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WRITTEN TESTIMONY OF J. SCOTT ESTEY: H.R. 305 9 



INTRODUCTION 



Ketchikan Pulp Company (hereinafter "Ketchikan" or "the Company") has 

 retained Jaakko Poyry Consulting North America (hereinafter "Jaakko 

 Poyry") to provide testimony regarding typical financial return and project 

 life requirements for capital expenditure within the pulp and paper 

 industry. The request for testimony was made in light of the Company's 

 request for an extension of its timber supply contract with the USPS in 

 order to ensure that fiber supply is available for a sufficient period of time 

 to allow the Company to earn an adequate return on capital expenditures 

 at the Company's pulp mill in Ketchikan. 



PULP AND PAPER INDUSTRY INVESTMENTS 



Pulp and paper is a capital intensive industry which requires not only large 

 initial investments, but also significant on-going investments for the 

 purposes of maintenance, environmental compliance, and facility 

 improvements. Additionally, the pulp and paper industry is commodity 

 oriented, highly cyclical, and typically realizes relatively low margins. 



Expected rate of return, and the life of an investment project that is 

 required in order for a company to earn that return, can vary significantly 

 within the pulp and paper industry. In Jaakko Poyry's experience, it is not 

 uncommon to observe project returns ranging from negative to 30+%, and 

 project life requirements ranging from 5 to 25 years. 



Of the many factors that can potentially influence these measures, those 

 items having the most significant impact include; the timing of the 

 expenditure relative to the industry cycle, the magnitude of the 

 expenditure, and the purpose of the expenditure, which, within the pulp 

 and paper industry, can be roughly categorized as follows: 



• New Mill or New Production Line 



• Major Rebuild 



• Productivity and/or Margin Enhancements 



• Replacement/Maintenance 



• Environmental 



New Mill or New Production Line 



The capital intensive nature of the pulp and paper industry is most evident 

 when reviewing the investment requirements of a new mill or production 

 line. As a reference point, a greenfield, or new, market pulp facility with a 

 production capacity of 500,000 metric tons per year of bleached softwood 



