SAPPI LTD (SAP) 6-K

Westbrook Cogeneration Agreement: In 1982 a cogeneration facility was installed adjacent to Sappi’s Westbrook Mill at a cost of USD86 million, to supply
steam and electricity to the mill on a take-or-pay basis. Sappi have taken the position that this is an operating lease. An unrelated investor owns the facility.
The agreement expires in 2008 and Sappi have an option to purchase the facility at the end of the basic term or any renewal term, at its fair market value at
that time. Sappi have notified the lessor of our intent to purchase the asset at the end of the Basic Term (15 July 2008) at its fair market value. Together with
the lessor Sappi is evaluating the fair market value of the asset. Sappi also has a right of first refusal to buy the facility should the owner elect to sell it. The
future minimum obligations under this arrangement are included in the amounts presented above.
Environmental matters:
Sappi operates in an industry subject to a wide range of environmental laws and regulations in the various jurisdictions in which it operates, and these laws
and regulations have tended to become more stringent over time. Typically, Sappi does not separately account for environmental operating expenses but does
not anticipate any material expenditures related to such matters. Sappi does separately account for environmental capital expenditures. Sappi spent
approximately USD15 million in financial year September 2007 (September 2006: USD13 million) on capital projects that control air or water emissions or
otherwise create an environmental benefit. Amounts to be spent in future years will depend on changes to existing environmental requirements and the
availability of new technologies to meet such requirements.
In South Africa, requirements under the National Water Act, National Environmental Management Act and the Air Quality Bill may result in additional
expenditures and/or operational constraints. South Africa is also a signatory of the Kyoto Protocol and Sappi is currently identifying and initiating Clean
Development Mechanism projects at a number of its South African mills. Although Sappi is uncertain as to the ultimate effect on its South African operations,
their current assessment of the legislation is that any compliance expenditures or operational constraints will not be material to its financial condition.
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