SAPPI LIMITED

The Cloquet mill is partly supplied with internally generated electricity. The facility includes a
hydroelectric plant that is licensed by the Federal Energy Regulatory Commission. In addition to
generating a portion of its own power, the Cloquet mill has entered into a take-or-pay agreement to
purchase a portion of its power from Minnesota Power. We may terminate this agreement at any time
after December 31, 2008, subject to a four-year notice period.
Alternative Fuel Mixture Tax Credits—Black Liquor
The U.S. Internal Revenue Code allowed an excise tax credit to taxpayers for the use of alternative
fuel mixtures. In 2009 we began to use an alternative fuel mixture containing diesel fuel and ‘‘black
liquor’’, a by-product of pulp production, at our Somerset and Cloquet mills. During the second calendar
quarter of 2009, we were approved by the IRS as an alternative fuel producer. This tax credit expired on
December 31, 2009.
During fiscal 2010 and 2009, the Company filed claims for alternative fuel mixture credits covering
eligible periods subsequent to February 2009 totaling US$ 51 million and US$ 87 million, net of fees and
expenses, respectively and has reflected such amounts in the accompanying Group income statement
in ‘‘Other operating expenses (income)’’. Cash received, net of fees and expenses paid by the Company
during fiscal 2010 and 2009 totaled US$ 73 million and US$ 65 million, respectively. No receivables
related to alternative fuel mixture credits were outstanding at the end of fiscal 2010. The Company
considers the tax credits earned in fiscal 2010 and 2009 as fully taxable and treated them as such in the
calculation of its tax provision in the consolidated financial statements.
Chemicals
Major chemicals used by Sappi Fine Paper North America include clays, carbonates, latexes and
plastic pigments, titanium dioxide, caustic soda, other pulping and bleaching chemicals and chemicals
for the speciality business. Sappi Fine Paper North America purchases these chemicals from a variety of
suppliers. Chemical supplies have tightened due to the rationalization of capacity over the last several
years. Most of these chemicals are subject to price fluctuations based on a number of factors, including
energy and crude oil prices, the availability of feedstocks, transportation costs and the specific market
supply and demand dynamics.
Europe
Wood
Sappi Fine Paper Europe purchases approximately 3,650,000 cubic meters of pulpwood per annum
for its pulp mills (including the Acquired Business). The wood is purchased both on contract and in the
open market. Wood supply contracts are fixed for one year in terms of volumes. Price agreements range
from three months for wood chips to one year for logwood.
Logwood 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 Zellstoff Pöls, 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% joint venture company which we operate together with Norske Skog. Sapin was initially formed on
November 25, 1986, pursuant to a joint venture agreement between the predecessors of Sappi Lanaken
and Norske Skog. Under the agreement, as amended in September 2003, the parties agree to utilize
Sapin exclusively to furnish the entire wood requirements of the joint venture partners’ affiliated mills.
Under a wood supply agreement, M-real Corporation’s parent company (Metsaliitto Group) will
supply up to 704,000 cubic meters of wood annually, substantially all of which will be sourced in
southern Finland, to the Kirkniemi mill for a minimum period of 12 years at market rates.
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