and amount of paper firms in South Africa
A) Mondi Group Revenue: 5,739 million EUR Profit: 357 million EUR Production: 5 million MTPA Employees: 23,400 Approx. B) Sappi

Revenue: 6,347 million USD Profit: 104 million USD Production: 5.4 million MTPA Employees: 15,100 Approx. C) Mpact Revenue: R 6,821million Profit: R313 million Production: 0.9 million MTPA Employees: 3,700 Approx. Page | x

WTO General Trade Implication for Paper Industry of South Africa

Achieving free and fair trade in forest and paper products a statement by leading global forest and paper industries in Geneva, Switzerland July 2003. These industry representatives are united in their belief that accelerated trade liberalization of forest and paper products, mainly through the WTO, provide a means of expanding output, economic and employment growth and easing poverty.WTO members should move with the greatest possible speed towards the goal of eliminating all tariffs on forest and paper industry products, whether by ambitious formula approach to eliminate tariff, expansion of current zero to do zero deals, or a combination of these mentioned approaches, taking accounts of established WTO provisions in respect of developing countries. Barriers Applicable to Paper Industry of South Africa Water Licenses Skill development & Technology transfer Investment Demand of raw materials exceeds supply Trade Policies in Paper Industry of South Africa South Africa supplies less than 2% of international demand, though physical volumes have grown substantially over the last decade. Although South Africa is in a position is not among the dominant producers, consumers or exporters in the world pulp, paper and board industry, South African companies have evidently established themselves as significant players in the international market. This principle

recognizes that raw material exports from a region or country could be beneficial and thus value can be added to them locally.
There are different policies for:

Tariffs Nontariff Measures Antidumping Measures

Page | xi

Government Procurement Property Right Protection

Technological Advancement Taking Place into the Paper Industry of South Africa A large number of innovations in technology, process and management in the pulp and paper industry that can contribute to more environmentally kind pulping and bleaching methods, better use of recycled paper and fillers and recycling of in house water. They made a distinction between available and emerging technologies. Emerging technologies are stock preparation (pulping), the use of recycled paper and paper production proper.

Demand Drivers for Paper Industry

Increase supply of raw materials (fiber) Ease supply constraints for downstream processing activities Increment in downstream processing activities Ease supply constraints for self-governing saw millers

Page | xii

I ndia s Pa per and Pul p Indus try

Indian Paper Industry is a booming industry and is expected to grow in the coming years. The consumption of paper cannot be ignored and this awareness is bound to bring about changes in the paper industry for the better. The Indian Paper Industry accounts for about 1.6% of the worlds production of paper and paperboard. The expected turnover of the industry is around Rs 25,000 crore (USD 5.95 billion) approximately and its contribution to the exchequer is around Rs. 2918 crore (USD 0.69 billion). In 2009-10, the country produced around 9.2 million tonnes of paper, growing at an average 7-8% compared with 2% growth rate in developed countries. The paper industry growth is forecast at 8.4% annual growth rate, touching around 11 million tonnes in 2011-12and 15-16 million tonnes by 2015.In 2009, the annual operating capacity was 9.2 million tonnes and annual production was 7.4 million tonnes, and with currently undertaken expansions, another 1.5 million tonnes is expected to be added by 2012. Per capita consumption increased from 8.4 kg during 2008-09 to 9.2 kg in 2009-10, with a growth of 10.6%. Estimated paper demand Paper demand statistics Per capita consumption (Kg) Growth (%) in per capita consumption Indian population (mn) Growth (%) Total paper demand (mn MT) Growth (%) 7.7 1,096 2005 7 2006 7.3 4.20% 1,114 1.60% 8.1 5.80% 2007 7.8 6.80% 1,131 1.50% 8.8 7.80% 2008 8.3 6.40% 1,147 1.40% 9.5 8.10% 2009 9.18 10.60% 1,164 1.40% 10.2 8.10% 2010 9.4 3.20% 1,182 1.50% 10.2 8.10% 2011 10 6.30% 1,199 1.50% 12 8.10%

Major Players in the Industry Ballarpur Industries Limited (BILT) Hindustan Paper Corporation (HPC) ITC Tamil Nadu News Print Limited (TNPL) JK Paper

Page | xiii

Major Products offered by the Industry

Writing Printing Stationery Kraft paper Recycled board and virgin board Tissue paper Newsprint paper

Present Trade with Quantity And Amount of Paper Firms in India

A) Ballarpur Industries Limited (BILT) Revenue: Rs. 4747.8 Crore Profit: Rs. 800.9 Crore Production: 886,230 MTPA Employees: 3,000 Approx. B) Hindustan Paper Corporation (HPC) Revenue: Rs. 1041.38 Crore Profit: Rs. 88.31 Crore Production: 282,712MTPA Employees: 2,000 Approx. C) ITC Revenue: Rs. 3,667 Crores Profit: Rs. 819 Crores Production: 558,884 MTPA Employees: 3,500 Approx. Page | xiv

Barriers to Paper Industry in India Enhancing Industrys competitiveness for facing worldwide competition. Economies of scale. Defragmentation of industry Modernizations of mills Building new capacity Meeting additional demand of paper

Productivity improvement Creation of raw material base Environmental up gradation, green technology Setting mechanism to collect, sort, grad and utilize the recyclable waste paper Present Trade Policies in Terms Import-Export in Paper Industry of India

India imports about two million tonnes of pulp (soft wood and hardwood) and waste paper (sack waste for unbleached grades, envelopes and magazine waste) for newsprint. Major exports are following grades of papers: A4 copiers, wood-free which is from bamboo and agro waste by small mills, MG varieties which is come from small agro based mills, coated duplex which are mostly recycled fiber and large quantity of converted products like books, stationery items, magazines, childrens comic books and comics which is exported to Middle East, South-East countries, Eastern Europe and US. Since 1992, the govt. has taken further steps to improve the situation of the paper and pulp sector. Govt. include excise rebate to small units, customs duty on the import of paper grade pulp and wood chips, remove statutory control over production, distribution and price of white printing paper and provision of infrastructural through increased allocation of coal and wagons. Import duty on paper and pulp in 1991-92 was 140%, it has since gradually been reduced from 65% to 40% and further to 20% in 1995. Yet, customs duty on inputs and intermediates has not been brought down on comparable scale. Total import of wood pulp for the production of newsprint and newsprint products are allowed on more flexible scale.

Page | xv

Technological Advancement Taking Place into the Paper Industry of India Now Indian mills are increasing their capacity for putting up the chemical recovery system. Rigorous environmental laws, increasing energy cost, chemicals and other utilities and increasing demand of high brightness paper are forcing the paper industry to adopt improved pulp washing systems and modifications in bleaching practices. Large sized mills, bamboo based, wood and bagasse are producing pulp with conventional Kraft process and are well equipped with chemical recovery system while the small and medium size paper mills based on agro-residues are following soda process without chemical recovery.

Grow th Drive rs of In d ias Pap e r an d Pu lp In du stry Economic growth Targeted growth of 12% for manufacturing sector Increasing literacy rate Increasing govt. spending on education

Population growth Changing demographics Higher urbanization (2.5% growth) Higher proportion of young adults Increasing living standards Demand for high quality magazines Lifestyle changes & media growth

Page | xvi

Industry Comparison of India and South Africa

INDIA SOUTH AFRICA

Per capita consumption Total production

9.2 kg

86 kg

11 Million MTPA

4.5 Million MTPA

Total Turnover of the Industry Major Players

Rs. 25,000 Crores

R 2,600 Crores

BILT,

Hindustan

Paper

Mondi Group, Sappi Group, NAPMAC, Mpact

Corporation, ITC, TNPL, JK Industry.

Products Offered by the firms

Writing and printing

paper,

Containerboard, Kraft Paper, Packaging Coatings, paper, Release Industrial Liner, Bags, Consumer

Paperboard, Speciality paper, Newsprint paper

Goods Packaging, Advanced Films &Components, Office and

Professional Printing Paper

Present Market Shares (%)

BILT 17%, Hindustan Paper Corporation 8%

ITC 16%, TNPL 9% JK INDUSTRY 7%

Technological Advancement

Fiber line

A sectoral analysis of wood, paper and pulp, R & D, Fiber quality

Barriers

Enhancing competitiveness

Industrys to face worldwide of

Water

licenses,

Skill technology finance, transfer, Land

development and

competition, Economies scale, of industry, De- fragmentation

Investment

tenure, Demand of raw material exceeds supply

Page | xvii Modernization of mill

Building new capacity, Meeting additional demand of paper, Productivity improvement, Creation of raw material base, Environmental up gradation, green technology, Setting

mechanism to collect, sort, grad and utilize the recyclable waste paper

Requirements of Resources

Fibers,

wood,

technological

Fibers, ical

wood, technolog

resources, Pulp resources, Pulp

Comparison between BILT and MONDI

Ballarpur Industries Limited (BILT) Location Revenue Profit Production Business Market India Rs. 4747.8 Crore Rs. 800.9 Crore 886,230 MTPA India, Malaysia

Mondi Group

South Africa 5,739 million EUR 357 million EUR 5 million MTPA Europe, Russia, South Africa and emerging markets (approx. across 30 countries)

Buying business in other countries

Malaysia

Austria, UK, France, Russia, Slovakia, Poland, Hungary, Denmark, Netherlands, Bulgaria, Italy, and Mexico

Page | xviii

Subsidiaries

Ballarpur International

Austrias Neusiedler AG

Graphic Paper Holdings B.V. BILT Graphic Paper Products Limited Sabah Forest Industries Largest pulp and paper company of Malaysia BILT Tree Tech Limited

and Frantschach AG Cofinec in Poland Russias Syktyvkar mill And in many more countries

Divisions

For Indian country only

Europe & International and South Africa (two divisions separately)

Strategically views

Integrity

Leading market positions

Imagination Individual

High-quality, low-cost asset base Focus on performance

Key Products

1. Coated woodfree Art Paper C1S Art Paper C2S Art Board C1S Black Centered Board LWC SBS Board

1. Containerboard Appearance Kraft Semi Chem Recycled

2. Kraft Paper Sack Kraft Paper Market Pulp Specialty Kraft Paper

2. Uncoated Woodfree Hi-Brights Creamwove

3. Corrugated Packaging 3. Business Stationery Bonds Eco Line Easy Line

Page | xix

Key Products (Cntd.)

4. Copy paper Premium Copy Power

5. Specialty and Fine Cartridge Ledger

6. Industrial Grades Ivory Boards Posters Smart Line Packaging Types Applications Technologies 4. Industrial Bags Pasted Open Mouth Bags Pasted Valve Bags Pinch Bottom Bags Refuse Bag Protector Bags Terra Bag FIBCs / Big Bags Features Filling Equipment Industrial Bags production video Eurosac presents Russell the Spruce

5. Extrusion Coatings Technical Coatings Consumer Coatings

6. Release Liner Building / Roofing Envelopes Fiber Composites Graphic Arts

Hygiene Labels
Page | xx

Key Products (Cntd.)

Medical Tapes

7. Consumer Goods Packaging Stand Up Pouches Reclosable Bags (FlexZiBox) Non-Reclosable Bags Paper-based Bags Microwaveable Packaging Labels Special Product Features Printed Laminate and Barrier Materials Rollstock Printed Mono Film Rollstock Biodegradable Films Sustainex

8. Advanced Films & Components Diaper components Femcare components Label film Laminating film Tube Laminating Films

Surface protection films (temporary)

Page | xxi

Key Products (Cntd.)

Surface protection films (permanent)

Transport and pallet protection Industrial films for form-fill-seal (FFS) applications

9. Office Paper Multifunctional papers Color laser papers Creative Papers ColorLok Green Range

10. Professional Printing Paper Digital printing Pre-print Offset printing Green Range

Market Positions

53% of the coated woodfree paper market An impressive 80% of the bond paper market 35% of the hi-bright Maplitho market

No. 1 in office paper and UFP in Europe No. 1 in in corrugated packaging Europe

emerging

No. 1 in Kraft paper in Europe No. 1 in industrial bags in Europe

Page | xxii

FINDINGS
Findings from South African Paper Industry

The pulp and paper manufacturing industry is an important contributor for South African economy. 1970 onwards, annual growth rate has surpassed the international average, contributing R 3,526 million per annum to South Africas economy. Major part from this is invested in local resources, innovation and local human power. In 2009, forest and forest product sectors value add was R23 bn, equating to around 1.5% of South Africas GDP. A total of 2 lacs people are employed in the sectors value chain. The overall industry turnover is reached to R 26,000 million in 2011. Per capita consumption is 86 kg per year and total production is 4.5 million MTPA per annum. Major grades offered by the industry are for printing, writing, newspaper, packaging, tissue papers, etc. Major players of the industry are Mondi, Sappi, Mpact, Nampak, South African Paper Mills, etc. But Mondi and Sappi have major of the industry stack. Major products offered by the industry are containerboard, Kraft paper, corrugated packaging, industrial bags, coatings, release liner, consumer goods packaging, advanced films &components, office paper, professional printing paper, etc. Imports have continued to increase fairly strongly at around 3.5% per annum since 2006. Packaging and Tissue papers import is increasing. It shows that there is significant growth in consumption of packaging and tissue paper. Pulp exports are growing strongly in recent years, with most other grades decline as exports.

Findings from Indian paper Industry The INR 25,000 crores Indian paper industry is of about 1.6% of the worlds paper and paperboard production though the country is having stack of about 16% in the global population. 11 million MT of paper production is done in each year. Growth rate is of about 8.4% annually. Paperboard accounts for around 47% of the total market size, writing and printing paper having 29.6%, newsprint having 19.5% and specialty paper having 3.6% stack.
Page | xxiii

Per capita consumption is 9.2 kg. Major players in the industry are BILT, ITC, HPC, TNPL, etc. Writing and printing paper, paperboard, specialty paper, newsprint paper are the major products offered by the industry. Improving industrial competitiveness to face global competition, economies of scale, defragmentation of industry, modernization of mills, building new capacities, meeting incremental demand of paper, productivity/quality improvement, creation of robust raw material base, environmental up gradation and green technologies, setting mechanism for collection, sorting,

grading and utilization of recyclable waste paper are the main barriers to the industry. Indias per capita usage of paper has become doubled in the last decade and this growth is expected to continue. Moreover, India is the 15th largest paper consumer in the world, which amounted around 11.49 million tonnes per annum in FY2012. It is one of the quickest growing markets in the world, with approximations proposing a market size increase to 20 million MTPA by 2020.

Identification of the Opportunity to Get Supplies from the Foreign Market for Indian Company to Get Cost Advantages

Major issue for India's pulp and paper sector is very high cost of production, which is caused by less availability and high cost of raw materials. Energy cost has increased on account of inadequate availability of coal thereby increasing imports. No availability of good-quality fiber, plant size that is uneconomical, technologic obsolescence and environmental compliances are a big challenge. Paper mills of India have remarkable opportunity to improve their profit margin by increasing their investments in automation systems and enterprise solutions, and integrating them to achieve collaborative production management. Mondis great quality, satisfactory invested assets and its focus on very low cost production continue to be major competitive advantages. By having technology from company like Mondi, Indian mills can reduce their cost of production.

Page | xxiv

It appears that in South Africa there is increasing pressure for the collection of recycled materials, specifically to drive the reduction of costs and therefore remain economical. Recycling rate is continues to improve, with some grades increasingly exported. Over a million metric tonnes of paper was collected for recycling with a value of approximately R640 million. So Indian paper industry should use the technology, which is used by the South African industry for the recycling of paper.

Gap Analysis between MONDI and BILT

BILT caters primarily to the writing and printing paper segment. They have also their presence in specialty paper and the tissue paper business. While Mondi group is an international paper and packaging group specialist in containerboard, corrugated packaging solutions, Kraft paper, industrial bags, coatings, release liners, films, consumer bags & pouches as well as office, pre-print and offset paper. So, BILT can import other than writing and printing papers from Mondi group to cater Indian market.

Gap Analysis between Indian and South African Paper Industry Indias major import is Pulp (softwood and hardwood). India imports about two million tonnes of pulp and waste paper (sack waste for unbleached grades, envelopes waste and magazine waste) for newsprint. While South Africas main export is Pulp and it is growing strongly. So, here India can import pulp from the South Africa, where which is easily available.

Page | xxv

CONCLUSION

The major Paper industry firms that we have discussed here like Mondi, Sappi, Mpact, Nampak, etc. filled with various new and valuable paper products that they provide to the people of South Africa. The trade

taking places in this firms also noticeable and profitable to the economy of the country. The legal aspects and barriers in Paper and Pulp industry are also hard to understand and manageable. Also we can see that when compared to the paper industry of India the results are somewhat satisfactory. The working of the paper industry in both the countries is different and from the findings it is clear that the South African paper sector remains highly concentrated. Large number and variety of products are offered in South Africa. Necessary raw material like Pulp is easily available there. Technically and economically South Africa focuses on paper and pulp industry more than the Indian paper and pulp industry. South Africa comes up with the lots of innovative and modern techniques in production. BILT can expand its product line from writing and printing paper segment with the help of MONDI Group. BILT can cater Indian market with the variety of paper products. They also can have technological advancement to have low cost production. There are opportunities to enter the paper industry in South Africa but with the help of deep research and required resources only. With the challenges like management of risks, growth of paper industry, currency exchange, availability of raw material, global economy, environmental laws and government laws, it is necessary to understand the whole structure of the Paper industry. Indian paper industry is in growth stage and this industry will be booming in upcoming years and in this time joining hands with South African paper industry will be very fruitful for us. Paper industry plays the vital role in the growth of both countries GDP.

Page | xxvi

TABLE OF CONTENT

PREFACE .. ACKNOWLEDGEMENT ..... EXECUTIVE SUMMARY ...

III IV V

Chapte r

To pic

Page No.

No .
1 PAPER INDUSTRY OVERVIEW
1.1 GENERAL INFORMATION ABOUT THE PERFORMANCE OF PAPER INDUSTRY OF SOUTH AFRICA 1.2 MAJOR PLAYERS AND OVERALL PRODUCTS OFFERED BY THE PAPER INDUSTRY OF SOUTH AFRICA 1.3 PRESENT TRADE WITH QUANTITY AND AMOUNT OF PAPER FIRMS IN SOUTH AFRICA 1.4 WTO GENERAL TRADE IMPLICATION FOR PAPER INDUSTRY OF SOUTH AFRICA 1.5 BARRIERS APPLICABLE TO PAPER INDUSTRY OF SOUTH AFRICA 1.6 TRADE POLICIES IN PAPER INDUSTRY OF SOUTH AFRICA 1.7 TECHNOLOGICAL ADVANCEMENT TAKING PLACE INTO THE PAPER INDUSTRY OF SOUTH AFRICA 1 9 2 0 2 6 1 7 1 6 1 0 1

1.8 INVESTMENT PATTERN AND FINNCIAL DEPENDENCY OF PAPER INDUSTRY IN SOUTH AFRICA 1.9 REQUIREMENTS OF RESOURCES FOR THE PAPER INDUSTRY IN SOUTH AFRICA 1.10 DEMAND DRIVERS FOR PAPER INDUSTRY 1.11 OVERVIEW TO INDIAN PAPER INDUSTRY 1.12 MAJOR PLAYERS AND OVERALL PRODUCTS OFFERED BY THE PAPER INDUSTRY OF INDIA

3 1

3 8 3 9 4 3

Page | xxvii

1.13 PRESENT TRADE WITH QUANTITY AND AMOUNT OF PAPER FIRMS IN INDIA

49

54 1.14 BARRIERS TO PAPER INDUSTRY IN INDIA 57 1.15 PRESENT TRADE POLICIES IN TERMS IMPORT-EXPORT IN PAPER INDUSTRY OF INDIA 1.16 TECHNOLOGICAL ADVANCEMENT TAKING PLACE INTO THE PAPER INDUSTRY OF INDIA

58

1.17 INVESTMENT PATTERN AND FINANCIAL DEPENDENCY OF PAPER INDU 59

1.18 GROWTH DRIVERS FOR PAPER INDUSTRY IN INDIA 1.19 INDUSTRY COMPARISON 60 62

CASE STUDY OF COMPANIES

2.1 MONDI GROUP

64 65 81

2.2 BALLARPUR INDUSTRIES LIMITED 2.3 COMPANY COMPARISON

93 97

FINDINGS
3.1 OVERALL FINDINGS FROM SOUTH AFRICAN AND INDIAN PAPER INDUSTRY

98
3.2 IDENTIFICATION OF THE OPPORTUNITY TO GET SUPPLIES FROM THE FOREIGN MARKET FOR INDIAN COMPANY TO GET COST ADVANTAGES

3.3 GAP ANALYSIS BETWEEN MONDI AND BILT 3.4 GAP ANALYSIS BETWEEN INDIAN AND SOUTH AFRICAN PAPER INDUSTRY

99 100

100 4 5 CONCLUSION BIBLIOGRAPHY 101 103

Page | xxviii

LIST OF TABLES
Table No.
1. 1 1. 2 RECYCLING RATES PAPER PRODUCTION AND CONSUMPTION IN SOUTH AFRICA 2011 1. 3 1. 4 1. 5 1. 6 1. 7 1. 8 TECHNOLOGICAL PATHWAYS ESTIMATED PAPER DEMAND PAPER TYPES AND ITS APPLICATIONS HPC PRODUCTS DEMAND FORECAST COMPARISON BETWEEN INDIAN AND SOUTH AFRICAN 6 5 PAPER INDUSTRY 2. 1 2. 2 2. 3 2. 4 2. 5 PRODUCTION STATISTICS MONDIS OPERATING COUNTRIES FINANCIAL SUMMARY PROFIT AND LOSS STATEMENT OF BILT COMPANY COMPARISON 7 6 7 8 8 2 8 8 9 6 2 7 4 0 4 1 4 6 5 2

To pic

Page No.
9 9

Page | xxix

LIST OF CHARTS
Chart No.
1. 1 1. 2 MAJOR GRADES OF PAPER COMPARISON OF DOMESTIC PRODUCTION AND TOTAL 6 PAPER IMPORTS 1. 3 1. 4 1. 5 1. 6 1. 7 1. 8 2. 1 2. 2 PAPER CONSUMPTION DOMESTIC PRODUCTION TOTAL EXPORTS TOTAL IMPORTS MAJOR INDIAN PLAYERS COST STRUCTURE STRUCTURE OF MONDI GROUP CONTRIBUTION TO GROUP REVENUE 6 7 7 8 4 2 5 0 7 0 7 5

To pic

Page No.
5

2. 3 2. 4 2. 5

PAPER PRODUCTION AND NET SALES DEBT EQUITY RATIO AND PBDIT PAPER MAKING PROCESS

8 7 8 7 9 2

Page | xxx

Chapter-1

Paper Industry Overview

Page | 1

1.1. General information about the performance of Paper industry of South Africa
1.1.1A brief history of paper products in South Africa

The paper packaging industry in South Africa is said to have been started in 1780, when Cape Town woman, used paper to wrap fruit and send it to the Dutch East Indies. By 1780, 'East Indiamen from the Netherlands' regularly delivered paper and card board for the making of packaging in southern Africa.

By the turn of the nineteenth century, there were scores of cardboard box makers in Cape Town, and on the Reef. In 1910 the newly formed Government of the Union of South Africa set up a commission to investigate the extent and nature of manufacturing in South Africa. Among those who gave evidence were Mr. W.E. Laughton, Paper Bag Maker, and Messrs Weinberg Brothers, cardboard box makers of Cape Town. At this time paper packaging manufacturers such as Laughton and Weinberg relied on imported paper and board, and Mr. Weinberg "doubted whether paper could be made in South Africa, even with special protection".

In 1920, a new company was launched by immigrant, John Herzberg. The Company, together with Oscar Fruman's Transvaal Box Manufacturers, and Willie Kalmanson's Universal Cardboard and Box Corporation, were the early forerunners of what we know today as Nampak. In 1933, two Port Elizabeth firms began to produce multiwall paper sacks for cement packaging. In the early days, boxes were made by hand. Sheets of cardboard were cut to size with the help of a ruler and knife, and the pieces were stapled or glued together. In Cape Town in the 1920s, the workforce was largely made up of women, who worked long hours for piece rates.

The packaging industry grew and diversified along with the growth of the South African economy. In the post World War 11 years, in particular, the industry expanded rapidly, with new factories opening almost every year in the 1950s. During the 1970s and '80s, the packaging industry became increasingly concentrated, and is now dominated by a few large companies. The manufacture of other converted paper products, such as tissue products and printed articles, followed a similar history.

Commercial printing in South Africa was established as early as packaging, and it grew in various forms, throughout the nineteenth century. By 1939, when Sappi's first paper mill began to sell domestically produced paper, local printers were already well organized. At first they resisted the entry of local paper onto the market. But the relationship between the local paper industry and the printers grew, and by the time Sappi launched its printers award in 1979, the industry was already largely reliant on local printing papers. Local tissue production began a little later than the other converting industries. In 1948, Cellulose Products opened its doors, and started to produce tissue wadding. Page | 2 1.1.2 Overview to South African paper industry

South Africa is the only African producer of pulp and paper other than Swaziland. South Africa produces approximately 370,000 tons of mechanical wood pulp, 1,500,000 tons of chemical wood pulp, 316,000 tons of newsprint, 970,000 tons of printing and writing paper and more than one million tons of other paper and paperboard each year. In addition, South Africa imports some $US 400 million of paper and paperboard each year. South Africa has a relatively rich source of raw materials from the pine forests of the Kwazulu-Natal and Mpumulanga regions. The warm, equatorial climate of these parts has meant that trees grow quicker than in most paper and pulp producing countries north of the equator. The major pulp and paper companies operating in South Africa are Sappi, which is listed on the London, Paris and Johannesburg Stock Exchanges, and Mondi, which forms part of the Anglo American Industrial Corporation group of companies. Other companies involved in the forestry industry are parastatal Safcor and Hunt, Leuchars and Hepburn (HLH), which had planned to sell 50% of its holdings to Sappi and Mondi before competitions board intervention recommended that Anglo American and Mondi acquire 100% of the holdings and swap it to foreign interests in exchange for offshore assets. Downstream packaging companies include Nampak, Kohler and its subsidiary Carlton Paper, and Consol, which together share more than 80% of the market. Hortors, Bowler Metcalf, Aries, Alex White, Harwill, Clegg, Plastall, Rheem, Transpaco and Coates Brothers are other local operatives while Swedish company Ekman Liebig established a South African presence in late 1995. Mondi and the Dutch group KNP BT have restructured their paper merchanting interests in South African companies Paperlink and Finwood. Between them, Nampak and Carlton Paper control 70% of the SA tissue industry. Nampak's factories at Klip River and Cape Town produce 50 000 tons/year. Carlton Paper produces 47 000 t/year.

Margins in South Africa have traditionally been 5% higher than overseas making it a very lucrative $US 2.5 billion market. The 1994 / 1995 upswing in paper and pulp markets worldwide has also buoyed the South African market, with Sappi reporting a record 291 % increase in EPS for the year ended February 1995 and Mondi experiencing a 20 % increase in turnover during 1994. However the drop in world prices towards the end of 1995 caused a downturn in profitability. As a result Mondi is reconsidering major investments following the downturn in the international price of pulp. The company planned to spend R 500 million including R 268 million on upgrading the Kraft Piet Retief Linerboard plant and the Merebank mill. Kohler has authorized subsidiary Carlton Paper to spend $US 35 to build a waste paper recycling plant at the Enstra facility near Springs. The new plant would almost eliminate the use of virgin pulp and consume 72,000 tons of waste paper per annum. The technology has been provided by Kimberley-Clark. Page | 3 In early 1996 the HLH sold its 50% interest in softwood operations to Sappi for R 220 million. Mondi acquired Hunt Leuchars & Hepburn's mining timber and Sivacel export interests for $US 220 million. In order to remain internationally competitive and increase output, Mondi invested over R540mn in its Richards Bay pulp and linerboard mill. Since the late 1990s, Mondi has begun rationalizing its assets with the aim of focusing on its core activities pulp, paper and packaging and move away from the solid wood sector. As a result, the organization could be selling large amounts of forest land and seven saw mills, depending on investor interest. Sappi has undertaken to acquire from the Industrial Development Corporation (IDC) its investment in Saiccor at a future date. This acquisition will probably be paid for in the form of Sappi Limited equity. In 1999, the company extended its marine pipeline in Natal in order to reduce the effects of the factory waste on the environment. Jacaranda Tissue, run by Ntsiki and Ian Gwebu, plan to implement a recycling operation that will operate within Soweto, collecting its waste paper for raw material, and making and selling their products mainly toilet paper and kitchen towels - to the township community. Phase one will be a $US 25 million tissue mini-mill for Soweto that will produce 10,000 tons/year. If the community concept works out, a second 10 000 tons/year facility, also costing $US 25million, will be added - either in Soweto or cloned to another township. A site for the Sowetan mini-mill has been secured at Devland, near the golden highway. A crucial stakeholder will be Eco-S, a Finnish consulting company that has developed the mini-mill concept and will provide the technological know-how.

1.1.3 Paper and Economy

The pulp and paper manufacturing industry is a key contributor to the South African economy. Since

1970, its annual growth rate has outdone the international average, contributing R35, 26 million annually to South Africas economy. Much of this is invested in local resources, local innovation and local people power. In 2009, the forest and forest product sectors value-add was R23 billion, equating to 1.4% of South Africas gross domestic product (GDP). A total of 207,967 people are employed in the sectors value chain. The industry is not without its own economic challenges but has been making a steady recovery since the 2008 recession which resulted in a decline in pulp and paper demand. Recovery is being driven mostly by packaging and tissue grades. Page | 4 Pulp and papers direct contribution to South Africas balance of payments in 2010 was an impressive R4.5 billion. This is primarily due to the fact that Sappis chemical cellulose mill is a market leader and has increased production at its Saiccor mill in Umkomaas, KwaZulu-Natal. Sappi is investing a further R2.4 billion in production of chemical cellulose at its Ngodwana mill in the province of Mpumalanga. This pulp has many end uses, primarily in textiles but it could also be used to produce bio plastics.

1.1.4 Major Grades of Paper Chart 1.1 Major Grades of Paper

1.1.5 Summary Findings from 2011 Production Import and Export Statistics June 2012 Overview

As the worldwide recession pales, the local pulp and paper industry has settled out with some grades of paper showing small growth in demand. Selected grades of pulp, packaging and tissue are still produced sustainably in South Africa, however, with rising imports, increasing costs and global over capacity in products like newsprint; profitability and therefore the sustainability of producing certain grades in South Africa may be a challenge going forward. Printing and writing grades are definitely under some pressure. Please note that all graphs are indexed against 2006, which has the value of 100.The left axis is a numerical value given to a product relative to its performance in the base year of 2006.

Page | 5 Chart 1.2 Comparison of domestic production and total paper imports

South African consumption profile Overall, consumption per capita has risen, driven by the increased consumption of packaging and tissue. Printing and writing grades are, however, showing the first indications of a per capita decline. The 0,86 kg/per person change is a statistically significant movement given that, generally speaking, we are no longer seeing the effects of massive stock changes related to the recessions impacts on packaging and paper. However, as South Africas Living Standards Measure profile develops, so tissue and packaging demand should grow.

Chart 1.3 Consumption

Paper

Page | 6 South African production Comparative statistics (indexed to 2006) show the following: printing and writing 75 (or 25% lower than 2006), packaging 104, tissue 114 and pulp 105. This is a fair representation of where the productive focus has moved to. One would expect this focus to continue into the future.

Chart 1.4 Domestic Productions

South African exports Pulp exports are growing strongly, with most other grades decline as exports. Again, as an indexed comparison, printing and writing 62, packaging grades 81, tissue 101 and pulp 146. These trends appear to be well established.

Chart 1.5 Total Exports

Page | 7 South African imports Almost across the board, imports have continued to increase fairly strongly at around 3.5% per annum since 2006. This is of grave concern to the sector and unless something is done to stem the tide, further machine closures can be expected. Given that consumption is marginally lower and production is broadly off peak, substitution appears to be gaining momentum in some areas. As an indexed comparison we see printing and writing at 114, packaging grades 125 (plus local production up, emphasizing market growth), tissue 135 (as with packaging) and pulp 62.

Chart 1.6 Total Imports

Raw materials

Rising costs in energy and fiber will see the greater use of recovered fiber or collected waste paper in paper manufacture. A potential feed in tariff for bagasse for energy could threaten two of the countrys paper mills in KwaZulu-Natal. Water licenses for planting trees have been granted for some 30,000 hectares but tree licenses are still not easily obtained despite the governments promise of 100,000 hectares of land for trees by 2018.

Recycling It appears there is increasing pressure for the collection of recycled materials, specifically to drive the reduction of costs and therefore remain competitive. The recycling rate continues to improve, with some grades increasingly being exported. Over a million tonnes of paper was collected for recycling with a value of approximately R640 million. Page | 8 Table 1.1 Recycling rates Recycling rates Recovered paper as a % of recoverable paper 2011 59.5% 2010 58.0%

Table 1.2 Paper production and consumption in South Africa 2011 (All values in metric tonnes) Paper Production Newsprint Printing/writing Corrugated materials/containerboard Other wrapping papers Tissue Other paper 993,235 89,169 203,480 98,411 58,119 65,008 87,211 302,025 0 11,247 43,984 778,42 0 89,16 9 250,35 2 119,43 5 316,725 473,759 Paper Import 13,900 562,060 Paper Export 55,512 173,265 Paper Consumption 275,11 3 862,55 4

Board Total

27,876 2,202,655 786,298 586,034

27,87 6 2,402,91 9

Page | 9

1.2 Major Players and Overall Products offered by the Paper Industry of South Africa
Mondi Group Mondi is an international paper and packaging company employing over 23,400 people with operations across more than 30 countries, predominantly in Central Europe and Russia. After acquisition of Nordenia in 2012, company's business expanded in Western Europe and USA, and contribution from South Africa, its former HQ, declined. It is fully integrated across the paper and packaging process from growing of wood and the manufacture of pulp and paper (including recycled grades), to the conversion of packaging papers into corrugated packaging and industrial bags. It has primary listings on the Johannesburg Stock Exchange and the London Stock Exchange. It is a constituent of the FTSE 250 Index.

History The roots of the global business that is now Mondi were first planted in 1967 in South Africa, when Mondi's former owners Anglo American plc built the Merebank mill. Following more than two decades growth and consolidation in South Africa, Mondi came to Europe in the early 1990s to start a long period of expansion through acquisition.

Mondi

run

businesses

in

countries

including Austria,

the UK, France, Russia, Czech

Republic, Slovakia, Poland, Hungary, Denmark, the Netherlands, Bulgaria, Ukraine and Italy, as well as operations in Mexico. During this time, many major companies often market leaders in their home nations became part of Mondi. These included Austrias Neusiedler AG and Frantschach AG, Cofinec in Poland, and Russias Syktyvkar mill, which is central to Mondi's future expansion plans into emerging opportunities in Asia and the Americas.

Mondi became an independent dual-listed business in mid-2007 when they successfully demerged from Anglo American with listings on the London and Johannesburg Stock Exchanges. From January 2008, in place of the former Mondi Packaging and Mondi Business Paper business units, Mondi began operating as two divisions: Europe & International and South Africa.

The Mondi Group consists of two main divisions: Europe & International and South Africa. Mondi produces uncoated fine paper, corrugated products as well as bags and specialties and serves diverse industries. Uncoated Fine Paper includes office and printing paper as well as paper for the pre- and offset printing segments. Page | 10 Product Offerings Containerboard, both virgin and recycled, and corrugated packaging solutions (shelf-ready and heavyduty packaging, trays and boxes) are used for diverse industrial applications including the food sector. Mondi converts Kraft paper into bags and specialty products for rugged industrial applications. These bags are compatible with high-speed filling and used primarily in the cement and construction industries. Bags and microwaveable packaging are produced of film-based flexible packaging. Special technologies, such as extrusion coating, laminating, siliconsing and printing facilitate other uses and applications. Containerboard Kraft Paper Corrugated Packaging Industrial Bags Extrusion Coatings Release Liner Consumer Goods Packaging Advanced Films & Components Office Paper Professional Printing Paper

Page | 11 SAPPI

Sappi Limited is a global pulp and paper company group. Sappi is a producer of coated fine paper and chemical cellulose. The company conducts its business through three business units: Sappi Fine Paper, Sappi Forest Products and Sappi Trading. Sappi Fine Paper is managed through three regional business units: Sappi Fine Paper North America, Sappi Fine Paper Europe and Sappi Fine Paper South Africa. Sappi Fine Paper has manufacturing and marketing facilities in North America, Europe, Southern Africa and Asia. It also manufactures uncoated graphic and business paper, coated and uncoated specialty paper, and casting release paper used in the manufacture of artificial leather and textured polyurethane applications. Sappi Forest Products, based in Southern Africa, produces commodity paper products, pulp, chemical cellulose and forest and timber products for Southern Africa and export markets. Founded in 1936 in South Africa and headquartered in Johannesburg. The company sells its products to merchants, converters, printers, publishers and other direct customers. Sappi has its largest market in Europe, with a share of 54% Paper production of 5.1 million tonnes per annum (TPA) - 2.8 million TPA of paper pulp production - Chemical cellulose production of 600,000 TPA - Manufacturing operations in nine countries on four continents - Sales in over 100 countries - 15,100 employees worldwide.

Product Offerings

1 Side Coated Print 2 Side Coated Print 2 Side Coated Web

Kraft paper Prestige Uncoated chemical

Tissue 1 Side coated 2 Side coated

Containerboard

Uncoated mechanical

Page | 12 SOUTH AFRICAN PAPER MILL South African Paper Mills (Pty) Ltd. is an independent paper mill situated in Durban, South Africa. The company has been operating for the past five years. S.A. Paper Mills operates three paper machines and which currently produces approximately 15 000 tons per year. The mill manufactures G.T. Ribbed Kraft, plain Kraft, Testliner, Fluting Paper and White Kraft Paper. This paper is available from 40gsm to 230gsm. Having an in-house converting plant enables us to supply the paper in reels, sheets, counter reels, all of which can be converted to any size within our machine deckle of 1700mm on paper machine no. 1, 2100mm on paper machine no. 2, and 3100mm on paper machine no. 4. They produce colored paper - Pink, Green, Orange, Blue and any other specific colors that customers may require. They also produce gift wrap and this can be delivered in single rolls, flat sheets, counter rolls or reels and are available in a variety of patterns and colors. They are also setting up a plant to manufacture paper bags. The bags will be manufactured from plain brown paper and printed paper. The market for this would be Pharmacies, Curio shops, retail stores etc. We could also do continuous prints.

They also have an in-house sheeter and web printing machine. This enables us to produce paper with special prints and this can be done in reels or sheets. We also produce SFK (single face kraft) which is widely used in the packaging industries. This can be supplied in rells or sheets. The paper is currently used locally and internationally to manufacture: 1. School Book Covers 2. Envelopes 3. Gift-wrap 4. Paper Bags 5. Paper Cores 6. Corrugated Sheets 7. SFK

Page | 13 They are currently exporting to the following countries: Botswan Dubai Germany Ghana Ivory Coast Kenya Malawi Mauritius Nigeria Tanzania Uganda United Kingdom Zambia Zimbabwe

Product Range 1. Ribbed Kraft Paper 2. Test Liner 3. Fluting Paper

4. Envelope Paper 5. Exercise Book Cover paper 6. Case Paper 7. Wrapping Paper 8. Packaging Paper 9. White Kraft

Page | 14 Mpact Mpact Limited, formerly Mondi Packaging South Africa, is one of the largest paper and plastic packaging businesses in southern Africa, with 30 operating sites, 23 of which are manufacturing operations, based in South Africa, Namibia, Mozambique and Zimbabwe. Mpact employs over 3,700 people. The Group, which listed as a separate entity on the JSE and demerged from Mondi* in July 2011, has the leading market position in southern Africa in corrugated packaging, recycled-based carton board and containerboard, recovered paper collection, polyethylene terephthalate (PET) performs, styrene trays and plastic jumbo bins. These strong market positions allow us to meet the increasing requirements of customers, achieve economies of scale and achieve cost effectiveness at our various operations. Approximately 90% of our revenue is derived from these product lines. Paper Business The paper business consists of three divisions: corrugated packaging, paper manufacturing and recycling. Recycling We are the largest paper recycler in South Africa. The recycling division has seven sites across the country. Recovered paper sources include pre- and post-consumer material sourced from a multitude of paper pickup programmes including commercial, kerbside, schools, churches, communities, housing complexes, offices and an extensive network of agents and dealers.

Paper manufacturing (Paper) The paper division manufactures recycled-based packaging and industrial paper grades such as containerboard and carton board. In addition, we sell Baywhite, a premium quality white-top kraftliner produced by Mondi Limited, for which we have exclusive distribution rights in South Africa and subSaharan Africa. Corrugated The corrugated division manufactures and sells a comprehensive range of printed and unprinted converted corrugated products, including board, which we use to manufacture corrugated packaging, corrugated boxes, die-cut cases, folded glued cases, trays and point-of-sale displays.

1.3 Present trade with quantity and amount of paper firms in South Africa
A) Mondi Group Revenue: 5,739 million EUR Profit: 357 million EUR Production: 5 million MTPA Employees: 23,400 Approx.

B) Sappi Revenue: 6,347 million USD Profit: 104 million USD Production: 5.4 million MTPA Employees: 15,100 Approx.

C) Mpact Revenue: R 6,821million Profit: R313 million Production: 0.9 million MTPA Employees: 3,700 Approx.

Page | 16

1.4 WTO General Trade Implication for Paper Industry of South Africa
Achieving free and fair trade in forest and paper products a statement by leading global forest and paper industries in Geneva, Switzerland JULY 2003.

This statement expresses strong industry support for accelerated trade liberalization in wood and paper products through the World Trade Organization (WTO) Doha Development Agenda.

This statement reflects the views of forest and paper products industries in Canada, Chile, New Zealand and the United States as well as the forest industry in Australia and the paper industry in South Africa. Between them these industries represent 34 percent of world trade in wood products, 54 percent of world trade in wood pulp and 25 percent of world trade in paper.

Representatives of these industries met in Oaxaca, Mexico, in May 2003 to discuss the progress in the Doha negotiations and to consider options for furthering the interests of the global forest and paper industries in these critical negotiations.

These industry representatives are united in their belief that accelerated trade liberalization of forest and paper products, particularly through the WTO, provides a means of expanding output, employment and economic growth and alleviating poverty. The Doha negotiations offer an unparalleled opportunity to

eliminate trade barriers, put in place more effective trade rules and address the specific concerns of developing countries. A successful and robust outcome from the Doha negotiations is critical to ensuring the future expansion of the worlds forest and paper industries.

Reviewing progress in the Doha negotiations, industry representatives agreed that:

WTO members should move with the greatest possible speed towards the goal of eliminating all tariffs on forest and paper products, whether by an ambitious formula approach to tariff elimination, an expansion of current zero for zero deals, or a combination of these approaches, taking account of established WTO provisions in respect of developing countries;

The goal of eliminating non tariff barriers should also be pursued with speed given their increasing prevalence and effect in blocking trade expansion; Greater clarification, refinement and more disciplined application of anti-dumping provisions is required; and They will seek more effective rules and disciplines to address the use of subsidies.

Page | 17 Industry representatives called on their respective national governments and all member countries of the WTO to ensure:

That effective modalities for non-agricultural market access were identified as soon as possible, but before the WTO Ministerial in Cancun, Mexico, in September 2003; and That Trade Ministers meeting in Cancun resolves to keep the Doha negotiation to its original timeframe for conclusion by 1 January 2005.

Industry representatives further agreed:

To convey the views in this statement to their respective national governments and to industry stakeholders and the general public in their countries; To consult regularly amongst themselves with a view to co-coordinating their respective positions and strategy in respect to the Doha negotiations; and To explore opportunities to present these views and any subsequent considerations to WTO officials and national delegations in Geneva and as appropriate at the WTO Ministerial Meeting in Cancun, Mexico, in September 2003.

Page | 18

1.5 Barriers Applicable to Paper Industry of South Africa

Key economic constraints, which are holding back development in the forestry sector, are as follows: Water licenses: Issuing of water licenses has become a serious obstacle for forestry development. Communities can sometimes not afford the required environmental impact assessment. Furthermore, there is also a delay from the regulatory government departments. Lack of personnel capacity in regional office, and sometimes incomplete application forms also add to the delay. Skills development and technology transfer: The new forest growers and beneficiaries of land reform do not necessary have the skills and relevant technology to grow the trees optimally. The communities also require business skills to manage their operations effectively. Investment finance: Tree planting cannot take place without securing investment finance. Long rotations in forestry require long term capital for establishment, maintenance and harvesting

operations and consequently, delayed return on investment. As a result there is some level of reluctance to invest in forestry business. Land tenure: Most of the land that has been identified as suitable for new affore station is tribal or land belonging to communities where land claims settlement issues still need to be resolved before tree planting can take place. Also, there is lack of proper consultation and mobilization with communities in line with forestry development protocols. Demand of raw material exceeds supply: The demand of raw material far exceeds supply and this has resulted in the closure of most downstream processing industries especially in furniture and small-scale saw milling industry. More jobs will still be lost if the demand/supply equation is not addressed amicably. The small players in the industry are mostly affected by this due to the vertical integrated nature of the industry where big companies own plantations and small businesses rely on supply from DAFF plantations.

Page | 19

1.6 Trade Policies in Paper Industry of South Africa

Introduction To Trade Policies In 2006, the industry was a net exporter to the value of R1.7 billion which was roughly 7.8 percent to the overall exports of manufactured products. The total turnover in 2006 was around R13.1 billion, and 35 percent of it was destined for exports. The industry employed some 250 thousand people directly and some one million people indirectly (Ministry of Water Affairs and Forestry, 2006. The economic significance of commercial forestry is expected to increase in the future which can be attributed to a constellation of factors. Firstly, the long term growth prospects of the industry are assessed to be excellent. It is believed that annual wood demand facing the forestry industry will almost double from the current consumption of 19 million cubic meters by 2011. Secondly, there are strong income incentives for downstream wood processing industries to integrate backwards so as to plant more to earn more. Thirdly, being a world leader in the pulp and paper technology, South Africa has a strategic competitive advantage.

The pulp and paper sector of the industry is hence of utmost importance to the economy. The pulp, paper and board sector of South Africa is small but has a significant place in the international export market, traditionally dominated by North America and the Scandinavian countries. South Africa supplies less than 2% of international demand, though physical volumes have grown substantially over the last decade. Although South Africa is in a position is not among the dominant producers, consumers or exporters in the world pulp, paper and board industry, South African companies have evidently established themselves as significant players in the international market. This principle recognizes that raw material exports from a region or country could be beneficial and thus value can be added to them locally.

Import Policies

Tariffs South Africa is a member of the World Trade Organization (WTO), the Southern African Development Community, and the Southern African Customs Union (SACU). As a member of SACU, which links the trade regimes of Botswana, Lesotho, Namibia, South Africa, and Swaziland, South Africa applies the SACU common external tariff (CET). In practice, South Africa effectively sets the level of MFN tariffs applied by all SACU countries. South Africas average applied duty in 2011 was 8.1 percent. Almost 97 percent of tariffs are charged on an ad valorem basis, with rates ranging from 0 percent to 96 percent. The International Trade Administration Commission (ITAC) is tasked with administering South African trade laws. ITAC continues to receive requests from a number of industries for tariff protection, and U.S.

companies have cited protective tariffs as a barrier to trade in South Africa. Page | 20 For example, U.S. apparel exporters expressed concern about increases in South African tariffs on over 120 clothing items in late 2011. Tariffs for these products were increased from 20 percent and 40 percent up to their WTO bound rate of 45 percent, i.e., the rate that generally cannot be exceeded under WTO rules, and serve as a further impediment to enter South Africas apparel market.

The South African government introduced a National Industrial Policy Framework and Industrial Policy Action Plan (the Framework) in 2007, with the goal of promoting value added industries in eight sectors, including: capital and transport equipment; automotive goods and components; chemicals, plastic fabrication, and pharmaceuticals; forestry, pulp, paper, and furniture; business process outsourcing; tourism; biofuels; and clothing and textiles. The Framework sets out specific mechanisms to assist these sectors, including a comprehensive review of import duties that has been underway for the last few years, and a potential reduction of selected import duties on inputs and components.

Nontariff Measures The Minister of Trade and Industry is authorized to prohibit imports into South Africa, by notice in the Government Gazette, of goods of a specified class or kind, except under the authority of, and in accordance with, the conditions stated in a permit issued by the ITAC. The ITAC requires import permits on used goods if such goods are manufactured domestically, thus creating a de facto ban on most used goods, including used clothing. Other categories of controlled imports include waste, scrap, ashes, residues, and goods subject to quality specifications. Other often cited nontariff barriers to trade include customs valuation above invoice prices, import permits, antidumping measures, and excessive regulation.

Antidumping Measures Transparency and due process remain issues with respect to the actions of ITAC and its administration of South Africas antidumping laws and regulations.

In September 2007, South Africas Supreme Court of Appeal ruled that ITAC had improperly calculated the five year expiration date of antidumping duties imposed on A4 paper imported from Indonesia and that; as a result, authority to impose duties had expired prior to the initiation of the sunset review for that product. ITAC subsequently announced its intention to terminate antidumping duties on several imported products because the sunset review of those duties had not been initiated before the expiration of the five year period as calculated under the courts interpretation of South African law.

Page | 21 Government Procurement

Government purchases are made through competitive tenders for goods, services, and construction. South Africa uses government procurement to promote the empowerment of the historically disadvantaged majority population in South Africa through its Black Economic Empowerment (BEE) strategy. See the section on Investment Barriers for more details on BEE. South Africas Preferential Procurement Policy Framework Act of 2000 (the Framework Act) and its implementing regulations created the legal framework and a formula for evaluating tenders for government contracts. To augment this, the DTI has been working on regulations to clarify the Framework Act and to incorporate the objectives of the Broad-Based Black Economic Empowerment Act of 2003. These regulations would give preference to bidders who comply with BEE objectives and would include BEE thresholds in tender evaluations. In procurement valued up to one million rand (about $130,000), 80 percent of the tender evaluation would be based on the bid price and 20 percent on the suppliers commitment to BEE objectives. For tenders valued over one million rand, companies would earn 90 percent of their points from their bid price and 10 percent from their commitment to BEE objectives.

The National Treasury is working with the DTI to align preferential procurement regulations with the BEE Code of Good Practice on Procurement in order to help standardize how firms are evaluated on their compliance with industry BEE scorecards. South Africas National Industrial Participation Program, introduced in 1996, subjects all government and parastatal purchases or lease contracts for goods, equipment, or services with an imported content equal to or exceeding $10 million (or the rand equivalent thereof) to an industrial participation obligation. This obligation requires the seller/supplier to engage in local commercial or industrial activity valued at 30 percent or more of the value of the imported content of the total goods purchased or leased under a government tender. South Africa is not a signatory to the WTO Agreement on Government Procurement.

Intellectual Property Rights (IPR) Protection

Enforcement of intellectual property rights (IPR) in South Africa presents challenges. In recent years, the South African government has introduced measures to enhance enforcement of the 2004 Counterfeit Goods Act. The government has appointed more inspectors, designated more warehouses for securing counterfeit goods, destroyed counterfeit goods, and improved the training of customs, border police, and police officials. Although law enforcement authorities often cooperate with the private sector in

investigating allegations of trade in pirated or counterfeit goods, some members of the business community have expressed concerns about lax enforcement of IPR laws against imports of infringing goods, as well as Page | 22

slow and cumbersome court proceedings. There have been some concerns that the South African Customs Administration interpreted a 2011 court ruling as limiting its ability to seize potentially infringing goods that are marked for transshipment through South Africa.

This interpretation is still being debated within the South African government. Under South African law, complainants can take both civil and criminal action against IPR offenders. The number of arrests for trading in pirated or counterfeit goods has increased in the last few years. In addition, South Africa has taken steps to improve enforcement, such as the creation of DTIs enforcement unit, and the establishment of Commercial Crime Courts in several cities. The South African government has also formed an interagency counterfeit division including the DTI, the South African Revenue Service (SARS), and the South African Police Service to improve coordination on IPR enforcement.

SARS has launched a public awareness campaign about the seriousness and impact of IPR crimes, with special attention to counterfeiting issues related to merchandising for the 2010 World Cup soccer tournament in South Africa. DTI is also working with universities to incorporate IPR awareness into college curricula. Despite efforts to improve IPR enforcement, monetary losses from counterfeiting and piracy remain high. U.S. industry is increasingly concerned about illegal commercial photocopying, especially at universities, libraries, and other on-campus venues. U.S. industry has also expressed concern about software, optical disc, and Internet piracy, the growing number of counterfeit production facilities, advertisements of burn -toorder services, and the unwillingness of South African Internet Service Providers (ISPs) to shut down infringing sites or access thereto. Counterfeit medicines are also a growing problem. There is no direct legal protection for local distributors against parallel imports. However, in 2011, several members of the Motion Picture Association of America, acting individually, successfully obtained a civil injunction against a major DVD rental chain that was parallel importing their product. The Cape High Court awarded costs against the importer, who is appealing the decision.

Services Barriers

Investment Barriers In February 2007, the DTI published Codes of Good Practice in the Government Gazette that included a new generic scorecard to measure a companys level of BEE in areas such as equity ownership, management, employment, procurement from black-owned companies, and development of black-owned enterprises. The Codes permit multinational corporations to earn BEE equity ownership points for empowerment actions in non-equity areas, provided the DTI approves and provided the multinational has a global corporate policy of owning 100 percent of the equity in its subsidiaries. Many U.S. companies had pressed for the right to use such equity-equivalent mechanisms. Although completion of the Codes of Page | 23

Good Practice has cleared up much of the uncertainty that surrounded BEE, they are complex documents and much about their interpretation and implementation remains unclear. By the end of 2009, only one multinational company had received DTI approval of an equity-equivalent program, which has led to complaints that the approval process is slow and nontransparent. Several transformation charters have also been negotiated by stakeholders in sectors such as financial services, mining, and petroleum. These charters are intended to promote accelerated empowerment within particular sectors. It is expected that many of these charters will be converted into binding sector codes. There is uncertainty, however, as to whether equity-equivalent plans approved by DTI under the Codes of Good Practice would automatically satisfy equity requirements imposed by the transformation charters. In at least one case (the information and communications technology sector), a DTI-approved equity-equivalent plan was determined not to satisfy the requirements of a charter. In the financial services sector, a charter was reopened after labor unions complained that the charters equity requirements were too generous to banks. Government, banks, and unions have so far been unable to agree on a revised charter, although talks continue. Because the time period for publishing the sector specific charter in the Government Gazette has lapsed, some argue the sector is now governed by the Codes of Good Practice.

Electronic Commerce

The Electronic Communications and Transactions Law govern all companies that conduct electronic commerce in South Africa. The law was designed to facilitate electronic commerce, but has been criticized as imposing significant regulatory burdens. The law requires government accreditation for certain electronic signatures, takes government control of South Africas .za domain name, and requires a long list of disclosures for websites that sell via the Internet.

In early 2009, the South African Law Reform Commission submitted draft legislation and discussion documents on privacy and data protection for public comment and held a series of workshops on the draft legislation. Industry is still evaluating the extent to which this legislation, which is still awaiting action by the National Assembly, will affect the ability of South African and foreign companies to receive and send trans border flows of personally identifiable data.

Page | 24 Other Barriers

Ownership Patterns While South Africas business environment has improved dramatically in the post-apartheid era, the energy, transportation, and telecommunications sectors are still dominated by state-owned or state controlled monopolies.

Transparency and Corruption Laws such as the Promotion of Access to Information Act and the Public Finance Management Act, both enacted in 2009, have helped to increase transparency in government. The 2011 Prevention and Combating of Corrupt Activities Act defines graft, bars the payment of bribes by South African citizens and firms to foreign public officials, and obliges public officials to report corrupt activities. One shortcoming of the Act has been its failure to protect whistleblowers against recrimination or defamation claims. South Africa has no fewer than 10 agencies engaged in anticorruption activities. Some, like the Public Service Commission, the Office of the Public Protector, and the Office of the Auditor-General, are constitutionally mandated to address corruption as part of their responsibilities. However, high rates of violent crime create a strain on enforcement capacity and make it difficult for South African criminal and judicial entities to dedicate adequate resources to anticorruption efforts. Following the April 2011 elections, the Zuma administration pledged to make anticorruption efforts a high priority and initiated a presidential hotline to receive reports of corrupt practices.

Business Mobility Many economic sectors in South Africa experience severe difficulty in recruiting because of skills shortages and emigration. For a number of years, U.S. and other foreign companies have complained of difficulties in the procedures for obtaining temporary work permits for their skilled foreign employees.

Page | 25

1.7 Technological Advancement Taking Place into the Paper Industry of South Africa

A large number of innovations in technology, process and management in the pulp and paper industry that can contribute to more environmentally benign pulping and bleaching methods, increased use of recovered paper and fillers and in-house water recycling. They made a distinction between available and emerging technologies. Available technologies are already implemented by a number of firms, but are not yet common practice within the entire sector. Emerging technologies are those technologies in the development phase or that have been implemented only in a very few firms. Table below lists the available and emerging technologies in stock preparation (pulping), the use of recycled paper and paper production proper.

Technology pathways at present time

Increased electricity production For kraft mills, electricity is generated in back-pressure turbines, utilizing the steam produced in the recovery boiler and any other boilers before it is used in the production processes. The electricity production can, for example, be increased by raising the steam quality (when investing in new boilers), increasing the dry solid content of the black liquor, decreasing any throttling and/or reducing the process steam demand, and investing in a condensing turbine. Increased electricity production due to increased dry solid content of the black liquor, reduction of any throttling and/or investment in a condensing turbine to utilize a potential steam surplus are considered.

Lignin extraction In the kraft pulp process, the fibers are used for production of pulp (or paper), and the rest of the wood components lignin and parts of the hemicelluloses are dissolved in the black liquor. Lignin can be extracted from the black liquor by using either e.g. acid precipitation. Currently, acid precipitation is closer to commercialization and thus is the process assumed when lignin extraction is discussed. In the acid

precipitation process, CO2 is used to precipitate the lignin, which thereafter can be filtered and washed. From a mill energy systems perspective, lignin extraction will lead to reduced heat content in the black liquor in the recovery boiler, and thus to reduced steam and electricity production, together with an increased steam demand in the evaporation plant due to the increased evaporation load from wash filtrates.

Page | 26 Table 1.3 Technological pathways

Page | 27

Page | 28

Carbon capture and storage (CCS) Being large energy users, pulp and paper mills have large on-site emissions of CO2. Since these emissions are associated with only a limited number of geographical sites, the PPI, like other energyintensive industry branches, is suitable for implementation of carbon capture (CC). Further, since a large share of the CO2 emissions associated with the European PPI are biogenic, if CCS is implemented the levels of CO2 in the atmosphere can be further reduced in comparison to implementing CCS only on fossil emission sources. Since the main source of CO2 from the pulp and paper industry is boiler flue gases, there are in principle three technology options for capture: post-combustion, pre-combustion and oxy-combustion. In this thesis, post-combustion using chemical absorption is considered since it is the only technique not requiring any reconstruction of the boiler. For post-combustion with chemical absorption the energy cost for capture is 50- 70% of the total cost and thus cannot be neglected. Hence, for CC to be economically and technically realistic the source of CO2 must be large enough and the energy demand of the capture process should preferably be possible to integrate (fully or partly) with other processes at the capture site. The potential for heat integration of post-combustion CO2 capture to kraft pulp and paper mills who show that thermal integration is possible to a substantial extent.

Page | 29 Black liquor gasification (BLG)

The black liquor generated in the kraft pulp process is burned in the recovery boiler in order to recover the cooking chemicals and produce steam for the mill process steam demand. Another alternative for the recovery of chemicals and energy in the black liquor is to use BLG. In this thesis, the BLG technology considered is the one based on the Chemrec process, since this is the technology, which currently is being most developed and is closest to commercialization. Introducing BLG will alter a mill s energy balance. As in the case of a conventional recovery boiler, the BLG unit will have a net surplus of steam. The amount of steam, however, will be lower than if the same amount of black liquor is burned in a recovery boiler. Due to the lower steam production, additional fuel needs to be burned in the (bark) boiler if the steam production is to be unchanged. On the other hand, the BLG unit also generates a product gas which can be used to produce either biofuels or electricity. For the case of biofuel production, the mills electricity production will decrease and for the case of electricity production it will obviously increase.

Page | 30

1.8 Investment Pattern & Financial Dependency of the Paper Industry in South Africa

Mondi Group The roots of the global business that is now Mondi were first planted in 1967 in South Africa, when their former owners Anglo American plc built the Merebank mill. Following more than two decades growth and consolidation in South Africa, they came to Europe in the early 1990s to start a long period of expansion through acquisition. They have bought businesses in countries including Austria, the UK, France, Russia, Slovakia, Poland, Hungary, Denmark, the Netherlands, Bulgaria and Italy, as well as operations in Mexico. During that time, many major companies often market leaders in their home nations became part of Mondi. These included Austrias Neusiedler AG and Frantschach AG, Cofinec in Poland, and Russias Syktyvkar mill, which is central to our future expansion plans into emerging opportunities in Asia and the Americas. They became an independent dual-listed business in mid-2007 when we successfully demerged from Anglo American with listings on the London and Johannesburg Stock Exchanges.

Sappi Sappi was formed in South Africa in 1936 to serve South African consumers with locally produced paper. Sappi is a global company focused on providing dissolving wood pulp, paper pulp and paper based solutions to our direct and indirect customer base across more than 100 countries. The pulp needed for our paper products is either produced within Sappi or bought from accredited suppliers. Sappi done acquisition with many European companies like Hannover Papier (Germany), Usutu Pulp Company (Swaziland), M- real, etc. Also Sappi takes a 34% equity stake in the Jiangxi Chenming joint venture (China) and 75% stake in S D Warren (U.S.A.).

Mpact Mpact Limited, formerly Mondi Packaging South Africa, is one of the largest paper and plastic packaging businesses in southern Africa, with 30 operating sites, 23 of which are manufacturing operations, based in South Africa, Namibia, Mozambique and Zimbabwe. The Group, which listed as a separate entity on the JSE and demerged from Mondi in July 2011, has the leading market position in southern Africa.

South African Paper Mill South African Paper Mills (Pty) Ltd. is an independent paper mill situated in Durban, South Africa. The company has been operating for the past five years.

Page | 31

1.9 Requirements of Resources for the Paper Industry in South Africa

Pulp and Paper Process

The pulp and paper industry converts fibrous raw materials into pulp, paper and paperboard. In a first step raw materials are processed into pulp and in a second step paper and paper products are produced out of this pulp. Different plant categories exist depending on whether they only produce pulp (pulp mills) for further processing or only paper out of purchased pulp and/or recycled waste paper (paper mills). The third category, the integrated pulp and paper mills, combines the two processes and is most common in the paper industry.

The five principal steps in pulp and paper production are wood preparation, pulping, bleaching, chemical recovery, and papermaking. The following step by step description is adapted from the World Energy Council, 1995.

1. Wood Preparation Wood preparation involves breaking wood down into small pieces suitable for subsequent pulping operations. Major Wood preparation processes include debarking and chipping. This process requires little energy.

2. Pulping Wood is ground and pulped to separate the fibers from each other and to suspend the fibers in water. Pulping breaks apart the wood fibers and cleans them of unwanted residues. The ratio of wood to other materials used for pulp depends on the resources available. The remaining fiber is provided by recycled materials or by non-wood plant sources.

Pulping can be performed using chemical, mechanical, or combined chemical-mechanical techniques. In chemical pulping wood chips are cooked in an aqueous solution at high temperature and pressure. Chemical processes dissolve most of the glue that holds the fibers together (lignin) while leaving the cellulose fibers relatively undamaged. This process results in high quality paper with a yield of only 40%60% of the weight of the dry wood. The Kraft process, which is the most common, uses a sodium hydroxide and sodium sulfide solution. The sulfite process uses a mixture of sulfurous acid and bisulfate iron (typically from sodium sulfite).

The most common mechanical pulping technique involves separating the cellulose fibers by pressing logs against wet grindstones or by passing wood chips between counter revolving grooved metal disks (refiners). Lignins and other residues are not removed. This results in a higher yield, but there is more Page | 32 damage to the fibers. In addition, lignin will degrade in time. The lower quality fiber limits the use of this process to less expensive grades of paper, such as newsprint.

Combined chemical and mechanical pulping can produce varying grades of paper depending on the particular process used. These processes include thermo-mechanical, chemical thermo-mechanical, and semi-chemical. Large Indian mills that are predominantly based on forest raw materials use the Kraft process. Agro-based mills use a soda process while newsprint mills use mechanical, chemical, chemimechanical and chemi-thermo mechanical (CTMP) processes.

3. Bleaching Bleaching whitens pulps for the manufacture of writing, printing, and decorative papers. The process alters or removes the lignin attached to the wood fiber. Chemical pulps are bleached through the use of alternating treatments of oxidizing agents and alkali solutions. The Kraft process produces a darker pulp which requires more bleaching. Mechanical pulps are treated with hydrogen peroxide or sodium hydrosulfite to reduce the light absorption of the lignin rather than remove it.

4. Chemical Recovery Chemical recovery regenerates the spent chemicals used in Kraft chemical pulping. Chemical pulping produces a waste stream of inorganic chemicals and wood residues known as black liquor. The black liquor is concentrated in evaporators and then incinerated in recovery furnaces, many of which are connected to steam turbine cogeneration systems. The wood residues provide the fuel and the chemicals are separated as smelt which is then treated to produce sodium hydroxide. Sodium sulfide is also recovered.

5. Papermaking Papermaking consists of preparation, forming, pressing and drying; preparation and drying are the most energy intensive processes. During preparation, the pulp is made more flexible through beating, a

mechanical pounding and squeezing process. Pigments, dyes, filler materials, and sizing materials are added at this stage. Forming involves spreading the pulp on a screen. The water is removed by pressing and the paper is left to dry. In one of the most common papermaking processes, the paper is pressed, drained and dried in a continuous process. In another, a pulp matt is formed in layers with water removal and treating occurring between deposits.

Page | 33

1.10 Demand Drivers for Paper Industry

The Genesis Analytics report identified constraints that must be considered an opportunities that can be exploited to accelerate the growth in the forestry, timber, and pulp and paper sector. Following

discussions with various stakeholders, this strategic framework for the development of the forestry, timber, pulp and paper sector has narrowed the list down to four critical elements that need to be addressed.

This growth framework deals with four main elements that must be addressed or sustained and accelerated growth of the forestry, timber, pulp and paper industries:

Increase supply of raw materials (fiber) Three principal sources for maintaining and increasing the availability of fiber have been identified as follows: (1) increase in the afforested area; (2) rehabilitation and improved management of the existing forestry through accelerated restructuring of categories B and C of the existing DWAF plantations and (3) increased use of recycled paper through dedicated efforts by both government and private sector to increase the percentage of recoveries.

Ease supply constraints to downstream processing activities A number of saw millers and furniture manufacturers (independent) do not own their own plantations and have to rely on existing plantations that in the case of saw milling also own similar operations. This result in some of these companies experiencing difficulties in securing timber for processing. This situation is compounded by the fact that for logistical reasons it is sometimes not economical to supply small orders.

Increase downstream processing activities The vertically integrated nature of the industry means that smaller players do not participate in higher value-added activities. The capital requirements of internationally competitive pulp and paper mills coupled with the vertically integrated nature of the industry have prevented smaller players from participating in this area of activity. However, there is scope for smaller players to participate in waste paper recycling which this document advocates for the development of support measures to encourage the participation of BEE and SME companies in further downstream beneficiation activities.

Technology Transfer and Skills Development The Forestry Charter being developed will speed the transformation of the sector and should result in increased ownership of forestry and downstream processing assets by historically disadvantaged groups and communities. Initiatives should thus be developed for skills and technology transfers to these groups.

Page | 34 Increase supply of raw material Plantation forestry is an important element in the forestry value chain not only for its ability to create jobs in rural areas but also as the main raw material supply, apart from water and electricity, to downstream industries. The ability of saw millers, furniture manufacturers; pulp and paper manufacturers to operate depend on the availability of timber. The vertically integrated nature of the industry means that independent small and medium enterprises in saw milling and furniture manufacturing are the worst affected by the

scarcity of supply. The increase in the supply of fiber is thus the pre-condition for the sustainability and expansion of downstream activities. The supply of timber needs to be addressed from both the short to medium term perspective of ensuring the availability of supply to independent manufacturers and the longterm perspective (new a forestation) of ensuring the long-term sustainability of supply to small and large enterprises. In the short to medium term, measures need to be put in place to ensure that small and medium sized enterprises in downstream processing activities get a fair and adequate allocation of timber from plantation forests.

Although these measures will not address the increase in available raw materials, they will alleviate the problems being experienced by the smaller players. In the long term, the allocation of licenses for new plantations should aim at ensuring that independent smaller players in processing activities get a fair and adequate share of timber. A special situation exists in the case of the solid wood sector, which supplies the construction and furniture industries, which are already in supply deficit. The shortfall in supply will have to be met by imports, which in the case of furniture will be manufactured products thereby depriving the country of local beneficiating opportunities. The situation is exacerbated by the fact that this is typically the long rotation softwood (18-30 years), which increases the time horizons for returns and hence the investment risk. This consideration is reinforced by the fact that most of the area suitable for new softwood plantations are in communally owned land.

The long payback period required for investments in long rotation softwood is likely to discourage both the communities and the large role players in the private sector from investing. Historically, the government has been the major investor in long rotation plantations. While raw material imports could supply the industries in the short to medium term, it is in the countrys interest to support the development of long rotation plantations in the long-term. The government either needs to continue investing in long rotation plantation forestry or to develop support measures to encourage investments in long rotation plantations.

Page | 35 Ease supply constraints to independent saw millers Saw milling is a very important stage in the forestry value chain as it processes the timber to supply to the construction and furniture industries. The Genesis study estimates that the saw milling industry

contributed about R1.3bn to GDP in2004 and employed in excess of 20,000 people. The sector can be broken down into three categories; large sawmills, small sawmills and micro mills. While most of the large sawmills get most of the supply from their own plantations or from long-term arrangements with plantation owners, a number of the independent saw millers (small and micro) rely on the existing plantation forestry owners or auctions or supply from state owned forestry company, SAFCOL for their inputs. Due to their

small orders, some of the saw millers are experiencing problems in ensuring the availability of supply as they are at the lower end of the scale in terms of priority. In addition, they cannot participate at auctions due to minimum requirements required. Besides the saw millers, the independent small furniture manufacturers are facing the same problems. The unreliability of supply to independent small mills increases the risk of these companies closing down and the resultant loss of jobs. Increased new plantations in the long-term can rectify this. However short-term measures are necessary to reduce the negative impact on job losses. Two possible measures in the short-term are: State owned plantations playing a larger role in ensuring that the small and micro saw milling companies get an equitable share of allocations. The long-term contracts that lock in customers need to be reviewed and scrutinized. From a competition policy perspective, the terms and conditions of sale faced by small and large scale saw millers should be investigated to determine whether there is any anti-competitive behavior. Encourage and support timber imports destined for downstream processing, especially from the neighboring states.

Skills Development and Technology Transfer South Africa is recognized as one of the world leaders in the technology and sustainable maintenance of plantation forests, with more than 80% of plantations attaining Forest Steward Council (FSC) certification, a worldwide certification with regard to principles and standards on environmental impact, land use another practices. The yield of South African plantation forests is estimated to bemore than two times higher than those of similar plantations in some northern hemisphere countries and comparable to other southern hemisphere countries.

Sappi and Mondi are regarded as world leaders in selective breeding and cloning of eucalyptus species. Over the past few years, a number of plantations have been transferred or licensed to small independent growers or community grower schemes. Through the implementation of the Forestry Charter, Page | 36 the streamlining of the regulatory processes, the transfer of existing state owned plantations to small growers and community based grower schemes; we expect an increase in plantation share of these groups. It is accepted that a majority of these groups lack the capital resources, the skills and the technological know-how to manage the plantations to their full potential. Some small grower schemes in KZN are aligned to the big players (Mondi or Sappi) who provide financial and technical support. Skills development and technology transfer should be implemented in conjunction with the issuing of new licenses and the transfer of existing plantations to small growers and communities.

It is therefore important that a skills development programmed be drawn for this purpose. This programme needs to go beyond the training in plantations to incorporate the transfer of modern technologies

processes for plantations and processing activities. The technological support needs to look at both the yields and the quality of supply. Our ability to produce high value added products especially in furniture manufacturing will also depend on the quality of timber supply. At the plantation level, the two largest companies, Sappi and Mondi have played a big role in developing the small growers through their small grower schemes. This has however been limited to areas where the small growers could supply the pulp mills owned by these companies. Government, the Forest Industry Education and Training Authority (FIETA) and the larger players should work towards developing a skills development and technology transfer mechanism for the smaller players. This programme or similar programme should be extended to include other downstream activities in the forestry value chain. In addition to this, use should be made of our teaching or research institutions that have developed expertise in the sector to enable small enterprises and community groups to achieve the relevant skills and technologies.

Increase downstream beneficiation activities As mentioned above, plantation forestry is the foundation for a number of downstream processing activities including wood chips, saw milling, timber board, charcoal, furniture, pulp and paper. The furniture, pulp and paper industries are at the higher end of the value chain. Several research papers and documents have shown that the economies of countries that have grown fastest are those that have moved towards higher value added manufacturing activities.

The vertically integrated nature of the industry (limits the availability of wood fiber) and the high capital requirement presents barriers for new entrants in pulp manufacturing. Although there are only two pulp manufacturers in SA, we believe that no special support measures are necessary to increase either the number of pulp mills and the number of players in the industry. The increase in the number of larger independent players in plantation forestry should in the long-term act as a catalyst for one or more pulp manufacturing facilities. The integrated nature of the industry also places entry barriers on paper production requiring virgin fiber inputs with the four largest manufacturers (Sappi, Mondi, Nampak and KimberlyPage | 37 Clark) producing about 96% of paper products while the rest of paper manufacturers get their input material from recycled paper. Increase in timber processing is directly related, with time lag, to the increase implantation forestry. Currently, the small players do not participate in value-added activities. If the regional economies are to grow, efforts must be made to encourage processing and attract investment in the areas closer to plantations. Furthermore, road transportation of timber is expensive compared to rail or sea and becomes economically less viable for distances beyond 200km. It misrecognised that most of the increase in new plantations in KZN or those areas of Eastern Cape closer to KZN could supply the existing pulp mills in KZN but should also stimulate the development of a new saw mill or chipboard manufacturing in the area. The area with the most potential in the EC is not linked by rail or sea to KZN, which would have been an economically viable mode of transport. This certainly presents opportunities for timber processing before transporting.

Whilst the lack of rail transport presents opportunities for further beneficiation, rail transport remains the most critical element in the development of the industry as it will integrate the plantation and processing areas with the developed nodes and reduce the cost of transporting products. The large capital requirements for pulp and paper manufacturing mean that it is unlikely a facility of this kind will be developed in the Eastern Cape in the near future. The opportunities for downstream processing activities for timber processing lie in saw milling, woodchip milling plant, wood waste processing and furniture manufacturing.

Currently, a large volume of wood chips from independent manufacturers is exported, mainly to Japanese manufacturers. These wood chips could be further beneficiated locally in the form of an additional pulp mill or supplying the existing pulp mills. However, the higher prices that wood chips can fetch internationally encourage them to export rather than selling locally for further beneficiation. The local and district municipalities in both the EC and KZN have developed a number of project proposals in wood processing including in many areas wood waste/saw dust management. However, many of these proposals have not been implemented and in some cases bankable business plans need to be developed. The dti needs to play a larger role in supporting the municipalities get these projects off the ground. The Strategic Competitiveness Unit has begun a processor developing forestry/wood-processing clusters in both the EC and KZN. The development of these clusters should help support a number of projects or proposals by local government. The land filling of solid waste from the downstream processing activities like saw milling; woodchips etc has a negative environmental impact. This environmental cost can however be changed into an opportunity through recycling. A number of projects have been undertaken internationally and to a far lesser extent, locally, to deal with recycling of wood waste. These opportunities need to be explored further and the necessary technologies acquired or developed to convert waste to higher value-added products. Given the potential for job creation and reducing the negative environmental impacts, a national strategy needs to be developed to manage wood waste and other waste including waste paper recycling. Page | 38

1.11 Overview to Indian Paper Industry

The Indian Paper Industry is a booming industry and is expected to grow in the years to come. The usage of paper cannot be ignored and this awareness is bound to bring about changes in the paper industry for the better. It is a well known fact that the use of plastic is being objected to these days. The reason being, there are few plastics which do not possess the property of being degradable, as such, use of plastic is being discouraged. Excessive use of non degradable plastics upsets the ecological equilibrium. The Indian Paper Industry accounts for about 1.6% of the worlds production of paper and paperboard. The estimated turnover of the industry is Rs 25,000 crore (USD 5.95 billion) approximately and its contribution to the exchequer is around Rs. 2918 crore (USD 0.69 billion). The industry provides employment to more than 0.12 million people directly and 0.34 million people indirectly.

The Rs. 25,000-crore Indian paper industry accounts for about 1.6% of the world s paper and paperboard production even though the country accounts for nearly 16% of the global population. The Indian paper industrys market size has been estimated at Rs.321 billion, growing at a CAGR of 10.5% from around Rs. 195 billion in 2003-04 to Rs. 321billion in 2008-09. In 2009-10, the country produced 9.18 million tons of paper, growing at an average 6-7% compared with 2% growth in developed countries (Source: Assocham). The paper industry growth is forecast at 8.4% annually, touching 11.5 million tons in 2011-12and 15 million tons by 2015 (Source: Business Line, 7 May, 2010).

In India, paperboard accounts for nearly 47.3% of the total market size, followed by writing and printing paper (29.6%), newsprint (19.5%) and speciality paper (3.6%) according to CRISIL Research.

India is among the worlds fastest growing paper markets; an increase in consumption by one kg per capita can potentially increase annual paper demand by a million tons. Indias paper production is forecasted to grow at a CAGR of 8.4% while consumption is pegged at a CAGR of 9% till 2012-13 on account of a growing demand for tissue paper, tea bags, filter paper, light weight online coated paper and medical grade coated paper (Source: Business Line, 7 May, 2010).

Page | 39 Positive macro triggers: Low per capita consumption: Indias per capita paper consumption grew 10.6% in2009-10 (from 8.3 kg in 2008-09 to 9.18 kg) compared with 42 kg in China and 350 kg in developed countries (Source: Assocham), implying a large scope for correction. Export opportunity: A number of European and US paper mills are shutting down owing to overcapacity and cost issues, an attractive export opportunity for Indian paper mills. Besides, Indian paper manufacturers, utilizing agriculture-based raw material, possess a sustainable growth opportunity on account of growing environment consciousness. Packaging industry: The Rs. 77,570-crore Indian packaging industry (as on April 2010) grew around 15% year-onyear (Source: Indianpackagingshow.com). The paper board market size was about Rs. 120 billion in 2009; demand grew at a 3.4% CAGR from 3.7 million tons in 2004 to 4.4 million tons in 2009 (Source: CRISIL

Research), riding a growth in the pharmaceutical, cigarettes, textile, FMCG, consumer durable and retail segments. Changing lifestyles: With improving domestic living standards, demand for speciality paper (tissue paper, fine art paper, business card paper and greeting card paper) is expected to increase at around 8% CAGR. Demand and supply: Domestic paper demand grew steadily at a CAGR of 6.5% from6.8 million tons in 2003 to 9.3 million tons in 2009 (Source: CRISIL Research).With rising economic growth, share of the paperboard segment in total demand has increased. The paperboard segment accounts for around 47% of demand, while the writing and printing, newsprint and speciality paper segment accounts for nearly 30%, 20% and 3%respectively. It is expected that by 2014, paperboard demand will grow at a 7% CAGR due to a healthy growth in industrial production and recovery in the consumer goods sector. Demand for writing and printing paper is expected to grow 6.5% CAGR, driven by the governments thrust on education and overall economic growth.

Page | 40 Table 1.4 Estimated paper demand

Paper demand statistics Per capita consumption (Kg) Growth (%) in per capita consumption Indian population (mn) Growth (%) Total paper demand (mn MT) Growth (%)

2005 7

2006 7.3 4.20%

2007 7.8 6.80% 1,131 1.50% 8.8 7.80%

2008 8.3 6.40% 1,147 1.40% 9.5 8.10%

2009 9.18 10.60% 1,164 1.40% 10.2 8.10%

2010 9.4 3.20% 1,182 1.50% 10.2 8.10%

2011 10 6.30% 1,199 1.50% 12 8.10%

1,096

1,114 1.60%

7.7

8.1 5.80%

Source: Census 2001, National Sample Survey Organization, IPMA, Karvy estimates

Production

The Indian paper industry is fragmented; the top five producers accounting for around 20-22% of the total Indian paper capacity. In 2009, the annual operating capacity was 9.1 million tons and annual production was 7.4 million tons, and with currently undertaken expansions, another 15 lac tons is expected to be added by 2012 (Source: CRISIL Research).

Consumption As paper consumption is linked to economic development, India has emerged as one of the worlds fastest growing paper markets. Per capita consumption increased from 8.3 kg during 2008-09 to 9.18 kg in 2009-10, a growth of 10.6% (Source: Assocham),even though this is low compared with Japans 250 kg, Koreas 170 kg, Chinas 45 kg, world average per capita consumption of 56 kg and Asian average of 46kg.

Price Raw materials and power constitutes the major cost, accounting for around 55-60%of the total costs. The paper industry faces a demand-supply mismatch, resulting in price rise. The cost of pulp has been rising after the global slump, reaching an all time high of USD 974 per ton as on 2009 (Source: CMIE). Moreover, an earthquake in Chile recently disrupted pulp supplies of about three million tones, resulting in an increase in price of pulp globally.

Further, the US government withdrew a subsidy of USD 125-150 per ton for the treatment of black liquor (generated during pulp manufacturing), which is a harmful effluent and by-product of kraft paper manufacture. The withdrawal of the subsidy discouraged wood use for pulp manufacture, boosting the demand for its alternative waste paper.

Page | 41 As per CRISIL estimates, the domestic prices of paper are expected to increase over2010-11 and 201112. The manufacturers are increasing capacity significantly, adding about1.5 to 2 million tons between 2008 and 2012, most of which are in the writing and printing segment. Paperboard prices are likely to increase by 10-12%, owing to lower capacity additions and higher demand growth.

Table 1.5 Paper types and its applications

Paper type

Uses

Varieties

Demand drivers

Writing and printing paper

Writing, printing, stationery

Cream map litho,

wove,

Population growth, level of literacy, public and private spending on education, level of business activity, increasing presence of modern retail formats and growth in the printing industry

paperboard, copier and

coated paper

Paperboard

Industrial purpose

Kraft paper, recycled board and virgin board

Growth in the packaging industry, industrial production and development in packaging technology and substitution by other materials

Speciality paper

Tissue paper, fine art paper, paper for specialized industrial usages such as steel mill kraft, insulation grades, etc

Duplex, grey and white board and MG posters Glazed and standard paper

Consumption of this paper variety is linked to the standard of living as well as per capita income Growing economy, growing circulation and readership

Newsprint paper

Printing of newspapers and magazines

Page | 42

1.12 Major Players and Overall Products offered by the Paper Industry of India
Ballarpur Industries Limited (BILT) Hindustan Paper Corporation (HPC)

ITC Tamil Nadu News Print Limited (TNPL) JK Paper Khanna Paper Mills West Coast Paper Mills Rama Newsprint & Paper Mills Andhra Pradesh Paper Mills Orient Paper & Industries Star Paper Mills

Chart 1.7 Major Indian Players

Page | 43 Ballarpur Industries Limited (BILT)

The Ballarpur Group is the largest manufacturer of writing and printing paper in India. Of the Ballarpur Groups seven manufacturing facilities, six in India and one in Malaysia, three of the Indian facilities and the Malaysian facility will be operated by Bilt Paper PLC and the remaining three Indian facilities will be retained by the Ballarpur Group. Bilt Paper PLC is focused on the manufacture of bulk

coated and uncoated paper and viscous grade fiber while the rest of the Ballarpur Group will focus on the manufacture of copier paper, speciality paper and tissue paper and Retail and OSSB. In India, the company has six manufacturing units, giving it geographic coverage over most of the domestic market. The company has a dominant share of the high-end coated paper segment in India. It accounts for over 53% of the coated wood-free paper market, an impressive 80% of the bond paper market and nearly 35% of the hi-bright Maplitho market, besides being India's largest exporter of coated and uncoated paper. VISION "To Create Lasting Value" They strive to create lasting value for all their stakeholders through extraordinary efforts. With integrity, imagination and respect for individuals. Lasting to us means timeless - value that will endure, regardless of changes in their businesses, people, markets or geographies. By constantly setting and redefining the gold standard in every business they operate in, they will create enduring value for their employees, customers, partners, shareholders and society. Values 1. Integrity 2. Imagination and 3. Individual

Page | 44 PRODUCTS

Art Paper C1S Art Paper C2S Art Board C2S Black Centered Board

Creamwove Bonds Premium Copy Power Cartridge

LWC SBS Board Hi-Brights

Ledger Ivory Boards Posters

Page | 45 Hindustan Paper Corporation (HPC)

HPC at A Glance Paper is more than an industrial product. It is the cultural barometer of a nation. They need paper every day for widening the frontiers of our knowledge. Yet, the per capita annual consumption of paper at about 4 kgs in India is among the lowest in the world today. A Crusader for Literacy

HPC is an extended arm of the Union Government to intensify the movement for literacy through the growth of the paper industry. Today it is one of the largest manufacturers of paper and newsprint in South East Asia. Simultaneously, HPC has been playing a dominant role in the socio-economic development of the North-East region. Background The planned development of the paper industry in India began only in the post-independence period. The growth, however, slowed down in the sixties owing to the escalation of cost and the scarcity of forestbased raw materials. The stagnation led to frequent shortages of cultural varieties of paper, causing hardship to common consumers. There was also the national task of developing the industrially backward regions for balanced socio-economic growth. It was against this background that the Government of India set up the Hindustan Paper Corporation (HPC) on May 29, 1970. A Catalyst for Growth HPC was entrusted with the task of producing substantial volumes of cultural varieties of paper and newsprint to maintain stability of price in a volatile market. Besides, it was designed to be a catalyst for industrial growth in the North-East. It was also engaged in the task of developing indigenous expertise for setting up large newsprint and paper mills. HPC Mills HPC group has four paper mills, two of which are units and two are subsidiary companies. HPC is the holding company for Hindustan Newsprint Ltd. (HNL) and Nagaland Pulp & Paper Company Ltd. (NPPC). Nagaon Paper Mill (NPM) and Cachar Paper Mill (CPM) function directly under HPC s control and their performance is reflected in HPCs operating results. Over a period of three decades, HPC has built up a total capacity of about 3.35 lacs tonnes of paper and newsprint.

Page | 46 Table 1.6 HPC Products

Sr. No. 1 2 3 4

HPC Products Cream Wove Surface Sized Maplitho Computer Stationery Paper Computer Stationery Deluxe

GSM Range 45 90 58 120 52 80 58 80

Paper

5 6 7 8 9 10 11 12 13

Deluxe Maplitho Copier Paper White Offset Printing Newsprint Duplicating (Full Size) Duplicating (Cut Size) Colored Printing Offset Cartridge Telephone Directory Printing Paper

58 120 75 80 60 75 52 60 63 60 63 45 54 110 - 130 40

14 15 16 17

Typewriting Paper White Cover Caustic Flake Caustic Lye

40 45 110 130 Purity - 98% Concentration - 48 - 50%

Page | 47 ITC

Vision To be a valued player in the global Pulp, Paper and Paperboard business by Leadership in Quality Products, Processes, Service and People Continuous enhancement of Value for all stakeholders, and Conforming to larger sustainability values Products They are the largest manufacturers of Packaging and Graphic Boards in South Asia accompanied by a diverse range of Specialty Papers & Boards fulfilling a variety of needs. The bandwidth of products has increased continuously and moved up on the Value-Quality scale and today represents one of the preferred set of choices for any discerning global customer, seeking a more effective medium to present, pack and protect content or products in a world overloaded with messages.

Strongly market driven, the focus is on Value Addition, New Product Development, Quality Enhancement and Sustainability backed by a Marketing and Technical team with the capability to constantly enrich relationships and deliver ever increasing satisfaction levels. Packaging & Graphic Boards Coated Virgin Boards Coated Recycled Boards

Specialty Boards Poly Coated Cast Coated Graphic

Specialty Papers Cigarette Tissues and Components Fine Printing Packaging Dcor Niche Products Page | 48

1.13 Present Trade with Quantity and Amount of Paper Firms in India
A) Ballarpur Industries Limited (BILT)

Revenue: Rs. 4747.8 Crore Profit: Rs. 800.9 Crore Production: 886,230 MTPA Employees: 3,000 Approx. B) Hindustan Paper Corporation (HPC) Revenue: Rs. 1041.38 Crore Profit: Rs. 88.31 Crore Production: 282,712MTPA Employees: 2,000 Approx. C) ITC Revenue: Rs. 3,667 Crores Profit: Rs. 819 Crores Production: 558,884 MTPA Employees: 3,500 Approx.

Indias pulp and paper sector has been protected by government policy for more than three decades. Controls on production, distribution and prices impeded the growth of the industry substantially. During the paper shortage in the 1970s and further on in the 1980sthe government actively supported the venture into the paper sector in providing financial incentives to technocrats and entrepreneurs through financial institutions. To protect the rising small paper mill industry and ensure their existence along with larger, more economic paper mills the government gave a variety of excise concessions and reliefs. In 1974, the Government of India enforced paper manufacturers to produce white paper and supply it at a concessional rate to the educational sector and to the governmental departments. Fiscal levies accounted to as much as 35%-40% of the selling price adding to the already high-cost based prices of paper. The government additionally established high import duties on imported paper and paperboard to reduce import dependency. Export of paper was banned during the whole period.

The Government of India reacted on the lasting stagnation and financial problems of the sector in the 1980s in removing price and distribution controls on white printing paper in 1987. This allowed the paper industry to receive profitable returns on paper products and thus provided incentives to increase capacity utilization and establish new capacity. Also, the Government of India exempted paper units from excise duty, provided they used 75% of non-conventional raw materials for production. However, this exemption was abolished again in the 1990s. The concept of broad-banding has been extended to paper products since Page | 49 1985-86. This implies that firms now experience the freedom to manufacture any variety of paper within the overall limit of licensed capacity.

Environmental regulations have been set up following increasing environmental impacts in the line with rapid industrialization as well as greater awareness of environmental protection and ecological balances. The Environmental Protection Act was implemented and a Central Pollution Control Board established to set up discharge standards that should be enforced by State Pollution Boards. The standards have become more stringent over time. Since 1989 even small paper mills have to follow discharge standards in the form of minimal standards regulating liquid, air and solid waste discharges.

Government has completely relicensed the paper industry with effect from17th July, 1997. The entrepreneurs are now required to file an Industrial Entrepreneur Memorandum with the Secretariat for Industrial Assistance for setting up a new paper mill or substantial expansion of the existing mill in permissible locations. Foreign participation is permissible. Most of the paper mills are in existence for a long time and hence present technologies fall in a wide spectrum ranging from oldest to the most modern.

Capacity, Production and Raw material There are, at present, about 515 units engaged in the manufacture of paper and paperboards and newsprint in India. The country is almost self-sufficient in manufacture of most varieties of paper and paperboards. Import, however, is confined only to certain specialty papers. To meet part of its raw material needs the industry has to rely on imported wood pulp and wastepaper. At present about 60.8 per cent of the total production is based on non-wood raw material and 39.2 per cent based on wood. Performance of the industry has been constrained due to high cost of production caused by inadequate availability and high cost of raw materials, power cost and concentration of mills in one particular area. Several policy measures have been initiated in recent years to remove the bottlenecks of availability of raw materials and infrastructure development. To bridge the gap of short supply of raw materials, duty on pulp and waste paper and wood logs/chips have been reduced. The capacity utilization of the industry is low at 60%. About 194 paper mills, particularly small mills, are sick and /or lying closed. Several policy measures have been initiated in recent years. Cost structure Main costs for a paper manufacturer are raw materials, power and fuel, and chemicals. Transportation and employee costs also account for a substantial part of total cost. Over the last few years, most input costs, especially raw material costs, have been on the rise, due to higher demand and lower availability. Going Page | 50 forward, with further growth in demand, CRISIL Research expects input costs to increase in the medium term. Chart 1.7 Cost Structure

Raw material Forecast Domestic manufactures use three types of raw materials in the manufacture of paper- forest products (wood and bamboo), agri-residues (bagasse, straw, cotton, etc.) and wastepaper (recycled paper). In 200607, wood accounted for 30 percent of production, agri-residues for 32 percent and domestic waste paper for 17 percent. Imported wastepaper accounted for 15 percent of production and imported pulp for 6 percent. However, over the next 5 years, with production expected to increase at a CAGR of 6.7 percent, demand for raw materials is also expected to increase correspondingly. However, domestic supply will not be able to keep pace with demand, and this result in higher consumption of imported raw materials. As indicated by our research, imported raw materials will cater to around 27 percent of the domestic production by 2011-12. Raw Material (i) For Wood Based industry

Revision of forest policy so that plantation can be raised by industry/Cooperatives of farmers/State Government. De-graded forest land to be made available to the industry for raising plantations.

Page | 51 (ii) For Waste Paper based Industry Import of waste paper at minimum import duty. Introduction of eco labeling system where in products made from recycled fiber are rated higher than the products made from virgin fiber. Introduction of modern and effective collection and grading system. (iii) For Agro Based Industry

Funds to be made available for technology upgradation for handling and processing of agro residue fiber, in small & medium scale industries. Domestic paper industry The domestic paper industry is estimated at around 10 million tonnes yearly. Of this, the writing and paper segment accounts for 3.8 mt, the packaging grade paper segment is around 4.5 mt and the newsprint industry about 1.7 mt. The domestic yearly per capita consumption of paper is only 9.2 kg, much lower than many other developing economies. The figure in China and Indonesia is estimated at 42 kg and 23 kg, respectively. However, all segments of the industry are growing at eight to nine per cent or above. Forecast: Growth in Indian paper industry is expected to accelerate. CRISINFAC estimates the growth at 7.6% in the next 5 years. Branded copier, coated paper and duplex board segments will grow at a faster pace

Page | 52 Table 1.7 Demand Forecast

Page | 53

1.14 Barriers to Paper Industry in India

Enhancing Industrys competitiveness to face global competition Economies of scale De-fragmentation of industry

Modernization of mills Building new capacities Meeting incremental demand of paper Productivity/quality improvement Creation of robust raw material base Environmental upgradation and green technologies Setting mechanism for collection, sorting, grading and utilization of recyclable waste paper Despite the countrys positive growth potential, however, investment in India is fraught with considerable challenges. Inadequate investment in infrastructure, limitations on raw materials, lack of a coherent and updated manufacturing policy, antiquated labor policies, and lack of a broad power supply has created a situation where only about 60 percent of paper-making capacity is being used, with approximately 200 small mills currently underperforming (having incurred losses exceeding their net worth) or closed. Here are some of the key issues: 1. Raw Materials

Availability of raw materials is one of the biggest barriers to growth of the industry. India depends on wood, recycled paper, and residues from the agriculture industry for its pulp needs, and the supply of each is limited and problematic. 1.1 Wood Availability of wood is very low compared to the United States and Europe. The forest land in India is owned by the government and is not available for use as plantations by the pulp and paper industries. Fallings from the forest, mainly bamboo, hardwood, and eucalyptus, are provided to the industry for pulping. With declining forest lands, this source of much-needed fiber is declining at a rapid rate. Some in the paper industry have entered into particular partnerships with farmers to encourage planting trees. The paper companies provide the necessary financial backing and saplings for the farmer to plant trees and also guarantee a minimum price per tree once harvested. So far, this initiative, although very highly recognized and cheered on by many environmental and social groups, does very little to bridge the gap between supply and demand.

Page | 54 The Indian paper industry has proposed multiple scenarios in which degraded forest land around pulp mills is made available for plantations of pulpable species of trees. From all accounts, the idea appears to be a win-win scenario for all parties, increasing the amount of forests, generating rural employment, and providing much-needed relief to the industry. However, this proposal in various forms has been debated in government circles for over 15 years, with no resolution in sight in the immediate future.

1.2 Agro-based sources Agricultural residues such as bagasse, rice and wheat straws, and cotton stalks provide approximately 21 percent of the industrys fiber source, according to the Indian Paper Manufacturers Association (IPMA).Growth in agro residues has been encouraged by various fiscal policies of the government since the 1970s, but their use has many challenges, primarily due to their negative effect on paper quality and the investments in equipment required to combat pollution. In addition, India is not immune to the financially lucrative global phenomenon of using agriculture products as an alternative fuel source, thus limiting their availability for use in paper. 1.3 Wastepaper According to the IPMA, 44 percent of the industrys fiber needs are met by recycled fiber. An effective system and infrastructure for sorting, collecting, and grading of recycled paper does not exist in India. Most of the recycled paper is imported from the United States and other western countries. Increase in demand from China and reduction in consumption of paper in developed countries are pushing the prices of paper upward. Relaxation of import duty on wastepaper could be well received by the industry. 2. Infrastructure

Indias infrastructure has seen improvement, but still has a long way to go and pales in comparison to many developed countries. Improvements in roads, railways, and ports can benefit all industries, including pulp and paper. 3. Labor

India has a large available pool of unskilled and skilled labor and the advantage of very low labor costs. The outdated labor laws, however, (some predating Indias independence) may not be conducive to a sound operating environment. The Trade Union Act of 1926 provides for the recognition of the unions. The act allows any seven workers to register as a trade union, but has no provision for union recognition (e.g., through a secret ballot procedure). This has led to a multiplicity of unions, with outsiders not concerned about the company or its employees playing a prominent role. Regulation of labor management relations are in the purview of state governments, and it varies among states. Resolutions of disputes are known to take an inordinate amount of time, sometimes lasting into years. Page | 55 The Indian paper and paperboards industry has potential and also capabilities to service the growing demand in domestic and international market and also to create huge employment avenues in the rural-India through agro/production forestry and at mills, provided the competitiveness of the value chain is encouraged by the government. 4. Bagasse/ Straw

Though annual availability of agro residues is large yet, this may not be able to sustain the future growth of the Industry, taking due account of quality of paper required, environmental issues involved, etc. Moreover, bagasse is increasingly used by sugar mills for co-generation of power and no more easily available to the paper mills as raw material.

5.

Energy Cost

The Government of India has recently withdrawn core sector status hitherto enjoyed by the paper industry. Cost of coal is escalating and prospect of availability of quality coal is diminishing. The imported coal price had crossed USD 100/MT; such steep price rise had resulted in escalation of cost of production of those mills which happened to be dependent on imported coal for generation of steam/power. Also, power purchased from the grid is proving expensive for the industry.

Page | 56

1.15 Present Trade Policies in Terms Import-Export in Paper Industry of India

India imports about two million tonnes of pulp (soft wood and hardwood) and waste paper (sack waste for unbleached grades, envelopes waste, cup stock for white grades and magazine waste) for newsprint.

The following prime grades of paper are imported from USA, Europe, Dubai and Singapore: label stock, wet strength papers, tea bag tissue, soft tissue, filter paper, insulation kraft, extensible kraft, decorative

laminates, overlay tissue, thermal papers, digital papers, coated papers/boards and some specialties. Stock lots of all grades totaling about 200,000 tonnes arrive every year mostly from USA and Europe. Traders in major metro cities of Mumbai, Chennai, Cochin, Bangalore and Delhi import these.

India has surplus to export some grades. It exports following grades of papers to Middle East, South Eastern countries, Eastern Europe and USA: A4 copiers, wood-free (mostly from bamboo and agro waste by several small mills), MG varieties (from small agro based mills), coated duplex (mostly recycled fiber) and large quantity of converted products like stationery items, calendars, books, magazines, children s play books and comics.

Since 1992, the government has taken further measures to improve the situation of the paper sector. They include excise rebate to small units, abolition of customs duty on the import of paper grade pulp and wood chips, removal of statutory control over production, price and distribution of white printing paper and provision of infrastructural support by increased allocation of coal and wagons. While import duty on paper in 1991-92 was as high as 140% it has since gradually been reduced from 65% to 40% and further to 20% in May 1995. Yet, customs duty on inputs and intermediates has not been brought down on 11 a similar scale. (CMIE, 1996) Import of wood pulp for the production of newsprint and newsprint products are allowed on a more flexible scale. Moreover, obligations regarding licensing and excise duty have been alleviated. While the Monopolies and Restrictive Trade Practices Act (MRTP ACT) from 1991 abolished industrial licensing for almost all industries, the paper and newsprint industry except the bagasse based units has not been exempt yet. Reasons for continued licensing of these industries were given as: security and strategic concerns, social reasons, hazardous chemicals and environmental impacts.

Page | 57

1.16 Technological Advancement Taking Place into the Paper Industry of India
Fiber Line The Paper Industry in India has shown significant progress during the successive Five Year Plans. The growth of the Paper Industry gathered momentum during 1955-60. Bamboo was the major raw material for the pulp and paper industry. Earlier, natural forests provided are day available source, but within creasing anthropogenic pressures resulting in shrinkage and deforestation, this source has drastically dwindled over the years. The shift in raw material sourcing wastohard woods, agro-residues like bagasse, straw sand secondary fibers. Large sized mills, based on bamboo, wood and bagasse are producing pulp with

conventional kraft process and are well equipped with chemical recovery system while the small and medium size paper mills based on agro-residues are following soda process without chemical recovery.

Now these mills are increasing their capacity for putting up the chemical recovery systems. Stringent environmental legislations, increasing cost of energy, chemicals and other utilities and increasing demand of high brightness paper are forcing the paper industry to adopt improved pulp washing systems and modifications in bleaching practices. A part from this, the industry is also gearing up to grow its own raw material. The promotion of wood based industry carries the potential to make a vital contribution towards the creation of rural livelihood and the restoration of ecological balance.

Page | 58

1.17 Investment Pattern & Financial Dependency of the Paper Industry in India
Ballarpur Industries Limited Ballarpur Industries Limited (BILT) is Indias largest manufacturer of writing and printing (W&P) paper. BILTs subsidiaries include Ballarpur International Graphic Paper Holdings B.V. (BIGPH); BILT Graphic Paper Products Limited (BGPPL); Sabah Forest Industries (SFI), Malaysias largest pulp and paper company; and Bilt Tree Tech Limited (BTTL), which runs BILTs farm forestry programme in several states in India.

BILTs acquisition of SFI, Malaysia, in 2007 was a watershed event it was the first overseas acquisition by an Indian paper company, it transformed BILT into a major regional player, and elevated BILTs ranking among the global top 100.

ITC ITC- Paperboards and Specialty Papers Division (ITC-PSPD) is basically a umbrella company of ITC group. It has four manufacturing units in India. In 2003 ITC signed an agreement to acquire Bilt Industrial Paper Companys (BIPCO) paperboards business, located near Coimbatore, for a consideration of Rs 233 crore.

J.K. Paper Limited JKPM was commissioned in 1962 with an integrated pulp and paper plant with 18000 TPA installed capacity. Over the years, production capacity been enhanced with the addition of 4 more paper machines. It operates two integrated Pulp and Paper Mills in India: JK Paper Mills in Rayagada (Orissa), in eastern India and Central Pulp Mills in Songadh (Gujarat), in western India.

They took over the Centarl Pulp Mill in 1992. The Company has an export footprint for high value branded products and Packaging Boards in the Middle East, South East Asia, SAARC and various African countries.

Hindustan Paper Corporation The Government of India set up the Hindustan Paper Corporation (HPC) on May 29, 1970. HPC group has four paper mills, two of which are units and two are subsidiary companies. HPC is the holding company for Hindustan Newsprint Ltd. (HNL) and Nagaland Pulp & Paper Company Ltd. (NPPC). Nagaon Paper Mill (NPM) and Cachar Paper Mill (CPM) function directly under HPCs control and their performance is reflected in HPCs operating results.

Page | 59

1.18 Growth Drivers for Paper Industry in India

Economic growth Targeted growth of 12% for manufacturing sector Increasing literacy rate Increasing government spending on education Population growth Changing demographics Higher urbanization (2.5% growth)

Higher proportion of young adults Increasing living standards Demand for high quality magazines Lifestyle changes & media growth Increase in advertising and direct mailers Growth Pangs The increasing demand for paper brings with it new challenges of economies of scale, efficient usage of resources, need to develop and expand sustainable use of fiber, and value chain management, etc. Despite the fact that the Indian Paper Industry holds its importance to the national economy, unfortunately it stands fragmented.

Paper sector is dominated by small and medium size units; number of mills of capacity 50000 tons per annum or more is not more than 25. Less than half a dozen mills account for almost 90% production of newsprint in the country. There is a growing need to modernize the Indian mills, improve productivity and build new capacities.

Capital investments of the industry in the past few years The Indian paper industry is expected to attract Rs 10,000 crore investments in three to five years for setting up green field projects as well as capacity expansion of the existing plants

Among others, ITC is setting up one large paper mill. Seshasayee is also almost doubling its paper production from the present 120,000 tonnes per year to 250,000 tonnes in three years with an investment of Rs 350 crore. Sree Sakthi Paper Mills, the Kochi based paper mill company is investing Rs. 180 million to expand its production capacity to 85,000 tpa. The company which produces Kraft paper for packaging and duplex Page | 60 board has two production units one at Chalakkudy and another in Edyar in Kerala. It has invested high speed pressure formers to improve the quality of duplex board. The expansion programme was completed by end of April 2010.

Growth of the Industry in the Past Years Larger players may shift to use waste paper for raw material. Indian paper industry is struggling to get raw materials at effective price as there is no government policy to favor paper industry for forestation and also at importing pulp. Though quality of final product remained a concern till few years had been sorted out with advanced technology. Among the larger mills, TN Newsprint and Century Pulp and Paper already have recycled fiber. Internationally, recycled paper forms 30% of the component as raw materials.

Page | 61

1.19 Industry Comparison

India Per capita consumption 9.2 kg Total production 11 Million MTPA Total Turnover of the Industry Rs. 25,000 Crores

South Africa Per capita consumption 86 kg Total production 4.5 Million MTPA Total Turnover of the Industry R 2,600 Crores

Table 1.8 Comparison between Indian and South African paper Industry INDIA Major Players BILT, Hindustan Paper SOUTH AFRICA Mondi Group, Sappi Group, NAPMAC, MPact Corporation, ITC, TNPL, JK Industry. Products d firms Offere by Writing and printing paper, the Paperboard, Speciality paper, Newsprint paper Containerboard, Corrugated Kraft Packaging, Industrial Extrusion Coatings, Paper, Bags,

Release

Liner, Consumer Goods Packaging, Advanced Films &Components, Office Paper, Professional Printing Paper

Present Market Shares (%)

BILT 17%, Hindustan Paper Corporation 8% ITC 16%, TNPL 9% JK INDUSTRY 7%

Technological Advancement

Fiber line

A sectoral analysis of wood, paper and pulp, research and Development, Fiber quality

Investment Pattern

Self start and acquisition with domestic and foreign companies

Self start and acquisition with domestic and foreign companies

Page | 62

Barriers

Enhancing competitiveness

Industrys to face global of of

Water

licenses, Skills and transfer,

competition, Economies scale, De- fragmentation

development technology

industry, Modernization of mills Building new capacities, Meeting incremental demand of

Investment finance, Land tenure, Demand of raw material exceeds supply

paper, Productivity/quality improvement, Creation of robust raw material green for collection, base,

Environmental up gradation and technologies, Setting sorting, paper mechanism

grading and utilization of recyclable waste

Requirements of Resources

Fibers, wood, technological resources, Pulp

Fibers, wood, technological resources, Pulp

Page | 63

Chapter-2

Case Study of Companies

Page | 64

2.1 MONDI GROUP

Mondi is an international packaging and paper Group, with production operations across 30 countries and over 25,700 employees. Its key operations and interests are in central Europe, Russia and South Africa and emerging markets. HISTORY The roots of the global business that is now Mondi were first planted in 1967 in South Africa, when our former owners Anglo American plc built the Mere bank mill. Following more than two decades growth and consolidation in South Africa, we came to Europe in the early 1990s to start a long period of expansion through acquisition. We have bought businesses in countries including Austria, the UK, France, Russia, Slovakia, Poland, Hungary, Denmark, the Netherlands, Bulgaria and Italy, as well as operations in Mexico. During this time, many major companies often market leaders in their home nations became part of Mondi. These included Austrias Neusiedler AG and Frantschach AG, Cofinec in Poland, and Russias Syktyvkar mill, which is central to our future expansion plans into emerging opportunities in Asia and the Americas. We became an independent dual-listed business in mid-2007 when we successfully demerged from Anglo American with listings on the London and Johannesburg Stock Exchanges. From January 2008, in place of the former Mondi Packaging and Mondi Business Paper business units, we now began operating as two divisions: Europe & International and South Africa. VISION At Mondi, our vision is straightforward to create long-term value for our stakeholders by transforming renewable natural resources into innovative product solutions that meet customer needs in a responsible, cost-effective and sustainable way. Mondi aims to be the best-performing paper and packaging Group in the world and, as such, recognizes the need to integrate sound principles governing safety, business conduct, social, environmental and economic activities into business practices and decision-making.

STRATEGY Mondis strategic positioning demonstrates the required combination of focus and flexibility to deliver results across the business cycle as we: build on leading positions in packaging and UFP, particularly in high-growth emerging markets; Page | 65 maintain our low-cost, high-quality asset base by selectively investing in production capacity in lower-cost regions and realising benefits of upstream integration (including forestry).

Focus on performance through continuous productivity improvement and cost reduction, delivered through business excellence programmes and rigorous asset management.

Leading market positions Mondi continues to focus on achieving the right product and geographic mix in order to promote sustained profitability. The Group benefits from exposure to faster growing emerging markets such as Eastern Europe, Russia and South Africa, with 71% of the Groups net operating assets and 50% of revenue by destination based in these geographical areas. Our bias towards emerging markets is in line with our vision of focusing on low-cost, high-growth regions and on businesses offering leading market positions and operational synergies with existing businesses. While our strategy clearly focuses on emerging markets, Mondi continues to enjoy a uniquely strong market position in the Bags & Coatings business in both Eastern and Western Europe, where the coatings and consumer packaging segment enjoys very attractive growth rates and returns. We will therefore continue to support our market position in Bags & Coatings with our existing Western European assets.

High-quality, low-cost asset base Over the past 10 years, Mondi has invested more than 4.5 billion in its high-quality; low-cost asset base and our state-of-the-art operations are delivering superior returns across the cycle. Mondis UFP business is reaping the rewards of its integrated low-cost positioning, while the recently restructured corrugated business delivered strong results. The Bags & Coatings business enjoys good, and in many cases leading, market shares in its key markets. The Group has approved certain energy related investments across a number of its operations, including a bark boiler in Syktyvkar; a steam turbine in Stambolijski; a new recovery boiler in Frantschach; and a steam turbine in Richards Bay. The focus of these and other projects still under consideration is to improve energy efficiency and self-sufficiency whilst providing opportunities to capture additional benefits in the form of electricity sales.

Focus on performance Our relentless focus on cost containment ensured that the Groups fixed cost increases remain within inflation in the countries within which we operate. Ongoing initiatives are directed towards ensuring efficient procurement of our most critical raw materials and operational efficiency. The energy related projects mentioned above will also provide benefits through a reduction of procured energy.

Page | 66 Our working capital levels are well contained within the Groups target of 10-12% of turnover, benefiting from our ability to manage inventory actively amid changing market conditions.

STRUCTURE Mondi operates as two divisions: Europe & International and South Africa. Within this structure, Mondi pursues its strategy of leading market positions, low-cost, high-quality asset base, and commitment to continuous operational improvement.

Chart 2.1 Structure of Mondi Group

Europe & International Division Mondi's Europe & International Division comprises four business units: Packaging Paper, Fiber Packaging, Consumer Packaging and Uncoated Fine Paper.

Market positions No. 1 in office paper and UFP in Europe No. 2 in virgin containerboard in Europe No. 1 in recycled containerboard in emerging Europe No. 1 in corrugated packaging in emerging Europe No. 1 in kraft paper in Europe Page | 67 No. 1 in industrial bags in Europe No. 1 in commercial release liner in Europe Key products and operations

2.1 million hectares of forest in the Komi Republic in Russia, with an allowable cut of 5.1 million m3 of wood per annum UFP is produced at plants in Austria, Israel, Russia and Slovakia A network of four mills producing virgin and recycled containerboard and 15 corrugated packaging plants, mainly in Central and Eastern Europe Kraft paper converted into industrial and consumer bags, at six mills and 58 converting plants mainly in emerging and Western Europe Leading European producer of release liner, extrusion coating products and consumer bags

Containerboard

A wide-ranging portfolio of corrugated case materials (virgin and recycled containerboard) is produced for corrugated box applications. To meet the corrugated industrys increasing demand for excellent lightweight liners and flutings, Mondi has invested in the construction of one of the world s fastest containerboard machines (1,700 metres/minute) in Poland.

Kraftpaper Kraft papers within the Advantage range are widely used, from industrial applications (including building and chemicals) to consumer packaging (including food, pet food, medical and pharmaceuticals). A wide range of grades is offered, each catering to the specific requirements of different packaging concepts. Industrial bags: Mondi is the worlds largest producer of industrial bags and offers a wide variety, including ultra-strong and air-permeable bags with sophisticated closure techniques. These products are used to package, among other things, cement, chemicals, seeds, animal feed, flour and milk powder, as well as automotive parts and organic and bio-waste.

Corrugated Packaging Mondi is a leading supplier of all forms of corrugated packaging, including conventional boxes and trays, point-of-sale displays, shelf-ready packaging (SRP) and heavy-duty packaging. Radio frequency identification (RFID) enabled corrugated cases are an integral part of the Groups portfolio.

Page | 68 Industrial bags Mondi is the worlds largest producer of industrial bags and offers a wide variety, including ultra- strong and air-permeable bags with sophisticated closure techniques. These products are used to package, among other things, cement, chemicals, seeds, animal feed, flour and milk powder, as well as automotive parts and organic and bio-waste.

Extrusion Coatings

Mondi is an innovative supplier of plastic, paper-based and other barrier materials, providing technologies such as extrusion coating, laminating, silicon sing and printing. Due to its transatlantic

production, worldwide sales network and unique machine set-up, Mondi is able to serve its customers globally with extrusion coated products and service solutions.

Release Liner

Mondi is a leading global supplier of silicone-coated and speciality release liner, specifically designed for the pressure-sensitive adhesives industry. Given the broad range of adhesive applications and components available today, Mondi customises its release liner to address specific customers product requirements. The applications served include graphic arts, medical, hygiene, fiber composites, tapes, labels and others.

Consumer Packaging

The acquisition of 99.93% of the shares in Nordenia International AG in October 2012 further positioned Mondi as a global player in the consumer packaging business with a significantly extended product range, high-quality innovative products, and excellent service. Mondi advanced films and

components and consumer packaging are applied in a wide variety of areas, most prominently toiletries & hygiene, converting (for FMCG), food & beverages, pet care, garden products, household & detergents as well as industrial applications.

Advanced films & components

Mondi is a specialist for blown and cast film extrusion for the development and production of films and filmbased solutions for a variety of industries. Mondi is also a leading supplier for innovative diaper components comprising elastic laminates, elastic films and frontal tapes as well as for siliconised films Page | 69 for individual sanitary napkin packaging in the hygiene industry. Mondi is a trusted partner for the world s leading label stock producers, and supplies the packaging converting industry with the full range of laminating films (including barrier, peel, anti-fog as well as recloseable properties).

Uncoated Fine Paper

Mondi is a leading European, Russian and South African producer of UFP, used for a wide range of office and professional printing applications for inkjet and laser printing. Well-known brands include Color Copy, MAESTRO and IQ, as well as the Russian Snegurochka and South African ROTATRIM brands.

South Africa Division

Mondi was founded in South Africa in 1967 and the South Africa Division includes forestry, pulp, UFP and containerboard operations. Key products and operations 307,000 hectares of plantations in KwaZulu-Natal and Mpumalanga provinces Hard- and soft-wood pulp and virgin containerboard produced at the Richards Bay pulp and containerboard mill in KwaZulu-Natal UFP produced at the Mere bank paper mill in Durban, KwaZulu-Natal Market positions No. 1 in office paper in South Africa No. 2 in white top kraft liner in South Africa Joint Ventures Mondi also has major shareholdings in a number of other businesses in Europe and South Africa: Mondi Shanduka Newsprint (50% owned) is a leading supplier of newsprint and telephone directory paper in South Africa and selected export markets.

Page | 70 OPERATIONS Forestry & Pulp Wood Wood is Mondis most important raw material. It is therefore in our interest to ensure that we meet and support the requirements of sustainable forestry practices, from the management of our own forests right through to the procurement of our wood and fiber through the supply chain. Forestry

As a significant holder and manager of land, particularly in developing countries, and as an operator in an industry that potentially has a high impact on the natural environment, we recognize our stewardship role and responsibility in using natural forestry resources in a sustainable way.

Forests provide a range of goods and services. They serve as habitats for two-thirds of terrestrial animal and plant species; prevent soil erosion and water run-off; maintain the chemical balance of soil, air and water; recycle nutrients; break down pollutants; clean the air and water; are vital to watershed protection and soil formation; and play a major role in regulating climate.

The main factors contributing to deforestation and forest degradation are increased agriculture, illegal logging, population growth, poverty and urbanisation. Primary concerns include deforestation resulting from illegal logging in protected or high conservation value (HCV) areas, and timber obtained from controversial sources.

Although Mondi is involved in the felling of trees, we are not party to deforestation. For every tree felled in our plantation forests, at least one more tree is planted. In our natural forests, felled areas are left to regenerate naturally and poor regeneration is supplemented with plantings. Mondi is not involved in illegal logging, or logging in tropical rainforests, and has strict fiber sourcing controls. Pulp Wood is an essential raw material for all of our virgin fiber-based products. From wood fiber we produce pulp, the basic ingredient of all paper and paper-based packaging. We use pulp in our own production and also sell it wholesale to third parties. The pulp for paper-making may be produced from virgin fiber by either chemical or mechanical means, or it may be produced by the re- pulping of recovered paper. In the pulping process, the raw cellulose-bearing material is broken down into its individual fibers. In chemical pulping, chemicals are used to dissolve the lignin and free the fibers. Page | 71 Recovered paper has become an indispensable raw material for our business and, in 2011; we consumed 1.5 million tonnes of recovered fiber, amounting to 30% of our total pulp consumed.

The pulp and paper manufacturing process also requires a large amount of process water and energy (in the form of steam and electrical power), which makes it an energy- and natural resourceintensive one.

Production

Chart 2.2 Contribution to Group Revenue

Page | 72 Production Statistics Table 2.1 Production Statistics

Six months ended Six months ended Year Ended

30 June 2012
Europe &International Containerboard Tonnes Kraftpaper Tonnes Softwoodpulp Tonnes 1,042,937 489,279 992,772

30 June, 2011

31 December 2011

991,970 535,238 1,011,757

2,009,984 955,741 1,954,284

Internalconsumption

Tonn es External Tonn es

Corrugatedboardandboxes Industrialbags Coatingandreleaseliners Consumerpackaging Uncoatedfinepaper

Mm Munits Mm Mm

Tonnes Newsprint Tonnes Hardwoodpulp Tonnes

Internalconsumption Tonn es External Tonn es

South AfricaDivision Containerboard Tonnes Uncoatedfinepaper Tonnes Hardwoodpulp Tonnes

Internalconsumption Tonn es External Tonn es 907,194 85,578 934,588 77,169 1,799,577 154,707

606 2,005 1,758 376

609 2,050 1,797 373

1,213 3,958 3,357 702

715,575 98,936 527,310

712,886 97,931 527,889

1,400,991 199,337 1,033,226

483,642 43,668

496,518 31,371

975,121 58,105

132,251 129,337 330,963 169,584 161,379

126,516 114,686 282,284 153,402 128,882

257,680 233,837 637,205 316,388 320,817

51,859 68,632

58,646 101,454

115,606 206,150

96,509 58,770

95,955 61,548

188,536 124,914

Europe & International Uncoated Fine Paper UFP: 1.4 million tonnes Newsprint: 199,000 tonnes Pulp: 1.1 million tonnes UFP: 22% Corrugated

Containerboard: 2.01 million tonnes Corrugated board and boxes: 1.2 million m2 Pulp from virgin fibre: 792,000 tonnes Corrugated: 19% Bags & Coatings Page | 73 Kraft paper: 956,000 tonnes Industrial bags: 3.9 billion units Pulp: 1.03 million tonnes Coatings and release liner: 3.4 million m2

Bags & Coatings: 35% South Africa Division UFP: 234,000 tonnes Containerboard: 258,000 tonnes Pulp: 753,000 tonnes Woodchips: 206,000 bone-dry tonnes South Africa Division: 6% Newsprint Newsprint: 313,000 tonnes Newsprint: 8%

MONDI AT A GLANCE 25,700 employees 102 operating sites located in 30 countries 2.4 million hectares of land managed Operate out of two geographical divisions: 1. Europe & International 2. South Africa Corporate offices in South Africa and the UK CEO: David Hathorn Joint chairmen: David Williams and Cyril Ramaphosa Listed in Johannesburg and London

Page | 74 Countries where Mondi operates Table 2.2 Mondis operating countries International Africa Europe including Russia

1 2 3 4 5 6 7

Jordan Lebanon Thailand Malaysia Mexico Oman USA

8 9

Morocco South Africa

10 11 12 13 14 15 16 17 18 19

Austria Belgium Bulgaria Czech Republic Finland France Germany Greece Hungary Italy

20 The Netherlands 21 Poland 22 Russia 23 Serbia 24 Slovakia 25 Spain 26 Sweden 27 Turkey 28 UK 29 Ukraine

Mondis operational footprint at 31 December 2011 traverses the globe, with 82 unique operating sites located in 28 countries employing a total of 23,400 people. Mondi has a skilled, trained and committed workforce who undertakes their jobs in a safe and productive manner within the dynamic Mondi culture. Leading market positions Europe & International Division: No. 1 in office paper and UFP in Europe No. 2 in virgin containerboard in Europe No. 1 in recycled containerboard in emerging Europe No. 1 in commercial release liner in Europe No. 1 in corrugated packaging in emerging Europe No. 1 in kraft paper in Europe No. 1 in industrial bags in Europe No. 1 in commercial release liner in Europe South Africa Division: No. 1 in office paper in South Africa No. 2 in white top kraft liner in South Africa

Page | 75 PRODUCT RANGE

1. Containerboard Appearance Kraft Semi Chem Recycled

2. Kraft Paper Sack Kraft Paper Market Pulp Specialty Kraft Paper

3. Corrugated Packaging Eco Line Easy Line Smart Line Packaging Types Applications Technologies

4. Industrial Bags Pasted Open Mouth Bags Pasted Valve Bags Pinch Bottom Bags Refuse Bag Protector Bags Terra Bag FIBCs / Big Bags Features Filling Equipment Industrial Bags production video Eurosac presents Russell the Spruce

5. Extrusion Coatings Technical Coatings Page | 76 Consumer Coatings 6. Release Liner Building / Roofing

Envelopes Fiber Composites Graphic Arts Hygiene Labels Medical Tapes

7. Consumer Goods Packaging Stand Up Pouches Reclosable Bags (FlexZiBox) Non-Reclosable Bags Paper-based Bags Microwaveable Packaging Labels Special Product Features Printed Laminates & Barrier Materials Rollstock Printed Mono Film Rollstock Biodegradable Films - Sustainex

8. Advanced Films & Components Diaper components Femcare components Label film Laminating film Tube Laminating Films Surface protection films (temporary) Surface protection films (permanent) Transport and pallet protection Industrial films for form-fill-seal (FFS) applications

9. Office Paper Multifunctional papers Page | 77 Colour laser papers Creative Papers ColorLok Green Range

10. Professional Printing Paper Digital printing Pre-print Offset printing Green Range

Served Industry Automotive Building & Construction Chemicals & Dangerous Goods Farming & Agriculture Food Industrial Paper & Packaging Medical & Pharmaceutical Office & Printing Paper Pet Food Photographic & Graphic Toiletries & Hygiene

FINANCIAL DATA AND PERFORMANCE

Operational and Financial Highlights (Half Yearly Report-2012)

Good operating performance after a challenging start to the year Return on capital employed of 13.3%, in excess of the Groups through-the-cycle target of 13% Interim dividend of 8.9 euro cents per share, up 8% Strong cash generation of 353 million Significant strategic acquisitions: 1. Swiecie minorities acquired for 296 million 2. 655 million acquisition of Nordenia agreed

Page | 78 Key Figures (Half Yearly Report-2012)

Group revenue Total assets Underlying operating profit

2,840mn 5,740mn 269m

Return on capital employed Basic earnings per share Interim dividend

13.3% 31.7 cents 8.9 cents

Financial Summary

Table 2.3 Financial Summary

Six months ended

Six months ended

Six months ended 31

EUR million, except for percentages and per 30 June December share measures 2012 2011 2011 30 June

From continuing operations Group revenue Underlying EBITDA1 Underlying operating profit1 Underlying profit before tax1 Profit before tax 2,840 436 269 217 223 2,942 526 354 296 300 2,797 438 268 216 157

Per share measures (EUR Basic underlying earnings per share cents) (EUR Basic earnings per share alternative measure2 cents) 30.9 38.2 29.9

Basic earnings per share from continuing operations Basic earnings per share

(EUR cents) (EUR

30.9

41.7

30.1

31.7 31.7

39.0 41.6

18.5 24.5 Page | 79

Group Return on Capital Employed (ROCE4) 15.2% 15.0%

Notes: The Group presents underlying EBITDA, operating profit and profit before tax as measures which exclude special items in order to provide a more effective comparison of the underlying financial performance between reporting periods.
2.

1.

The directors have elected to present an alternative, non-IFRS measure of earnings per share from continuing operations. As more fully set out in note 11 of the half-yearly financial statements, the effects of the recapitalization and the demerger of Mpact (formerly Mondi Packaging South Africa) and the Mondi Limited share consolidation have been adjusted in the 2011 comparative earnings per share figures to reflect the position as if the transaction had been completed on 1 January 2011. This

is intended to enable a more useful comparison of earnings per share from continuing operations, based on the consolidated number of shares.
3.

Free cash flow per share is net increase in cash and cash equivalents before the effects of acquisitions and disposals of businesses and changes in net debt and dividends paid divided by the net number of shares in issue at the end of the reporting period.

4.

ROCE is the 12 month rolling average underlying operating profit expressed as a percentage of the average rolling 12 month capital employed, adjusted for impairments and spend on strategic projects which are not yet in operation.

Page | 80

2.2 Ballarpur Industries Limited

OVERVIEW AND HISTORY Ballarpur Industries Limited (BILT) is Indias largest manufacturer of writing and printing (W&P) paper. BILTs subsidiaries include Ballarpur International Graphic Paper Holdings B.V. (BIGPH); BILT Graphic Paper Products Limited (BGPPL); Sabah Forest Industries (SFI), Malaysia s largest pulp and paper company; and BILT Tree Tech Limited (BTTL), which runs BILTs farm forestry programme in several states in India. Mr. R.R. Vederah is the Managing Director and Executive Vice Chairman. In India, the company has six manufacturing units, giving it geographic coverage over most of the domestic market. The company has a dominant share of the high-end coated paper segment in India. It accounts for over 53% of the coated wood-free paper market, an impressive 80% of the bond paper market and nearly 35% of the hi-bright Maplitho market, besides being India's largest exporter of coated and uncoated paper. Building on its unmatched paper quality, BILT ventured into the paper-based office stationery segment. The company markets its stationery through a well-established network of 350 retail distributors

spread over 270 locations. BILT has mega brands such as BILT Royal Executive Bond, BILT Copy Power, BILT Image Copier and BILT Matrix that have now become an integral part of office stationery. BILT Ten on Ten notebooks are targeted at students and are also available with licensed characters such as Barbie, Spiderman, Winnie the Pooh, Hotwheels, Jungle King and Hannah Montana. BILT Student Stationery has

won Product of the Year award for the last three consecutive years. In 2008, BILT forayed into organized retail through P3 Paper, Print and Pens serving both B2C and B2B clients across India. In 2005, BILT entered into the tissue and hygiene business with two brands: Etiquette and Spruce- up. Since then, the company has acquired Premier Tissues India Limited, the leading player in hygiene tissue products in the domestic retail market. BILTs acquisition of SFI, Malaysia, in 2007 was a watershed event it was the first overseas acquisition by an Indian paper company, it transformed BILT into a major regional player, and elevated BILTs ranking among the global top 100.

Page | 81 VISION "To Create Lasting Value" They strive to create lasting value for all their stakeholders through extraordinary efforts. With integrity, imagination and respect for individuals. Lasting to us means timeless - value that will endure, regardless of changes in their businesses, people, markets or geographies. By constantly setting and redefining the gold standard in every business they operate in, they will create enduring value for their employees, customers, partners, shareholders and society. For their employees - value in the form of professional growth, through an enabling work environment, knowledge sharing, implementation of best practices and growth in their personal life. For their customers - value through quality products and services, understanding of their needs and proactively providing solutions, and contributing to their business growth. For their partners - value through building mutually beneficial long term relationships, knowledge sharing and support, and helping them optimize their business potential. For their shareholders - value through a high return on investment, a profitable and sustainable growth platform, and developing the spirit of enterprise. For society - value by focusing on the development needs of the communities they engage with, adopting responsible business practices, and making a sustained effort to preserve the environment.

Page | 82 VALUES

INTEGRITY. IMAGINATION. INDIVIDUAL INTEGRITY - in both personal and professional relationships Following ethical business practices Honoring their commitments to all stakeholders Being open and sincere in all their dealings Being accountable and taking ownership Providing genuine value through their products and services

IMAGINATION - that drives their actions Constantly searching for "the new" in all spheres (be it products, processes, markets, geographies) Encouraging and implementing original ideas and "out-of-the-box" thinking Being agile and responsive to change Leveraging knowledge and technology to drive innovation

INDIVIDUAL - a commitment to valuing people Respect for individuals and recognizing their contribution Being fair, offering equal opportunity Encouraging openness and freedom of expression Ensuring prompt response to issues and concerns Empowering and stimulating employees to realize their potential

FINANCIAL HIGHLIGHTS Paper Production Paper production is decreased by 0.7 per cent from 846,230 MTPA in 2010-11 to 840,429 MTPA in 2011-12.

Debt Equity Ratio It is decreased from 1.1 in 2010-11 to 0.9 in 2011-12.

Page | 83 Chart 2.3 Paper Production and Net Sales

Net Sales Net Sales is increased by 5.6 per cent from Rs. 4498.1 crore in 2010-11 to Rs. 4747.8 crore in 2011-12. PBDIT PBDIT is decreased by 8.5 per cent from Rs. 875.5 crore in 2010-11 to Rs. 800.9 crore in 2011-12.

Chart 2.4 Debt Equity Ratios and PBDIT

Page | 84 Profit And Loss

Table 2.4 Profit and Loss Statement of BILT

Page | 85 PAPER BUSINESS INDIA

Market Developments BILT caters primarily to the writing and printing paper segment. It also has a presence in speciality paper and the tissue business.

At the global level, demand for writing and printing paper de-grew by 1.6 per centin CY2011 versus CY2010. For the first six months of CY2012, demand was also down by 1.8 per cent compared to the same period of the previous calendar year. There are, however, significant differences in this overall growth across the regions. In the first six months of CY2012, North America and Europe registered declining demand of -7.2 per cent and 5.3 per cent, respectively. In contrast, Japan showed

growth of 1.5 per cent. And the Asian economies, including India and China, grew by 2.4 per cent.

BILT, with its core market in India and Malaysia through SFI, is better positioned in growing markets. Nevertheless, it will have to continuously deal with various challenges emerging from contraction of the global pieas a whole.

Coated Wood-Free Consumption of coated wood-free in India increased by 23 per cent to 567,000 MTPA in FY2012, with BILT continuing to maintain and develop its leadership position in the country. The category includes blade coated, air knife and cast coated products. While the high technology blade coated products grew by 18 per cent, air knife grew by a staggering183 per cent. The spurt in air knife demand was due to a specific change in packaging regulation by government, which prompted above away from plastic laminated packaging to

paper laminated packaging. BILT developed a special product especially aimed at this application and sold close to 43,500MT in FY2012.

At one level, the coated market can be segregated into one-side coated (C1S) and both-sides coated (C2S). At another level, its divided between paper products and board products. Within blade coated products, the C2S paper market grew by 8 per cent to282, 150 MTPA and the C2S board market grew by 12 per cent to 104,000 MTPA inFY2012.

Uncoated Wood-Free During FY2012, the Indian uncoated market comprising the Low Bright and Hi Bright segments grew by 4 per cent to 1,130,000MTPA. The market for uncoated wood-free in India is highly fragmented with a multitude of products and manufacturers. The segments largely restricted to domestic players and price trends are set by domestic competition. Page | 86 BILT continues to offer a wide range of products in the uncoated wood-free segment and remains the largest player in this space. While maintaining a commanding presence in each product category, it has laid greater importance on optimizing its product mix for greater profitability. With this objective, the Company has been focusing on the higher value Hi Bright segment. Hi Bright, which accounts for around 61 per cent of the uncoated map litho segment, grew by 8 per cent in FY2012, and BILT maintained its leadership position in the category.

Copier Copier is a forward integration of the uncoated wood-free paper segment. This includes map litho paper cut in sizes and having the characteristics best suited for desktop printing and copying. This is a fast growing segment. The mill packed copier market in India grew by 12 per cent during FY2012 to 501,000 MTPA. The segment is characterized by intense competition with participation of all major players in the Indian paper industry. There are almost 40 brands at various price points. BILT has four major brands in the market Copy Power, Image Copier, Ten on Ten and BILT Matrix and has maintained its second spot in this highly competitive market. Moreover, with steady ramping up of production, the Company is well positioned to claim market leadership in this segment.

Cream wove This is a high volume, low value product segment. In volume terms, it is by far the largest segment in India. It is characterized by several producers, each with sub-optimal capacities, and a highly price sensitive market. This market is growing at around1 per cent, and is estimated at 1.6 million MTPA in 2011-12. BILT has strategically maintained a minimal presence in this segment.

Tissue and Hygiene

The business operations at BILTs tissue division were fully migrated to Premier Tissues (India) Limited. During FY2012, various initiatives were undertaken at Premier Tissues that yielded results in terms of better revenues and profits. Consolidated domestic sales grew by 22 per cent overFY2011, which was significantly higher than the market growth. Operating profit of the consolidated business in FY2012 was about ten times that of FY2011. This was achieved through multiple interventions including price correction, improvements in the product mix and operational efficiency, and fixed cost reduction.

Page | 87 PRODUCTS

1. Coated wood free -Art Paper C1S -Art Paper C2S -Art Board C2S -Black Centered Board -LWC -SBS Board

2. Uncoated Wood free -Hi-Brights -Creamwove

3. Business Stationery -Bonds

4. Copy Paper -Premium Copy Power

5. Speciality and Fine -Cartridge -Ledger

6. Industrial Grades -Ivory Boards -Posters

OPERATIONS As a consolidated entity, BILTs paper manufacturing operation spans across five production units in India. These include Ballarpur (Maharashtra), Bhigwan(Maharashtra), Shree Gopal (Haryana),Sewa (Odisha) and Ashti (Maharashtra).

Page | 88 PAPER MAKING PROCESS

RAW MATERIAL Chart 2.5 Paper Making Process

Soft Wood - Like spruce & pine which have a long fibre; one ideal raw material for paper making. Hard Wood - Short Fiber. Difficult in barking and chipping. Eucalyptus, Acacia, Albizzia & Wattle trees are more suitable hard wood trees for paper making and have a very high rate of growth Grasses - Several types of long grasses like bamboo, sabai grass, sarkanda etc. are used for making paper. Straws - In India, rice, wheat straw, bagasse and corn straw are used for paper pulp making. Straw has been reported as suitable for paper making. Cotton Linters - It is a seed hair from cotton plant after extracting cotton. Only a small proportion of raw cotton in form of short fibre linters comes directly to paper mills Cotton Rags - This gives more strength in paper or paper board Linen - Linen fiber is derived from the bast tissue of the stem of the flax plant, cultivated extensively in USA, Russia, Hungary, France, Belgium & Ireland

Hemp - It comes to paper maker in the form of spinning waste, twine, cordage, ropes etc. Hemp is the bast tissue of an annual shrub found extensively in India, Russia & America. Manila - This Fiber occurs in the leaves of a plant of the plantain family that grows in the Philippines Islands Sisal Hamp - The fibre comes from the leaves of the plant Agave Sisalana and is used for making rope & twine. Waste Paper - The demand of waste paper for manufacturing of paper is increasing every day. Utilization of this would reduce load on demand of fresh fibers. About 80% of the waste paper is used in the manufacture of paper boards. Small scale units depend almost entirely on waste paper as raw Page | 89 material. In India the use of recycled fiber is only 20 percent compared to 40 percent in developed countries.

CHIPPING Bamboo or Wood as such cannot be used for pulping. For economical operation of pulping plant as well as for better penetration of cooking liquor, wood logs/bamboo are to be chipped into small pieces (some wood species cannot be chipped directly and needs debarking). The process is called chipping and the equipment used for chipping are called chippers. There are various designs of chippers.

During chipping, chips are generated in various sizes. For better operation of the process, only chips of size 5-35 mm are taken. Chips of size less than 5 mm (dust and pin chips are taken to Boiler House for burning as fuel for generating steam). Chips of size more than 35 mm are taken into rechippers and again chipped to an acceptable size.

PULPING Pulp is obtained by removing lignin and other impurities from the wood & other raw materials through a cooking process (Lignin is the glue that holds the fibers of the wood in their form). The cooking process requires wood, bamboo or other raw material chips. The chips are loaded into a digester and cooking liquor is added. Then by pressure cooking, the wood, bamboo or other raw material fibers are separated from unwanted ingredients. Either batch digester or continuous digesters are used in cooking.

The chips and liquor are mixed as the chips are pumped to the top of the digester. The top section of the digester is pressurized to 160 psi and more. As the chip mass passes downward, the cooking liquor penetrates the chip. After about 45 minutes or more as per raw material the chips have to be passed through the impregnation zone where hot liquor (340 degree F) is circulated through the chips for heating. The actual pulping occurs at 355 degree F in about 90 minutes, a period known as the cooking period. After passing through the cooking zone, the chips (which have not become pulp) are washed with weak liquor through washing stages that follow. Within the chemical process there are two types -

1. Sulphate Process "(Alkaline process)" 2. Sulphite Process "(Acid process)" Some hard woods may be dissolved with difficulty by the sulphite process. On the other hand, by the sulphate process most of the chemicals are recovered and reused.

Page | 90 BLEACHING Although cellulose fiber is white in color, due to residual lignin traces remaining on the fibers, the pulp appears creamish. Therefore, to manufacture white paper they need to remove yellowness without physically or chemically damaging the fiber, with improvement in various properties. So the main objectives of bleaching the pulp can be set out as follows. To increase brightness of the pulp by removal or modification of some of the unwanted elements in the unbleached pulp. These deleterious elements are lignin traces, resins, metal ions, non- cellulosic carbohydrates etc. Bleaching for brightness improvement should also help to keep the pulp stable without turning yellow or lose strength or reduce brilliance - due to aging. To lower viscosity of the pulp for optimum flow, during subsequent operations. Bleaching also should help to reduce the fiber bundles, shives and bark fragments. Bleaching should be done with minimum mechanical action of fibers, while dissolving lignin and other unwanted residuals. Bleaching Pulp is normally done in a step-wise sequence using different chemicals and process conditions at each stage, with washing in between stages.

ADDITIVES Additives are added to paper pulp. Addition of fillers like talcum & calcium carbonate is very common & besides acting as fillers they add brightness to the paper. These additives must be finely ground. Additives like dyes & starch are also added. Other fillers are Titanium Dioxide, Barium Sulphate & Zinc Sulphide. REMOVING WATER Removing water is the next important stage. For this the pulp is passed through a rapidly moving wire mesh called fourdriner. The objective is to remove 93% to 95% of the water in the finished paper.

As the paper flows along the wire mesh and water is drained along the way, a dandy roller near the end helps to smooth out the paper. The dandy roller improves the formation of the paper web by application of pressure. When the paper reaches the end of the wire mesh it is transferred to a felt blanket which conveys it through many steam heated driers to remove the excess moisture. In the process the paper gets some glaze like coating also. Then it is made to pass through a series of calender stacks. The calendars are series of

polished iron rollers stacked one on top of the other, through which the finished paper will pass to smoothen down. The next step is rewinding on a metal or fiber core. The last stages after this are sheeting, packing & testing. Page | 91 PAPER Finally the Paper is produced.

Applications Small decisions can make big differences. Smart choices create big successes.

The right paper you buy redefines your image and expenditure. In all print jobs more than 60% of the costs are incurred on paper alone. That is where getting the right paper, from the right source and at a right price could make a big difference in terms of quality and costs. So, take an informed decision - choose the right paper to suit your needs.

Applications Accounts Cards Corporate publication Drawing sheets Industrial Publicity material Books Certificates Covers Examination material Magazines Stationery Calendars Corrugated boxes Desktop printing important documents Packaging Tickets

NEW AT BILT

BILT launches a mega, country-wide campaign for its Royal Executive Bond papers

BILT Royal Executive Bond, a range of premium, watermarked business stationery paper has commanded a leadership position in the market since its inception in the year 1999. Today Royal Executive Bond is available in a range of exquisite colors Camelle (off white), Aquas (blue), Moonbeam (white), Coral pink & Meadow green in varied grammages (70,85 & 100gsm) and an array of consumer friendly sizes (B5, A4, FS, A3). Also on offer are envelopes in matching colors to complete your communication needs.

A print media campaign has been developed to create awareness for Royal Executive Bond and showcase the wide range of products available under the same.

The print campaign starts on 12th July and ends in September. Press ads shall feature in leading News & Business dailies, General Interest & Business magazine and trade magazines. Page | 92

2.3 Company Comparison

Ballarpur Industries Limited (BILT) Revenue: Rs. 4747.8 Crore Profit: Rs. 800.9 Crore Production: 886,230 MTPA Mondi Group Revenue: 5,739 million EUR Profit: 357 million EUR Production: 5 million MTPA Table 2.5 Company Comparison

Ballarpur Industries Limited (BILT)

Location Business Market India India, Malaysia

Mondi Group

South Africa Europe, Russia, South Africa and emerging markets ( approx. across 30 countries)

Buying business in other

Malaysia

Austria, UK, France, Russia, Slovakia, Poland, Hungary, Denmark,

countries Subsidiaries
Ballarpur International

Netherlands, Bulgaria, Italy, and Mexico

Austrias Neusiedler AG and

Graphic Paper Holdings B.V. BILT Graphic Paper

Frantschach AG

Cofinec in Poland Russias Syktyvkar mill Products Limited And in many more countries Sabah Forest Industries Malaysias largest pulp and

paper company BILT Tree Tech Limited

Page | 93 Divisions For Indian country only Europe & International and South Africa (two divisions separately) Strategical views
Integrity Leading market positions

Imagination

High-quality, low-cost asset base

Individual

Focus on performance

Key Products

1. Coated woodfree Art Paper C1S Art Paper C2S Art Board C1S Black Centered Board

1. Containerboard Appearance Kraft Semi Chem Recycled

LWC SBS Board

2. Kraft Paper
2. Uncoated Woodfree

Sack Kraft Paper Market Pulp Specialty Kraft Paper

Hi-Brights

Creamwove

3. Corrugated Packaging
3. Business Stationery

Bonds

Eco Line Easy Line Smart Line Packaging Types Applications Technologies

4. Copy paper

Premium Copy Power

5. Speciality and Fine Cartridge

4. Industrial Bags Pasted Open Mouth Bags

Ledger

Pasted Valve Bags Pinch Bottom Bags Refuse Bag Protector Bags Terra Bag FIBCs / Big Bags Features Filling Equipment Industrial Bags production video Eurosac presents Russell

6. Industrial Grades Ivory Boards

Posters

Page | 94 Key Products (Cntd.) the Spruce

5. Extrusion Coatings Technical Coatings

Consumer Coatings

6. Release Liner Building / Roofing Envelopes Fiber Composites Graphic Arts Hygiene Labels Medical Tapes

7. Consumer Goods Packaging Stand Up Pouches Reclosable Bags (FlexZiBox) Non-Enclosable Bags Paper-based Bags Microwaveable Packaging Labels Special Product Features Printed Laminates & Barrier Materials Rollstock Printed Mono Film Rollstock Biodegradable Films - Sustainex

8. Advanced Films & Components Diaper components Femcare components Label film Page | 95

Laminating film Tube Laminating Films Surface protection films (temporary)

Key Products (Cntd.)

Surface protection films (permanent)

Transport and pallet protection Industrial films for form- fill-seal (FFS) applications

9. Office Paper Multifunctional papers Colour laser papers Creative Papers ColorLok Green Range

10. Professional Printing Paper Digital printing Pre-print Offset printing

Green Range

Market Positions

53% of the coated wood-free paper market

No. 1 in office paper and UFP in Europe

An impressive 80% of the bond paper market

No. 1 in corrugated packaging in emerging Europe

No. 1 in kraft paper in Europe 35% of the hi-bright No. 1 in industrial bags in Maplitho market Europe

No. 1 in office paper in South Africa

No. 2 in white top kraft liner in South Africa

Page | 96

Chapter-3

Findings

Page | 97

3.1 Overall Findings from South African and Indian Paper Industry
South African Paper Industry The pulp and paper manufacturing industry is a key contributor to the South African economy. Since 1970, its annual growth rate has outdone the international average, contributing R35, 26 million annually to South Africas economy. Much of this is invested in local resources, local innovation and local people power. In 2009, the forest and forest product sectors value-add was R23 billion, equating to 1.4% of South Africas gross domestic product (GDP). A total of 207,967 people are employed in the sectors value chain. The overall industry turnover is reached to R 26,000 million in 2011. Per capita consumption is 86 kg per year and total production is 4.5 million MTPA per annum. Major grades offered by the industry are for printing, writing, newspaper, packaging, tissue papers, etc. Major players of the industry are Mondi, Sappi, Mpact, Nampak, South African Paper Mills, etc. But Mondi and Sappi have major of the industry stack. Major products offered by the industry are containerboard, Kraft paper, corrugated packaging, industrial bags, extrusion coatings, release liner, consumer goods packaging, advanced films &components, office paper, professional printing paper, etc. Imports have continued to increase fairly strongly at around 3.5% per annum since 2006. Packaging and Tissue papers import is increasing. It shows that there is significant growth in consumption of packaging and tissue paper. Pulp exports are growing strongly, with most other grades decline as exports. Indian paper Industry The Rs. 25,000-crore Indian paper industry accounts for about 1.6% of the worlds paper and paperboard production even though the country accounts for nearly 16% of the global population.

11 million MT of paper production is done in each year. Growth rate is of about 8.4% annually. Paperboard accounts for nearly 47.3% of the total market size, followed by writing and printing paper (29.6%), newsprint (19.5%) and speciality paper (3.6%). Per capita consumption is 9.2 kg. Major players in the industry are BILT, ITC, HPC, TNPL, etc. Writing and printing paper, paperboard, speciality paper, newsprint paper are the major products offered by the industry. Page | 98 Enhancing industrys competitiveness to face global competition, economies of scale, defragmentation of industry, modernization of mills, building new capacities, meeting incremental demand of paper, productivity/quality improvement, creation of robust raw material base, environmental up gradation and green technologies, setting mechanism for collection, sorting,

grading and utilization of recyclable waste paper are the main barriers to the industry. Indias per capita consumption of paper has almost doubled in the last decade and this growth is expected to continue. Moreover, India is the 15th largest paper consumer in the world, which amounted to some 11.49 million metric tonnes per annum (MTPA) in FY2012. It is also one of the fastest growing markets in the world, with estimates suggesting a market size increase to 20 million MTPA by 2020.

3.2 Identification of the Opportunity to Get Supplies from the Foreign Market for Indian Company to Get Cost Advantages
Major issues confronting India's pulp and paper industry are high cost of production caused by inadequate availability and high cost of raw materials. Energy cost has increased on account of inadequate availability of coal thereby increasing imports. No availability of good-quality fiber, uneconomical plant size, technologic obsolescence and environmental compliances are a big challenge. While issues related to technology, capacity and environment come directly under the purview of companies; raw material shortage is a disadvantage affecting all. Paper mills in India have tremendous opportunity to improve their profit margin by increasing their investments in automation systems and enterprise solutions, and integrating them to achieve collaborative production management. Mondis high-quality, well-invested assets and its focus on low-cost production continue to be major competitive advantages. By having technology from company like Mondi, Indian mills can reduce their cost of production. It appears that in South Africa there is increasing pressure for the collection of recycled materials, specifically to drive the reduction of costs and therefore remain competitive. The recycling rate

continues to improve, with some grades increasingly being exported. Over a million tonnes of paper was collected for recycling with a value of approximately R640 million. So Indian paper industry should use the technology, which is used by the South African industry for the recycling of paper.

Page | 99

3.3 Gap Analysis between MONDI and BILT

BILT caters primarily to the writing and printing paper segment only. It also has a presence in speciality paper and the tissue business. While Mondi group is an international paper and packaging group specialist in containerboard, corrugated packaging solutions, Kraft paper, industrial bags, extrusion coating, release liners, films, consumer bags & pouches as well as office, pre-print and offset paper.

So, BILT can import other than writing and printing papers from Mondi group to cater Indian market.

3.4 Gap Analysis between Indian and South African Paper Industry
Indias major import is Pulp (softwood and hardwood). India imports about two million tonnes of and waste paper (sack waste for unbleached grades, envelopes waste, cup stock for white grades and magazine waste) for newsprint. While South Africas main export is Pulp and it is growing strongly.

So, here India can import pulp from the South Africa, where which is easily available.

Page | 100

Chapter4

Conclusion

Page | 101

The major Paper industry firms that we have discussed here like Mondi, Sappi, Mpact, Nampak, etc. filled with various new and valuable paper products that they provide to the people of South Africa. The trade taking places in this firm is also noticeable and profitable to the economy of the country. The legal aspects and barriers in Paper and Pulp industry are also hard to understand and manageable.

Also we can see that when compared to the paper industry of India the results are somewhat satisfactory. The working of the paper industry in both the countries is different and from the findings it is clear that the South African paper sector remains highly concentrated. Large number and variety of products are offered in South Africa. Necessary raw material like Pulp is easily available there.

Technically and economically South Africa focuses on paper and pulp industry more than the Indian paper and pulp industry. South Africa comes up with the lots of innovative and modern techniques in production.

BILT can expand its product line from writing and printing paper segment with the help of MONDI Group. BILT can cater Indian market with the variety of paper products. They also can have technological advancement to have low cost production.

There are opportunities to enter the paper industry in South Africa but with the help of deep research and required resources only. With the challenges like management of risks, growth of paper industry, currency exchange, availability of raw material, global economy, environmental laws and government laws, it is necessary to understand the whole structure of the Paper industry.

Indian paper industry is in growth stage and this industry will be booming in upcoming years and in this time joining hands with South African paper industry will be very fruitful for us. Paper industry plays the vital role in the growth of both countries GDP.

Page | 102

Chapter-5

Bibliography

Page | 103 http://www.mbendi.com/indy/pulp/af/sa/p0005.htm (n.d.), Retrieved February 11, 2013, from http://www.mbendi.com/ http://www.thepaperstory.co.za/paper-the-economy (n.d.), Retrieved February 11, 2013, from http://www.thepaperstory.co.za/ http://www.thepaperstory.co.za/wp-content/uploads/2011/09/PAMSA_Pulp-Paper-Summary-findings2011-FINAL_AUGUST2012.pdf (n.d.), Retrieved February 11, 2013, from http://www.thepaperstory.co.za/

http://www.prasa.co.za/sites/default/files/PRASA_Recycling%20Statistics_2011.pdf (n.d.), Retrieved February 11, 2013, from http://www.prasa.co.za/ http://www.aeroafrica-eu.org/download/ipap_2010.pdf (n.d.), Retrieved February 12, 2013, from http://www.aeroafrica-eu.org/ http://www.forestry.co.za/uploads/File/industry_info/industry%20growth/Growth%20Strategy%20for% 20Forest%20Sector%202007.pdf (n.d.), Retrieved February 12, 2013, from http://www.forestry.co.za/ http://industrytracker.wordpress.com/2011/04/19/paper-industry/ (n.d.), Retrieved February 15, 2013, from http://industrytracker.wordpress.com/ http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jkpaper/articleshow/7932244.cms (n.d.), Retrieved February 20, 2013, from http://economictimes.indiatimes.com/ http://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000cr/398440/ (n.d.), Retrieved February 20, 2013, from http://www.business-standard.com/ http://www.ipma.co.in/paper_industry_overview.asp (n.d.), Retrieved February 20, 2013, from http://www.ipma.co.in/ http://paper.industry-focus.net/ (n.d.), Retrieved February 22, 2013, from http://paper.industryfocus.net/ http://www.economywatch.com/world-industries/paper/indian.html (n.d.), Retrieved February 19, 2013, from http://www.economywatch.com/ http://www.ipma.co.in/percentage_share.asp (n.d.), Retrieved February 19, 2013, from http://www.ipma.co.in/ http://www.mondigroup.com/microsite/HY2012/files/mondi-half-year-report-2012.pdf (n.d.), Retrieved February 27, 2013, from http://www.mondigroup.com/ http://www.mondigroup.com/desktopdefault.aspx/tabid-299 (n.d.), Retrieved February 27, 2013, from http://www.mondigroup.com/ http://idl-bnc.idrc.ca/dspace/bitstream/10625/16230/1/103411.pdf (n.d.), Retrieved March 08, 2013, from http://idl-bnc.idrc.ca/ Page | 104 http://www.sappi.com/regions/is/group/Pages/Company-history.aspx (n.d.), Retrieved March 05, 2013, from http://www.sappi.com/ http://www.sapaper.co.za/co_profile.htm (n.d.), Retrieved March 05, 2013, from http://www.sapaper.co.za/ http://www.mpact.co.za/our-products (n.d.), Retrieved March 10, 2013, from http://www.mpact.co.za/ http://integrated-report.mondigroup.com/2012/ (n.d.), Retrieved February 27, 2013, from http://integrated-report.mondigroup.com/ http://www.sappi.com/Investors/Documents/2012%20Integrated%20report_coverpages.pdf (n.d.), Retrieved March 05, 2013, from http://www.sappi.com/

http://www.mpact.co.za/assets/investors-and-media/reports/IR12/downloads/mpact-IR12-group-at-aglance.pdf (n.d.), Retrieved March 10, 2013, from http://www.mpact.co.za/ http://www.aeroafrica-eu.org/download/ipap_2010.pdf (n.d.), Retrieved March 12, 2013, from http://www.aeroafrica-eu.org/ http://ec.europa.eu/environment/enveco/policy/pdf/2007_pulp_paper.pdf (n.d.), Retrieved March 15, 2013, from http://ec.europa.eu/ http://www.docstoc.com/docs/141607018/indian-pulp-paper-industry (n.d.), Retrieved March 15, 2013, from http://www.docstoc.com/ http://www.biltpaper.com/products.asp (n.d.), Retrieved March 18, 2013, from http://www.biltpaper.com/ http://www.avanthagroup.com/companies-ballarpur.asp (n.d.), Retrieved March 18, 2013, from http://www.avanthagroup.com/ http://www.hindpaper.in/profile/index.htm (n.d.), Retrieved March 18, 2013, from http://www.hindpaper.in/ http://www.hindpaper.in/products/index.htm (n.d.), Retrieved March 18, 2013, from http://www.hindpaper.in/ http://www.itcpspd.com/aboutus.aspx (n.d.), Retrieved March 20, 2013, from http://www.itcpspd.com/ http://www.itcpspd.com/CategoryList.aspx (n.d.), Retrieved March 20, 2013, from http://www.itcpspd.com/ http://www.hindpaper.in/images/pdf/Chairman_Speech_2012.pdf (n.d.), Retrieved March 18, 2013, from http://www.hindpaper.in/ http://papermart.in/2011/12/29/top-paper-companies-in-india-2/ (n.d.), Retrieved March 20, 2013, from http://papermart.in/

Page | 105 Page | 15

cents) (EUR Interim dividend per share cents) (EUR Free cash flow per share3 cents) 8.9 8.25

9.3 Cash generated from operations Net debt 353 1,273 13.3%

19.6 403 1,200

59.2 514 831