Thank you, Camilla. Good afternoon on my behalf as well, and welcome to the conference call. We have a short presentation here about the key facets of the project, and that will be delivered by our CEO, Jouko Karvinen. Please go ahead, Jouko.
Thank you, Ulla. Welcome, everybody. Good afternoon, good morning, wherever you are. I'll try to be brief. I have our CFO, Markus Rauramo, with me here once we get to the Q&A. Let's get going. The investment to be announced today has been quite a long march. We've been planning this for many years and actually started to grow the fiber base, the plantations, already in 2002. If we go to page two, here is the essence of our announced strategy with some rewordings, I admit. We said we want to focus on growth markets, both geographically but also segment-wise. We have said renewable packaging is a growth area for us, as is biomaterials, as we call them today. Now we use the term competitive paper. It's also part of our portfolio. Today's announcement is right in the middle of the sweet spot of the strategy.
It covers three aspects of it. It's an investment to growth markets, as you'll hear in a minute, in China, the fastest growing packaging market in the world. It is an investment to sustainability through renewable packaging and also through biomaterials through the plantation-based pulp investment. Page three, there is the picture about the market growth. The strongest growth in virgin fiber-based consumer board will be in Asia. The Chinese demand overall on virgin fiber-based consumer board is expected to be about 7% per annum 2010- 2020, with a market size of close to 12 million tons, just to reflect against our investment in 2020. On the core strengths area of Stora Enso, which is liquid and food packaging, we expect the growth in China to be 10%, double-digit. Page four, we believe we're starting from a very strong point. We are globally the leader in liquid packaging.
Every third beverage carton is produced from Stora Enso materials. I hope you remember that next time you pick up your milk or juice carton. Page five, the map. Day high on the southern coast, close to the Vietnamese border. As I said before, we've been establishing plantations in Guangxi in the past 10 years. Today, we hold about 90,000 hectares of plantation land. 70,000 of those are already planted, and we will increase that to a total of 120,000 hectares of plantations. Our other operations in Suzhou, Daewang, on the paper side, packaging, core mills in Hangzhou and Foshan, and then not to forget the investment we recently made through the acquisition of the majority of Intac.
Today, we have about 4,500 people in China, and obviously, with this investment over the next several years, China will grow very possibly to be the largest country of employment for Stora Enso, but so is the market. Page six, this is not a photograph yet. I admit it's computer-generated, but I thought it would be good to show also to you how does it look like. The mill site, I've been there myself, and it's been cleared. It's about 28 hectares in the middle of a very large industrial complex part that the Guangxi government is building. In fact, our 28 hectares is a small piece of it.
If you look at the capacities, 450,000 tons of consumer board capacity, meaning liquid packaging board, but also other premium grades like cup board, folding box board, and so forth, and a total of 900,000 tons of pulp, which effectively will be split between about 700,000 tons of chemical pulp and 200,000 tons of CTMP. It is an integrate with locally produced fibers. The picture then itself, you probably recognize it on the upper left. You see the wood yard, and above that, the wastewater treatment facilities. Kind of in the right-hand side, in the middle, you see where the board machine is going to be, and to the left of it, then you see the recovery boiler and so forth and so on. Location-wise, very interesting, three kilometers to the ocean, a very good road and even railroad infrastructure in the region. We believe it's very, very attractive.
This area in China is actually the largest available plantation base and is in a favorable economic zone at Panpeibo Gulf, which is a part of the national Chinese strategy, which also gives us some preferential tax treatments in our investment. If you can go to page seven then, packaging is not packaging. We're focused, and we're focusing on the high-quality premium segments in China. We start from a unique position. We are global number one in certain segments already. The technologies and specifications we will use are world-class, best available technology specifications. As you can expect, over the long march to today, we have a very good and strong relationship to several of our global customers, and we believe they are committed to the success of this effort as we are. It is a unique integrate solution.
It's a Chinese platform, and we believe it's going to be very interesting also in terms of innovation. Down the road, we can use many of the unique know-hows of Stora Enso food and liquid packaging, be it bioplastics, be it one day, possibly the microfibrillated cellulose. We obviously will use all those competitive edges and intellectual property also in this project. Phase eight is basically the simple picture of the ownership of the EUR 1.6 billion project investment, 85% Stora Enso, and then 15% local partners, essentially the Guangxi Forestry Group. Investment will be financed by debt and equity, 60% debt and 40% equity, and that equity, obviously, from a Stora Enso point of view, comes from our balance sheet. We're well equipped for that. Page nine, sustainability and becoming and being part of the society is very important when we make a large investment like that.
I think it's very good that we have worked with many challenges already years there. I have personal experience also in being in the region. I also think it says it's quite critical that we have a strong local partner to be able to be a strong and constructive part of the community there. We do use outside independent analysis. UNDP, the United Nations Development Programme, has done an environmental and social impact analysis already in 2005. We requested, and they made another integrated summary report, which will be published this year. These studies give us a very good and supporting view for our program, and I believe it's quite important that we do those things too.
Since the beginning of the project, we have also had a community development fund to provide financial support for the education and infrastructure in the local villages because one of the key stakeholders is the local communities, the people who live in the area, including the plantations that are impacted by our investment. It's about 6 million people. I'm sure you agree that working together with them and developing their lives is an important part of this. We have, and we will cooperate with local authorities, universities, and organizations to find positive development. To get to your questions and answers, I'll have one more slide, slide 10, repeating what I said. It's a growth market both geographically but very clearly and very strongly because of the strength and focus on food and liquid packaging.
The number of people who will start buying packaged food in the next 10, 15 years in the world is one and a half billion new consumers in that respect. Obviously, a very significant part of that will be Asia, and especially China. We say about one half of the total growth is in China. We believe the local virgin fiber is clearly a competitive benefit for us. You can imagine that with our Uruguayan mill in the works, we had the alternative look at that alternative too, but we have concluded that this is the most competitive solution. I mentioned already the consumer demand growth. We always tend to talk on these calls about what's happening to graphic paper. Today, let's talk about the explosive growth in this market.
We do believe that we have both today, but especially in the innovation pipeline, ways to differentiate our products, do joint development with our key customers, and sustain a competitive edge. Like I said, being a responsible business, being a business model that's responsible, we believe is also quite important for the long-term future of the project. With that, thank you very much for listening, and I think we turn it over to your questions now. Thank you.
Yes, Kelly, we will.
Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We have now a first question coming from Lars Kjellberg from Credit Suisse . Please go ahead.
Yeah, hi. A couple of questions. You obviously stated how you're going to finance this 60% debt and 40% equity. Obviously, you need to raise new debt to finance this, I guess. Can you run us through how that's going to be done in the Chinese market, and if your JV partner has any part of this financing at all?
Yeah. Hi, Lars. This is Markus. I can take that. As we say in the release, the debt portion for the project will be raised from export credit agencies, and that, of course, depends then where the equipment will come from, from multilateral lenders, as we have done, as has been the practice for our large projects, and commercial banks may be participating in the ECA financing and the B loan parts of the multilaterals. You have seen the same model that we have applied in the case of Veracel and Monticello Plaza. We will be then guaranteeing the debt pro rata with our partner, but as we will be the majority owner in this joint venture, we consolidate all of that debt anyway straight into our numbers.
We are in very advanced negotiations as we have been working on this project with financiers, so we're very comfortable with how the financing process is going. As I said, it's ultimately dependent then on, for example, the sourcing of equipment. For the equity portion that goes into the joint venture, we will finance basically through our cash balances, or we might be raising new debt for that into Stora Enso, but that we then decide as we go on and the equity need materializes.
If you're looking at the total investment, EUR 1.6 billion for a reasonably sized pulp mill and a paper board mill, that does seem relatively low. Is there anything that makes this comparatively cheaper in China? That's one question. The second one is, when do you expect to be self-sufficient in China if you have 70,000 today and you need 120?
I can answer the first part. We have been developing the plantation base in China since 2002. We have close to EUR 200 million invested already in China. This number doesn't include the working capital, which will materialize when the full mill is up and running. I think that covers the EUR 1.6 billion part. With regards to the wood self-sufficiency, I think, Jouko, do you want to answer that one?
Yeah, that'll be a short one. The plan is to be self-sufficient when we start the mill in, I think we said, second half of 2014.
Okay. Just for the question, Domee, it's quite an obstruction period. Essentially, two years to get up and running and to build that 50,000 incremental hectares. The second question, can you comment anything about the preferential tax treatment?
We're intentionally, obviously, as you can imagine, not giving the exact dates now. Number one, the preparations are fairly well progressing. I can tell you no names, but I can tell you that discussions with key suppliers have been and are ongoing. I would assume after today's announcement, their interest level will skyrocket pretty quickly. You should not feel that we haven't done anything. Also, I think in terms of the fiber base, we believe we have a fairly rock-solid plan in getting where we need to be in the next time. The way I look at it is there's actually two years and nine months to the end of 2014, not two years. We're not waiting.
Okay, thank you.
I can answer the tax part. We will basically have a grace period of five years to a certain amount of the local tax, and then another five years for a lower grace. There will be some reduction. I would say on a group level, it doesn't have a material impact on our tax rates, and we'll continue to keep you updated as we go quarter by quarter like we do always on our full group tax rate.
Sorry to kind of confuse you, but I wanted to add one thought, which I wasn't too clear on. One of the reasons why we're pretty confident on the fiber supply is that given the relatively long march to today, we actually right now are selling small amounts of wood already. While we're working on projects, the trees grow every day. That's the good news.
Okay, thank you.
The balance is pretty good.
Thank you. Our next question comes from Markus Almerud from Morgan Stanley. Please go ahead.
Yeah. Hi, Markus Almerud here from Morgan Stanley. First of all, what is the timing? What is the expectations of the timing of the CAPEX? Should I just divide them by three? That's my first question.
I'm sorry. I didn't understand.
The timing of the CAPEX. When will we see the majority of the outflow?
I can answer that. It is about EUR 400 million this year, EUR 600 million in the following year, and then the rest comes after that.
Okay. My second question is just on the pipe side. You will start by building 450,000 tons of capacity of board, and you said you had 900,000 tons of pulp, of which 700 is chemical. Will you then produce pulp in full and hence will be long?
Absolutely. One of the key strategies here is, you may have heard me say this before, I love flexibility. What we're going to do is we're going to build the 7 plus 200,000 tons of pulp. The first board machine, and I intentionally call it the first board machine, which is part of this investment, will not use all of that pulp. That means we will be selling market pulp in a country that imports the vast majority of their pulp today. When we see it appropriate, you can see that if you think about the second board machine possibility as a second line, you can imagine that when we're convinced this first investment is a good return, one day, not today, but one day, we may well add another board machine, and that's the game plan.
Okay. I know there has been some unsecurity of the land and there's been some disputes about the land. Is all that behind you now and is it solved?
I think it would be a big mistake to say on the announcement day that everything is behind. We figured out in 2009 that the complex multi-thousand contract lease agreements were not as transparent as they should be in our value and business standard system. I personally met and agreed with the governor of the province that we're going to start reworking them. Since 2009, we've been working through thousands of contracts, making sure that they're transparent. We understand who gets what, and we're very well progressed in that. Obviously, we continue that work. To finish the thought, I am very comfortable that we will never be perfect. There will always be issues in a community of 6 million people. I think together with our local partner, we are going to be very welcome and good for the community also.
I think this is one part where we work for good reasons for years and years now to make it very transparent and structured. I must say, again, using external auditors and external views to make sure that we do what's right.
Okay. Thank you very much.
Thank you.
Our next question comes from Oskar Lindström from Danske Bank. Please go ahead.
Yes, hello. First of all, congratulations on reaching this stage in such an important project. My first question is, there's a specific precondition mentioned in your press release necessary to starting construction. What is that specific precondition?
If I take the short version of it, the NDRC, the National Development and Reform Commission, has to formally do the final approval. You can imagine that we have been in close contact with both the regional, local, and national authorities. The way the process works in China is once we have now agreed and we have board support to launch the investment, now the formal applications will have to be signed off by NDRC. That will be the most essential one. I dare to say I'm quite confident it will take some time, but I'm quite confident that there is a very strong national support in China for this project. Remember, we're doing something from local renewable materials for the local consumers in a country that is heavily dependent on imported fiber and even imported food boards. That's basically the essence of it.
Second question concerns who will be the main machine supplier for the project.
We will see. I hope they're on the phone and listen. It'll be very competitive.
Okay.
Given the world situation now, I would hope that we get very competitive and solid final offers and so forth. I will not mention any names, but I'm sure when the day comes, we will announce that then. That's where we are. As I said, we obviously are in pretty advanced progress also in that respect, but no decisions have been made on technology suppliers yet.
The type or the quality of the board that you plan to produce will be similar to what you are producing in Scandinavia or in the Nordic region today.
Yeah. Let me try to answer it in two ways, not being yet in five years the ultimate expert. The technology from an environmental technology and so forth point of view is absolutely best available technology. The ability to do that is exactly there. Given that, especially, for example, liquid packaging board is one of the few global customer businesses we have, that's one of the things that's important for our customers. We can offer the same quality from different parts of the world, and we grow where our customers grow. That's point one. Point two, as you may know, we're doing some innovations with microfibrillated cellulose in Imatra right now and so forth. Obviously, we want to bring these innovations at a later date to China.
The point of the story is what we're trying to do is not just that it's day one competitive and compatible with the European operations, but it will also follow to the future with them. To add one more point, the 450,000 tons is not only for liquid packaging board. We also plan to produce other premium brands, premium folding box board, cupboard. I hope one day with bioplastics and so forth. What I'm trying to do is tell you that this will be an absolute top-of-the-world facility with top-of-the-world products also.
Okay. The final question, will you have any synergies here with your Intact, or what type of synergies do you foresee with your Intact business?
I would say very limited. Intact is in a different part of the value chain and so forth. Yeah, if we can see some material connection opportunities, yes. Let me put it this way. Intact has to stay and be competitive with or without this investment. This investment has to be very successful without Intact.
All right. Thank you very much. Those were my questions.
Thank you.
We have now a question from Linus Larsson from SEB. Please go ahead.
Yes. Thank you very much, and good afternoon. Just to clarify on the CAPEX figure, the total project EUR 1.6 billion, does that include some investments already made, for instance, in the plantations, or is that from today and onwards?
Yeah, that is Linus, from today and onwards. That's what we like to describe. What is the money that's being spent then on the industrial project from here on?
Okay. If I might call it EUR 1.8 billion, then looking at the whole integrate, including the forest land?
If you include the previously made investments, that is close to EUR 200 million, as we have described in our annual report notes on the biological assets.
Invested past 10 years' efforts. Yeah, correct, right.
Okay. It sounds, given that big number, 13% ROC seems like an ambitious number. When do you expect to reach 13% on this integrate?
Let me try to answer it this way, and I hope the good people don't mind that we will not disclose exact margin and return numbers on the projects. When we say in our press release that we expect this integrate, when it's ramped up, to significantly support the group moving towards the 13% ROC target, last year we were at 10%. To move the group to the 13%, mathematically, when this baby is up and running and successful, it has to be above 13%. I would like to stop my answer there.
I presume that you do expect maybe one, maybe two years, maybe more of a ramp-up before you have that kind of profitability.
I'm trying to think how to answer that. It's not going to happen overnight, but I would say that I'll do everything I can to push the team to forget multiple years after startup because obviously, from an economic return point of view, yes, it's important to be relatively quick to build the mill and put the first chip into the digester. What's even more important is that you are ready when you start it and you can ramp it up relatively quickly. We've done the math, obviously, to see how critical that is. That's the push.
Yeah. Now, I'm very interested in learning more about this decision that you have made to base it on local fiber. I'm sure you've dug deep over the past 10 years. When you compare a China-based pulp plantation integrate, what kind of margin difference do you see if you compare that with what you're currently building in Uruguay?
Think about it this way, if I may try to describe the thought. One, the key metrics being, if we start from the fiber productivity, Uruguay, we believe, is going to be very competitive. Still, even though the wood productivity or the fiber productivity is not going to be like Bahia is or Superstar Veracel. In China, you won't get to Bahia productivity numbers either, but you obviously gain in logistics. You obviously gain in not drying the pulp because it's an integrate. Therefore, we say that based on our analysis, this is the most competitive solution, and it has beyond the cost competitiveness, also, I think, other benefits in terms of risk and support from the local authorities and so forth.
I think if the alternative, like I hear from your question, would be, given the fact that we're building a world-class mill in Uruguay, why didn't we just put a board machine in there? In my box, I'd have to put that capital on this project too, then. I hope you agree that we couldn't just say, let's use the pulp that we're selling as market pulp with the target of good returns there too. We'd have to put the capital in here too. From a return point of view, I think it's not that strange that we have looked at alternatives and we believe this is the best solution from our future and return point of view.
Yeah, I understand there are pluses and minuses. On a standalone basis, if you for a second would say that you would have a plantation and pulp integrate in China, no board machine, and you would compare the profitability of that with the standalone Uruguay plantation and pulp mill, is there a big difference?
I'll ask you a little more specifically, a question. For customers in China, no, there is not.
No, that's my question. That's a good way of answering.
Exactly, because that business cost is still something, so yeah.
Okay. Just two final questions. You did talk about the tax breaks. Are there other subsidies that you might expect in China supporting these investments? Are there any formal subsidies apart from taxation?
Nothing material.
Okay. Good. Then.
There is some support. It's not a subsidy, but if I may say, I think the criticality of this is, and this is why it's taken a bit of time to get to this state, that we have tried every possible way to secure that we have full strong support from the national, regional, and local level of the Chinese government because that is important when we make big investments like this.
If I may, just one final clarification on the CAPEX. If you would now summarize your group CAPEX, including all various projects for 2012, 2013, and 2014, do you have the numbers for that updated with today's news?
Sure, Linus. The guidance, and Markus here, the guidance we gave earlier was that we'd be spending EUR 570 million in our regular CAPEX, EUR 150 million in equity injections into our project. The addition from this Chinese project is about EUR 400 million. That number, I think, we will further specify when we make the decisions of the equipment supplies. That number you can add on top of the CAPEX spend that we have communicated earlier. This has no other impact on our CAPEX plan. Everything else continues as announced before.
What’s the best guess CAPEX for 2013?
I wouldn't comment at this point yet. We'll guide that when we get there for the regular CAPEX.
Okay, thank you very much.
Thank you.
As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad. We now take a question from Nitin Dias from J.P. Morgan . Please go ahead.
Good afternoon, gentlemen. I had three questions, if I may. The first one is, you had plans for other CAPEX projects, Veracel II, as well as another project in South America other than the Uruguay project. Given that you are involved in Monticello Plaza and then this Chinese project, would it be safe to assume that the other two may not be likely in the near term? I'm referring to the Veracel II and the Rio Grande also.
Yeah. No, thank you for the clarification. This is Jouko. There is no imminent plan on Veracel II. I do want to say happily that we have received the license from the regional government in the past couple of weeks, which I think is very positive for the expansion. The only thing that does for us and our partner, Febria, is that gives us full commercial flexibility to do or not do and time potential expansion when it's appropriate for both partners and so forth. No imminent plans.
The same is true for the Rio Grande do Sul project in Brazil.
Rio Grande do Sul is 45,000 hectares, so it'd be the smallest pulp mill anyway. Seriously, it's a plantation that we have, and it's way, way below yet of any industrial investment scale.
Okay. Understood. The second question was on the funding for this project. Given that the equity is going to come from your own balance sheet, in theory, the net debt of your company, without including any benefits from the project, should go up by about EUR 1.6 billion because you're consolidating it anyways.
Yeah, that's correct, excluding the equity part that our Chinese partner will put in, which then equates, if you calculate from the numbers that are in the release, about EUR 100 million. That's the way I would do it on a like-for-like basis at EUR 1.5 billion to our net debt as of today. You get the comparable number on gearing.
Understood. In terms of, I guess, the cash flows for the project, I assume that the initial EUR 400 million, by the time the cash goes out of the balance sheet, you'll have funding in place. Is that something you want to put in place later down the line because you assume you can fund the EUR 400 million from your existing liquidity facilities?
As you know, we have EUR 1.1 million of cash liquidity at the end of last quarter, and we have a EUR 700 million revolving credit facility as well as pension loan availability. We have massive flexibility to finance this project in many, many different ways. As said, we've been sourcing the debt from export credit agencies, multilateral lenders, and commercial banks. These processes, of course, take quite a lot of time from when we have decided to do a project for public disclosures, etc. The initial part of the funding will most likely come in the form of outputting in equity into the project, and then possibly, for example, bridge shareholder loans. That we would do out of our own cash balances or other sources. When it comes to the gearing, we have had the stated target of being at or below 0.8.
Just mathematically, if you add up the EUR 1.5 billion of incremental debt with today's numbers, which of course is not correct to compare, but just theoretically, this would take our gearing up to 0.72. There is no change in our gearing targets, and the same goes for our dividend policy. All financial targets, returns, dividends, gearing, they stay the same.
That's very helpful. Thank you very much.
Thank you.
Thank you.
We will now take a question from Michael Schacht from Cheuvreux . Please go ahead.
Good afternoon, gentlemen. You sort of created an interesting lunch event today. I missed the first part of your presentation. I have a question regarding your plantations and your leases for forestry land. Perhaps you could say a couple of words on the length of those leases and how you pay for those land leases, please.
Okay. I'm thinking how to respond to that. As you know, the state owns the land in China.
Yeah.
Meaning you could say Beijing owns the land. What happens is there's something called land use rights that various parties and partners get in China locally and regionally. What we do, we rent, basically, the land.
Yeah.
The state forest land, the rental agreement, which is the vast majority of the land base, it's a rental agreement effectively for 50 years, 5-0 years.
Yeah.
For what we call social land, 20- 30 years. The land rentals are adjusted every five years, meaning the rental cost with the consumer price index to CPI.
Okay.
If you want to know the price, don't ask because I will not disclose that for commercial reasons. That is the structure and the math. You can see that, obviously, we have built very long-term contracts in this respect so that we can secure the fiber supply for the mill.
No, thank you. That I fully understand. Just to clarify, the price is fixed for five years out, but the lease is effectively for 50, or if it's so-called social land, 20- 30 years.
Exactly. I should say it's a consumer price index adjusted rent in adjustment. It's not just a renegotiation of the price. I think we are that's why we feel very confident about the cost development also into the future of the operation.
Okay, thank you very much.
Thank you.
We have now a follow-up question from Lars F. Kjellberg from Barclays Bank PLC. Please go ahead.
Sorry, that question had been answered. No, sorry. Here's another one, actually. How do you evaluate market risk in China? I think we can all see very strong demand potential in China, of course, right? It tends to have strong demand, tends to also generate strong supply. Just want to have your thoughts on that.
Maybe two thoughts, Lars. Hopefully, helpful. I think globally, but also in China, anything that supports the consumer well-being development, meaning also liquid and food packaging in a country, like in most of the growth markets, where 50% of the food gets thrown away every day because it gets spoiled, poorly packed, and so forth. I would claim that the risk of the growth not happening is about the lowest possible. There may be other areas in manufacturing type of packaging where you could see more risk there, but I think that portion of the product portfolio is I can live with that. I think that's one thing. On the supply side, yes, this is my third industry, and I never believed that you can do something that nobody would try to chase you after.
I would say also, again, that with today's capabilities we have with the global number one position, liquid packaging, and the innovations in place and on the pipeline, I think this is the one area where we can actually, in our industry, build and keep competitive differentiation. I think it's very, very different, at least, that let's say trying to compete in China with better grades against the Chinese players, that's not the game that I want to grow, which is why I want to grow this game because here I really believe that we can not only maintain, but hopefully also improve our competitive differentiation in development, also together with some of our global key customers. I think in that context, in our industry, this is also a lower risk than the most typical risks.
If you were to think about coming back to one of the previous questions, sourcing of the fiber, why would it not be an alternative to source the fiber in Uruguay and produce the board in China? What is the real benefit of that?
That's the beauty of it, that we, of all people, are building a mill in Uruguay. The only point I'm trying to make is that we did, and we have extensively looked at the alternatives, and this is the most competitive solution we believe. You gain in distance, you gain in the integration. Like I said, obviously, the capital would be less with the board machine, with a board machine only in China. In that comparative calculation, you'd obviously have to put the Uruguayan capital into the return calculation. In those comparisons, we believe this is the best return. I can assure you also that we're planning to make a lot of money also on the market pulp of Uruguay too. That's how the math works. There was no emotion.
Uniquely, we actually had the option or the alternative, whereas most people would have to base that on market pulp, which would be a totally different game. We believe this is the best solution.
Thank you.
Thank you.
We will now take a question from Markus Almerud from Morgan Stanley. Please go ahead.
Hi, Jamie. Yes. Hello. Just very quickly, Markus, you mentioned the number EUR 1.5 billion, which I guess over these three years is what the net debt will increase. Just to get that right, to get the impact on the balance sheet correct, is that basically all of the debt and then 85% of the equity portion? You will consolidate all of the 100% of the debt to your balance sheet, right? That accumulates to EUR 1.5 billion over the coming three years.
Yeah. If I take it from the beginning, if you take the numbers on the release, the cost of the project from here on will be EUR 1.6 billion.
Yes.
Out of that, it's 60/40 debt and equity. Of course, from our point of view, all the money we put in shows as debt on our balance sheet ultimately when we consolidate. The part that comes in as equity, then, like real outside equity, is about EUR 100 million from the partner, which is the 15% of the 40% of the total project from here on. That's where I kind of get roughly the EUR 1.5 billion of additional debt on our balance sheet, on our group balance sheet.
Okay. Perfect. Just wanted to make that clear. Thank you very much.
We will now take our final questions coming from Oskar Lindström from Danske Bank. Please go ahead.
Hi. Two additional questions. The first one, if you can provide any breakdown of your CAPEX costs, for example, between how much is going towards the pulp mill, how much towards the paper machine, and if there's any additional spend on plantations included in the EUR 1.6 billion figure.
Let me try that. To be honest, for commercial reasons, I would not want to give you any breakdown right now because, as I said, I expect to be in a relatively aggressive and heated up and important commercial negotiations with different partners soon. I think down the line, we can give you more updates there. I would say that the vast, vast majority of the investment is the mill side and the technology and all that infrastructure, the balance of plants and so forth. A lot, lot smaller portion is going to be the fiber supply because, like we said, we already have the most significant part. We spent in the past 10 years, EUR 200 million on it already. Sorry about that.
Sorry. Just to then follow up on that, the money that you expect or the CAPEX that you anticipate to spend on the plantation or the fiber supply, is that to acquire new land leases and start up new plantations?
Yeah. It's yes and yes because, like we said a bit in probably the earlier discussions that we have today, we have today 70,000 hectares planted. We need to increase that a bit, but we also will increase the 120,000 hectares final plantation size. On top of that, there will be, I think, 17,000- 20,000 hectares of non-plantation land. That's without giving you numbers, that's the way it works.
Okay. Second question. Regarding your existing plantations, what is the ownership? Is it going to be part of the same owned in the same structure as the pulp and paper mill?
I'm sorry. You're asking if the forestry is going to be.
Is that going to be owned by you fully, and then the pulp and paper and the board mill going to be owned 85% by you, or are they going to be the same legal entities, so to speak?
There will be more than one legal entity, but the correct answer is that both the forestry side and the industrial side will be partnerships with 85% majority of Stora Enso. Legally, we could not be 100% running a company on forestry anyway.
Okay. The partner will be the same in both cases.
Yeah, one is Guangxi Forestry Group. Exactly, yeah.
Okay. That's wonderful. Thank you very much. Those were my follow-up questions.
Good. Thank you very much.
As there are now no further questions, I would like to turn the call over back to Mrs. Ulla Paajanen-Sainio for any closing or additional remarks.
Okay. Thank you, Camilla. Thank you, everybody, for participating. I will hand this call still to Jouko for the final words.
Thank you very much for listening. I hope this was a bit of a preview for many of you. I hope to see many of you in one of the best, if not the best, newsprint mill in the world in Lange Brücke on Thursday, where you will have, forgive me, but a lot better experts to answer many of your questions concerning this exciting project. Thank you very much.