Paper sector fears R1bn body blow

Johannesburg - Pulp and paper producer Sappi has said Eskom's proposed tariff hikes will destroy its ability to compete with international peers.

This statement from the firm comes a day after the Paper Manufacturers' Association of SA (Pamsa) told energy regulator Nersa in a written submission that local producers would pay R1.1bn a year more for electricity from 2012 if Eskom's tariff proposal - a 35% hike per annum for three years - was granted, as reported by Business Report on Tuesday.

Sappi told Fin24.com on Wednesday it is doubtful of its own ability to remain a leading low-cost producer in the event of a 146% total power price increase by 2012.

"The magnitude and timing of the proposed increases does not allow Sappi sufficient opportunity to implement counter measures in order to mitigate the resultant 'loss of competitive advantage' currently enjoyed with electricity costs," said Sappi.

Traditionally, Sappi spent about R350m per annum on electricity, but with the proposed increases that figure will probably rocket to over a R1bn per year. The group said it is already generating in excess of 50% of its own energy needs, but will need more time step up this programme.

According to Business Report, Pamsa said the effects of the tariff increase would be devastating to the pulp and paper sector. It would result in further mill and machine closures, a loss of taxes to the fiscus and more job losses.

"Even major companies will not be able to survive," Pamsa said.

- Fin24.com