Swaroop Iyengar

Company and address

Kellogg Brown & Root, Inc., 601 Jefferson Ave., JE1255, Houston Texas 77002, USA




capital cost, pulp mills, value engineering


Capital costs for new, world class, pulp and paper facilities keep increasing. This has resulted in a challenge for financing, particularly in the face of pulp and paper price volatility.  Some mills are using off-balance sheet financing to minimise impact on their financial profile.  Critical steps in this process are analyzed, strategies for reducing capital costs and creating other revenue streams are presented and their economic impacts explored. The following facilities are discussed:

  • Virgin fibre market pulp mill
  • Bleached Chemi-Thermomechanical Pulp (BCTMP) market pulp mill
  • Recycle containerboard facility


Pulp and paper facilities are renowned for being capital intensive.  US Census data for a wide range of industries were examined and show that there are many other industries that have higher capital expenditures than Pulp and Paper (Fig.1)

Figure 1

Figure 1 - U.S. Capital Expenditures for Selected Manufacturing Industries - 1999

A recent study indicated the top three US pulp, paper and packaging (Proctor & Gamble, International Paper, Kimberly-Clark) companies' capital spending of about $4.5 billion .  The top 35 companies however only spent a total of about $8.3 billion. Capital expenditure in the US has been on the decline and continues to be on the decline for a large number of reasons. Much of this is related to the sluggish growth rates in the US in comparison to some of the Asian economies, Eastern Europe and South Africa.  Since most paper products are commodities and pricing is structured on a worldwide basis, low cost production tends to be a continual challenge.  Greenfield projects are particularly challenging to finance.  To achieve acceptable returns pressure is mounting to keep manufacturing and capital costs low so that the financing of the project is in as short a period as possible.  In the last three years the thrust for value creation has resulted in a shift from capital expenditures to acquisition. Capital expenditures are reported by the Boston Consulting Group at or below depreciation on all continents.  Nevertheless, Pulp and Paper Project Report reported that capital spending for 2000 and 2001 was in the range of $7 billion each year.

There is a place for capital expenditure when it is done with the intent to make the company more competitive.  Three different greenfield projects are examined in an effort to understand what factors influenced their successful implementation.  These facilities are highlighted since they are products for which there will be a continuing demand in the foreseeable future.  Typical scope of these projects will be first briefly described, followed by a review of some options that are available to reduce or offset capital costs. In today's world Darwin's often quoted law of evolution seems even more appropriate: "It is not the strongest of the species that survive nor the most intelligent, but the one most responsive to change."


One method that has been used during the last ten years in the financing of pulp and paper plants has been project financing where the project revenues are the only guarantee for the lender.  Project financing has been used in the past for natural resource projects such as natural gas pipelines, power plants and refineries and more recently for such high profile projects as Euro Disneyland and the Eurotunnel.  In general, project financing a project is more expensive and time consuming than using ordinary corporate debt.  In fact some projects have taken five years to get to financial close.  Key to the success of this process for a pulp and paper project is a total grasp on the following areas:

  • Well financed development budget for multiple years
  • Well established frozen scope
  • Proven technology
  • Legal & regulatory issues
  • Environmental studies
  • Marketability signed take or pay offtake contracts
  • Raw material risk mitigation signed raw material contracts
  • Energy, water etc. supply agreements
  • EPC contract with firm guarantees, LD's and "bankability"
  • Elastic business model for fluctuations in selling price
  • Financial feasibility
  • Political support
  • Equity to the extent required 20-30%
  • Risk mitigation
  • Operator with strong experience in similar facility

If this mode of financing is to be used or contemplated, keeping project costs at levels which will make the facility competitive is critical to attract lenders. In project finance transactions lenders are dependent on the Independent Engineer (IE) to evaluate the project and identify risks, and to determine the likelihood that the project will achieve design and provide the revenue stream that is modelled. The discussion below examines three different greenfield facilities which will in the future continue to be important sources of fibre and product:

  • Virgin market pulp mill
  • Market BCTMP mill
  • Recycled fibre containerboard mill

Explored will be their design, capital cost value engineering to reduce capital cost and options to make the project a success.


Virtually all new, world capacity in market pulp has come in hardwood pulp.  Indeed there are mills that now use only hardwood in the production of writing and printing grades. Much of this capacity has been in South America where fast growing eucalyptus clone plantations have been aggressively developed.  Several projects to utilize softwood are envisioned in the EU and the FSU states.

The design of a new facility will be in the range of 450,000 TPY.  The selection of capacity was based on keeping total project costs at levels, which can be financed and equity levels that are reasonable.

A bleached market pulp mill is comprised of six (6) major process and two (2) non-process areas.   The process areas are: woodyard, pulpmill, chemical preparation, pulp dryer, causticizing & lime kiln, power and recovery, water & waste water treatment. The two other areas are the non-process building area and the mill general area.

The following are brief overview descriptions for each major area:

Woodyard. The woodyard is designed to accept pulpwood logs and/or chips. The main woodyard systems are these of log handling, chip handling and bark/fine handling.  Bark and rejects are conveyed to a combination boiler.  Costs have been reduced in many new South American Mills by barking in the forest and not having any de-barking systems or bark handling systems.

Pulpmill. The fiberline consists of a high performance batch digester system or continuous digester system, a screen room, 2-stage oxygen delignification with displacement press washers for brown stock and post-oxygen washing, and an ECF bleaching system Some thought is being given for future fiberlines to incorporate capability to swing from ECF to TCF to meet customer demand.

Chemical Preparation. This area consists of a chlorine dioxide generation plant and facilities for receiving, storing and distributing the necessary chemicals for the generation of chlorine dioxide and other chemicals for the bleaching and pulping operation.  If ozone use is contemplated, an "over-the-fence" arrangement for its supply is negotiated.

Pulp Dryer. The pulp dryer area consists of a stock preparation system with screens, cleaners and a thickener.  The stock preparation system is followed by an airborne evaporative dryer. A complete bale finishing system and warehouse is also provided.

Power and Recovery. This area consists of a fluidized bed combination boiler for burning the woodyard residue and the sludge from the wastewater system.  A recovery boiler and a five-effect black liquor evaporation system is included. The steam produced by the recovery boiler and the combination boiler feeds a turbine generator equipped with a condenser and double automatic extraction. In general all the steam and electrical requirements for the mill are met internally.

Causticizing and Lime Kiln .  The causticizing and lime kiln area consists of a green liquor equalization tank, green liquor clarifier, dregs filter, slaker, three causticizers, white liquor pressure filter and storage, lime mud storage and thickening and a single lime kiln equipped with an electrostatic precipitator.  Also included in this area is reburned and makeup lime handling and storage facility.

Water & Waste-Water Treatment. Generally river water, drawn through intake screens, is treated in a reactor clarifier and sand filter and stored in a chest.  The bottom 3000 m3 volume of the storage chest will be reserved for fire protection.

Primary waste-water treatment is followed by secondary treatment consisting of oxygen -activated sludge and sludge de-watering.  Gravity tables and screw presses are used to dewater the sludge prior to transport to the combination boiler.

Non-Process Building .  The non-process building area includes the maintenance shops, stores, and administration building.

Mill General .  The mill general area consists of scope associated with site preparation, the pipe racks between the major process areas, the roads, a fire protection distribution system, and the underground piping outside the main process areas.

Capital Cost
Recent greenfield market pulp installations in Brazil and Chile have capacities near 2,000 TPD.  General consensus has been that economies of scale favor facilities in the range of 1,200-1 ,500 TPD.  The chart (Fig.2) below provides project costs for various sized facilities.  The goal of driving the curve to the bottom left continues to be the challenge.

Figure 2

Figure 2 - Cost of Capacity

Value Engineering
The objectives of the value engineering analysis is to not compromise on safety, maintainability or design criteria and yet reduce capital costs. This resulted in achieving the following:

  • Reduction in equipment count
  • Reduction in MP/LP piping
  • Reduction in Mill Plot Plan, reducing lengths of Pipe Racks
  • Reduction in pipe size
  • Reduction in building steel
  • Reduction in wastewater treatment system footprint
  • Reduction in underground cable and piping
  • Reduction in power consumption
  • Reduction in water consumption

In this and the other examples, a very conscious adherence is made to design for the design production. No excess capacity was built into the equipment sizing or into the plot plan for future expansions.

The largest capital cost in a pulp mill is the power generation and chemical recovery area accounting for about a third of the capital.  Recent trends have been to spin off this area (at an existing plant) or contract for the instillation (at a new site) to a third party who would own and operate the area.  Some of the issues associated with this are the following:

  • Charges for steam and electricity for the pulp mill are high having to cover third party debt and profit.
  • O&M issues and philosophy may be different for the two parties
  • Contractual requirements may be onerous
  • Single offtake contract detracts potential investors

Reduction in project cost can increase returns substantially.

Process changes have also been explored recently to reduce capital and operating cost. Some of the approaches have included short sequence bleaching , hydrogen peroxide reinforcement, mini-O stage and Ozone applications.


A BCTMP plant consists of the following general systems: woodyard, the BCTMP fiberline, a flash dryer and bale handling system, chemical preparation system, effluent treatment and handling.  Some projects have contemplated the installation of a biomass boiler plus turbine to generate steam and electricity for internal use or for sale of electricity. The design of the plant is approximately 1000 TPD

Woodyard The woodyard will be provided to supply chips to the mill's BCTMP system. Of the total chip supply to the BCTMP system, there is often a mix of chips manufactured on -site from roundwood (logs) and purchased chips. The roundwood system, consists of a debarking / chipping line and conveyors to screening system. Purchased chips system will consist of a receiving pit and conveyors to screening system.

The screening system is designed to provide chip scalping and subsequent chip size screening for the chips. A common rechipper will reduce oversize chips to acceptable size and return them back to the chip size screening process. Chip storage silos provide a buffer.

The facilities to process woodyard bark and purchased biomass, consisting of bark scalping and crushing, and conveyors to a bark storage / reclaim system will be provided.

Chip withdrawal rates from the chip silos and the chip conveying system to the BCTMP system are designed to fill APS bin in approximately 20 minutes.

Fiberline The fiberline may consist of one or two parallel lines depending on the capacity the normal limitation is about 500 TPD production on each line.  Each line will consist of chip washing, two stage chip impregnation, two stage mainline refining, separate rejects refining, screening, cleaning and two stage peroxide bleaching; medium consistency bleaching followed by high consistency bleaching.  Refiner configuration will allow feeding rejects to the secondary mainline refiner.

Steam from the refiner cyclones is directed to a reboiler with a built-in scrubber.  Scrubbed steam is condensed inside of the reboiler tubes, generating clean steam on the other side of the tubes. Contaminated condensate is collected at the bottom of the reboiler and utilized for spray water at the scrubber's venturi. Excess condensate is pumped to latency tanks.  Some steam and non-condensible gases will be vented from the reboiler to a reboiler feed water preheater. Non-condensible gases are vented from the preheater to atmosphere.

Dryer The drying process area consists of two identical flash drying lines each with a capacity of approximately 500 TPD. The dryer system has the following major components:

  • Bleached HD Tower with discharger and discharge screws
  • Fluffer Feed Conveyor with infeed screw & lubrication unit
  • Two stage flash dryer with cooling stage consisting of:
  • First stage with gas fired air heater, drying towers, pulp transport fan and cyclone
  • Second stage with LP steam, HP steam and auxiliary gas fired air heaters, drying towers, pulp transport fan, cyclone, recirculation duct with duct filter and LP steam recirculation air heat exchanger
  • Cooling stage with inlet air chamber, pulp transport fan, and cooling stage cyclone
  • Condensate system with HP and LP condensate tanks
  • Flash dryer scrubber system with cyclone booster fan, scrubber and discharge stack
  • Slab press, conveyor and exhaust system

Effluent The effluent generated from the BCTMP fibre line is treated in several ways. One process consists of evaporating the wash water from the washers followed by discharge to a waste water treatment system.  There are several mills that have attempted to have zero discharge using evaporation, mechanical vapor recompression and a chemical recovery boiler.  Much of the direction that a project takes depends on the economics, permitting regulations and market needs.

Capital Cost
Most of the BCTMP facilities have been built in Canada and Scandinavia.  Volatility of exchange rates impact an analysis of capital costs for example the Euro has strengthened substantially against the US Dollar over the past year.  Total installed costs in the range of $800 900/annual ton are typical. However there are a number of site specific issues that can substantially impact these costs.  Some of these are discussed below. 

Value Engineering
Areas where capital cost can be impacted is noted below:

  • If large percentage of chips are purchased no chip thickness screening system
  • A de-icing system for frozen logs may not be necessary
  • Transportation by barge requires dock facilities in comparison to truck
  • Zero discharge must be carefully analyzed it has significant operating and capital costs associated with it. The lower cost option is to have conventional primary and secondary treatment.
  • Cleaners to remove certain fibrous cell types may not be required

Several countries are offering to purchase power generated from biomass at above-market rates. In addition there are subsidies for capital projects from regional governments to invest in certain zones to improve economic development. This provides an opportunity for a power island in a BCTMP mill.  Bark and fines can be incinerated in a fluidized bed boiler which can be coupled with a turbine and generate power.  Economic viability suggests that the lowest capacity turbine is about 20 MW.  Various options may be explored which are summarized below:

I. Biomass boiler with no steam extraction and power sold to grid
This system is shown in Fig 3 below. The steam will power a condensing turbine. The electricity will be sold to the market at a favourable rate. Makeup steam for the concentrator or process will be generated by burning natural gas in the recovery boiler. However there are risks associated with this option:

    1. Ash has to be disposed in a landfill, which may not be available or maybe economically unfeasible

    2. Purchased bark will be required to augment generated biomass. There is a market risk for this biomass purchase

    3. In the event that purchased biomass is not available or uneconomical, lower power generation.

    4. Uncertainty of pricing subsidies for electricity

    5. Lower debt to equity ratio

Figure 3

Figure 3 - Recovery, Steam & Power Generation (Option I)

II. Biomass boiler-producing steam for the process
This is an option if there is an associated paper mill.  However, the amount of steam generated by the TMP process is almost adequate to provide process steam in the BCTMP mill and for the dryer.  A small amount of natural gas is required in the recovery boiler.

III. Biomass boiler as an independent Island (Off Balance Sheet)
For the economics to be justified the project will have to attract governmental subsidies. In addition, the project will have to be highly leveraged in the absence of subsidies and banks may want more equity "at-risk" and not accept the low equity percentage. Finally, equity participation may be difficult to obtain.

IV. No Biomass boiler. Project sells, gives away or disposes of the bark
The biomass generated by the mill will have to be disposed.  Depending on the area of the world there is a market for bark depending if it is hardwood or softwood.  If the biomass cannot be sold, alternate disposal, for example in a landfill, may result in a cost to the project.

In conclusion, there are viable options for generating additional revenue at a BCTMP facility. Site specific issues will dictate their economic viability.


The capacity of recycle containerboard facilities fall into two categories around 400 TPD (mini-mill) and approximately 1000 TPD.  Recent facilities in Germany, Spain and China have been built with the latter capacity.

Storage Depending on the location this can range from 7 days to 30 days and be completely open to the elements or enclosed in a warehouse.

Pulping This system consists of a pulping system - conveyor, pulper, ragger and detraher.  The system should be sized with adequate capacity for handling contaminants and for any future expansion (at a price). The system must be designed such that it has adequate rejects removal equipment and provision for operators to handle all unit operations. Some recent installations have opted for the drum pulper as a replacement for the tub type pulper.  This is a cost, quality tradeoff with the drum pulper requiring  an extensive bale handling and conveying system in contrast to the tub pulper. 

HD Cleaning Large heavy contaminants are removed and is critical to the longevity of the equipment downstream.

Dump Chest Some mills, particularly in Asia, opt for a soak tank provides ranging from a few minutes to several hours.  Rational for this include that this provides opportunity for fibers to "swell", or that this allows time for flakes to defiber. The main purpose of the dump chest is to handle variations in consistency from the pulping system.  A buffer is often critical since there may be no other large retention tanks further into the system.  This again is a cost/quality issue a large retention time corresponds to an increase in capital cost.

Barrier screens The barrier screens with 0.062" holes remove non fibrous and flakes from the stock. Smaller screen hole size results in improved quality and the ability to handle wet strength and higher flake content without degradation of non-fibrous contaminants. Smaller holes in the barrier screen also results in improved runnability of the fine screening system and permits up to 1% increase in yield.  A three stage cascading system is typically installed.

Fractionation  To improve the fibre separation into long and short fibre fractions, a series fractionation system is often installed. The fractionation screens are equipped with 0.010" slots with the long fibre fraction reject to a second fractionation screen.  The short fibre fraction from the second stage of fractionation is combined with the short fibre fraction from the primary fractionation. The Long fibre fraction from the LF fractionation is then processed through the fine slotted screening system. The short fibre is processed through a lightweight cleaner system.

Long fibre fine screening   The long fibre fraction is diluted to about 1% and pumped to a two stage Mid Consistency cleaning system (first stage continuous reject + second stage intermittent reject).  These cleaners remove objectionable heavy weight debris, such as sand and grit as well as protecting the fine slotted screens.  Accepts from the cleaners are fed to two primary fine screen equipped with 0.010" slots, rejects are sent to a second fine screen, equipped with 0.010" slots, and rejects are sent to a tertiary fine screen equipped with 0.010" slots. Accepts from the second and third stage are cascaded back.

Lightweight cleaning Short fibre fraction from the fractionation is diluted to about 1% consistency and fed to new lightweight cleaners. The accepts from the cleaners are piped to the short fibre thickener.  Rejects are sent to a second stage lightweight cleaning stage. Long fibre fraction is also diluted to 1% and pumped to lightweight cleaners with the accepts also being sent to the long fibre thickener. Rejects from the short and long fibre fraction lightweight cleaners are piped to a secondary lightweight cleaning system.

Thickening Short and long fibre deckers thicken the respective stocks

Thick stock transfer Depending on the mill layout a MC pump will pump the thickened stock to the Long fibre and short fibre HD tanks.

Clarification A dissolved air flotation (DAF) clarifier processes the rejects from the second stage of light weight cleaners.  The clarified filtrate is pumped to the whitewater chest. The sludge is dewatered in either a belt press or a de-watering screw.

Reject handling system The rejects handling system is the Achilles heel of the OCC plant. A lights de-watering screw and press de-water rejects from the coarse screens, forward cleaners, tertiary LF fine screens and the DAF clarifier sludge.

Linerboard machine Structured sheets will be the standard for the future with fractionated pulps used in a 3 or 4 ply sheet. Generally two gap formers are installed with tandem "big roll" type presses followed by single tier dryers, provide the sheet with the strength and surface properties required by converters.  Film type size press provides the final surface finish.  Machine speeds of over 1500 M/min on both light weight and heavy weight linerboard machines are becoming more common.

Capital Cost
Mini-mills with capacities of around 500 TPD were built during the mid-90's in an effort to minimize capital cost. However as seen in the chart below (Fig.4), capital costs for "mini -mills" are not on a daily ton basis lower.  Capital costs vary widely due to the specific costs associated with each project.  In general, capital costs averaged $200,000/daily ton.  Significant capacity has been added in Asia, particularly China recently at capital costs well below these figures; while equipment costs are comparable to other facilities low cost engineering and construction and low operating costs provide these plants with significant margins.

Figure 4 - Capital Cost of Mini-Mills based on OCC.

Value Engineering
Scope is the primary factor that impacts capital cost. As indicated above higher speeds have become common features offered by PM suppliers.  However the impact on operating cost ($/ton of production) may be offset by the higher debt load and additional maintenance Dollars required for the additional equipment. Additional items include the following:

  • The facility often is not built for increases in future capacity - the main process equipment pulper, thickener, screens are sized for capacity
  • Line sizes, pumps and often electrical equipment is not conservatively sized. 
  • Building is sized with minimal extra space. 
  • Elimination of aisles for clothing changes
  • Utilisation of lower floors for the winder. 
  • Tanks and chests < 10 minutes retention time.

Use of lower cost fibre is an attractive option. Municipally collected paper has generally been the most economically attractive raw material.  Use of this material, however requires modification, and hence additional capital cost, to an existing recycle fibre line.  These unit operations are due to the large amount of wood-containing materials in these streams.  Washing and additional clarification is often required. Thus lower raw material costs are offset by capital cost and to some extent operating cost.

Typical system design is shown below (Fig.5):

Figure 5


These three examples have described processes which are well established.  Many companies are reluctant to invest large sums in such projects. However, capital costs can be reduced to levels that are reasonable by incorporating discipline in scope and by utilising options that may be appropriate for a particular site. Reducing capital costs means, in most cases, a compromise in scope from "needs" to "requirements". Each system has options, which can impact both capital and operating cost and which require site specific analysis. Keeping capital and operating costs at competitive levels can make projects more attractive for alternate modes of financing, including non-recourse financing.


1. Paun, D. et al. Solutions! Dec 2001 "A performance assessment of the North American paper industry"

2. Andersson, Harju and Larjomaa, Pulp and Paper International Feb 2002

3. McDonough Courchene, and Baromes, International Pulp Bleaching Conference p151-157, 2000

4. Henrique, et al., 2001 TAPPI Pulping Conference

5. McKenzie, Pulp & Paper Canada 96(6) p55-58 1995

6. Sundar, et al., 85th PAPTAC  Conference pA1-A11 1999


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