2006 20-F - Sappi

The wood logs and wood chips used in the Gratkorn TCF pulp mill are purchased through the
Papierholz Austria GmbH joint venture arrangement amongst Sappi, the Norske Skog Bruck mill and the
Frantschach Group. We hold a 42.5% ownership interest in Papierholz.
The wood chips used in the Lanaken CTMP plant are purchased through Sapin S.A. (“Sapin”), a
50%-50% joint venture company operated together with Norske Skog. Sapin was initially formed on
November 25, 1986, pursuant to a joint venture agreement between Sappi Lanaken and Parenco. Under
the agreement, as amended in September 2003, the parties agree to utilise Sapin exclusively to furnish the
entire wood requirements of the joint venture partners’ affiliated mills.
Pulp
Sappi Fine Paper Europe produces approximately 45% of its pulp requirements. The remainder is
supplied through open market purchases and, to a lesser extent, supply agreements.
Energy Requirements
Sappi Fine Paper Europe’s energy requirements are generally met by internally generated sources and
purchases of electricity, gas and, to a lesser extent, oil. In Germany, Sappi Fine Paper Europe internally
generates approximately 65% of the electricity used at its mills. Approximately 45% of the energy
requirements for the Gratkorn mill are internally generated. The remaining requirements are met by
purchasing electricity, oil, coal and gas in accordance with various supply agreements.
Substantially all of the electricity requirements of the Maastricht mill are satisfied by a 60 megawatt
combined heat/power plant operated through a joint venture with Essent. All surplus electrical energy is
supplied to the public electricity grid. We hold an ownership interest of 50% in the VOF Warmte/Kracht
Maastricht Mill, the joint venture, which was formed in 1992, and are obligated to purchase all of the
steam and electricity requirements of the Maastricht mill from the joint venture facility under a long-term
supply agreement. Essent purchases the surplus electrical energy of the VOF. The Maastricht mill also
purchases natural gas pursuant to a contract with a natural gas supplier.
Nijmegen mill’s electricity requirements are largely satisfied by its co-generation power plant. The
Nijmegen mill additionally purchases natural gas from Gasunie, a local supplier.
Lanaken mill’s energy requirements are generally met by purchases of natural gas and electricity.
Certain of the energy requirements of the Lanaken mill are furnished by a combined heat and power unit
constructed and operated pursuant to the Albertcentrale N.V. joint venture arrangement between Sappi,
the Belgian power company Electrabel and Rabo Energy. Sappi holds a 49% ownership interest in the
Albertcentrale facility and is obligated to purchase 85% of the plant’s energy requirements from the joint
venture facility under a long-term supply agreement. The facility commenced operations in April 1997.
Chemicals
Major chemicals used by Sappi Fine Paper Europe include clays, carbonates, latexes and starches and
chemicals for the specialty business. Sappi Fine Paper Europe purchases most of these chemicals from a
portfolio of suppliers, and in only one case is Sappi Fine Paper Europe dependent on a sole source of
supply. There are generally adequate sources of supply in the market. Most of these chemicals are subject
to price fluctuations based upon a number of factors, including energy and crude oil prices and
transportation costs, and commodity demand vs. supply imbalances.
Southern Africa
Wood
Sappi Forest Products manages approximately 546,000 hectares of forestland in southern Africa, of
which approximately 398,000 hectares are forested, which produces approximately 83% of the timber
33