Design Of Greenfield Projects European Approach And Lessons To Be Learned For North America

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1 Manuscript Design Of Greenfield Projects European Approach And Lessons To Be Learned For North America Author: Peter Oksakowski / Managing Director BHM INGENIEURE, Engineering & Consulting GmbH Abstract The Tissue industry is a fast-growing industry. The consumption of tissue is increasing continuously, thus the production needs to be optimized as well as new production facilities have to be constructed to fulfill the market demands. Developing new tissue mills which consider a wider view including the aspect of production, the latest technology regarding production and intra logistics, as well as future requirements to the extent of known future market needs, is a big challenge and requires in-depth knowledge of all disciplines involved in the construction and operation. The highest potential to optimize a greenfield project is in the initial phase and it starts with the right design approach. Working internationally in the paper industry (especially tissue industry ) as an engineer and consultant for more than 25 years, I have learned that a variety of influencing factors have to be considered to design and construct a state of the art tissue mill in terms of cost, time, quality and sustainability. Introduction Seems that this headline is quite provoking? I am honored to be allowed to offer my insides on the subject. It is not my intention at all to present a lecture to all the experts, in the field of tissue production assembled here today, on what could be done better when developing and designing a greenfield tissue project in North America. Rather I like to share my experience and promote a different approach to design and construction of tissue production facilities. There are two main reasons for this statement: 1.) I m convinced that every engineer, including myself can learn a lot when working in other countries and listening to local designers how their design approach looks like and why they choose a certain method to implement a greenfield project. 2.) The project for Sofidel America in Circleville / Ohio is the first greenfield tissue project in U.S. I m currently involved in, therefore I readily admit that my experience concerning greenfield projects in the tissue industry in North America is limited and has been a great opportunity to broaden my horizon. I am proud that I can report here, that up to now the implementation of this greenfield project works very well, considering the fact that we have applied also a lot of European solutions. The cooperation with all parties involved is great and very productive. And what s maybe most important is, that due to the mix of American- and European Know How solutions have been created which will result in a project with a very short construction period, reasonable construction cost applying European quality standard where appropriate and considering sustainability as well as low maintenanceand operational cost. In most countries, a greenfield project is a very challenging type of project. Especially if talking about large scale industrial projects like a full integrated Tissue Mill. Many topics need to be considered by the investor for example; location of the site, environmental issues, zoning, building regulations, availability of skilled labor, construction methods, etc. Due to the fact that the cost for the construction of all buildings and civil site works reflect approximately 40 to 55% of the total investment for an integrated tissue mill the right design approach is essential to have a successful project in terms of cost, time and quality. Especially in U.S. construction- and maintenance cost are maybe one of the most important issues, because we, as European, discovered believe it or not- that the cost for construction (labor and materials) are double compared to Central Europe. In Europe the costs for a full integrated

2 plant including one double width machine and all process equipment and construction are approximately 100 to 150 million dollars, depending on the chosen technology. I guess that most of you are aware of the investment costs for a comparable project in U.S. Various projects in the past have demonstrated that meanwhile for a designer it s not sufficient anymore that the investor and process engineers provide initial data of the plant, process department layouts and foundation layouts of the tissue machine building to design a state of the art tissue mill. To develop a full integrated tissue mill the overall designer of the plant must have a profound knowledge and understanding about the process, intra logistics and needs of the operation. It s not only a challenge to consider all current requirements of such a project, the designer has also to take into account potential future developments on the site. On average, a tissue machine has an overall lifecycle expectancy of approximately 30 years. Considering that, many of these machines are rebuild during this period some of these machines are up to 50 years in operation. As you can imagine it s quite difficult to develop a greenfield project which provides also for many future contingencies over such a long period. Additionally, the technological development cycle has shortened and picked up speed requiring faster development of projects to have a competitive edge as a tissue producer in this market. Highly automated production-, transport- and storage systems are not only influencing the operation but also the complete layout of the mill as well as the design of all the buildings. All this raises the question how best to consider all these aspects in the design phase of such a project? Today I would like to talk to you about our European approach to develop and to design such a greenfield tissue mill and trigger your interest in how can I benefit from this for my next tissue mill projects in North America. THE EUROPEAN DESIGN APPROACH The Comprehensive View - The whole is more than the sum of its parts (Aristoteles): Historically it was quite common that paper manufacturers had a significant number of engineers employed in their own organization, a lot of the expertise to develop and to design a project has been within the company. Some of these engineers had vast experience in doing such large-scale projects. Nowadays most of the tissue manufacturer s don t have such experienced project managers concerning themselves with the development of a complete project anymore. There are several specialists who are experts in some specific field like paper machine process, converting, energy, electrical installation or purchasing and sometimes even an engineer for building design but only in very few cases there is a project manager who has the experience to coordinate all various topics and interfaces between all parties involved. Let me give you an example that demonstrates this: A tissue manufacturer decides to build the operating floor for a new tissue machine on grade there will be at least a wet end pit to place the fan pumps and a dry end pit for the UTM pulper or maybe one common basement. To maintain the required pressure to avoid air bubbles in the approach flow system, the fan pump has a specific size and the pit needs to have therefore a specific depth depending on the size of the fan pump. Let s assume that the pit will have a required depth of 21feet; this means considering the foundation slab for the mill stand, this pit will require an excavation down to feet below grade. In addition, the geotechnical expert has discovered during the soil investigation that the ground water table is in average at 10 feet below grade. Now there are various options to resolve these technical issues: - 1 The pit will be built as described above, which is technically possible but will cost a lot due to the enormous groundwater pressure and intensive dewatering measures to lower the ground water table to feet. - 2 The machine will not be built on grade but on an elevated operating floor, this means to redesign the complete paper machine building which will probably have a significant time and cost impact.

3 There is a third option, which will possibly be the best solution, but this requires having experience in several different disciplines. If a different type of water storage tank and a bigger fan pump would be used, the depth of the pit could be reduced significantly. The additional cost for this small modification of process equipment would be in the range of a few ten thousand dollars compare that with the savings on construction cost for the pit could be several hundred thousand dollars and the decision process takes on a different magnitude of cost impact. In a tissue project, there are hundreds of such topics which require someone with interdisciplinary know how, who has a comprehensive view to achieve the best solutions. Selection Of The Site For A Greenfield Project The decision for a project is taken by the investor based on a market study and/ or business case. The selection of the site is driven by numerous factors. Regional and national environment factors are for example: - Energy cost - Funding / taxes and incentives - Transport distance - Availability of utilities (Water, electrical power, gas) - Availability of skilled labor - Building regulations - Climate / weather conditions - Committed authorities / stakeholders - Complexity of approval procedures - Etc. On-site factors are for example: - Size and shape of the plot - Cost for land purchase - Soil conditions /Groundwater - Topography - Zoning restriction - Flood risk - Environmental issues (e.g. emission limits, endangered species, contaminated soil) - Access to main roads and railroad - Etc. The decision about the site has a significant impact on the project, not only concerning the time needed to implement the project, the capital expenses for the construction, the possibilities concerning the future development of the tissue mill, but also a long term impact on the operational cost of the plant. Therefore we advise our clients to conduct a due diligence study analyzing in detail all these various aspects and their potential impact before taking the final decision to purchase the land. In addition, we recommend ordering a site development study. This ensures that size and shape of the land is suitable to fulfill the needs of the project, also in regards to a potential future development of the plant. Accepting too many compromises could lead to significant additional cost during the implementation of the project and / or the operation of the plant potentially negating the benefit of low land acquisition cost.

4 What Is Integrated Site Development? Once the site is selected to run the due diligence analysis for the site, it is the right time to perform the site development study. Up to recent history most of the investors were dealing in that phase of the project with the general layout of the plant without studying more in detail also the possibilities of future development. In many cases this approach resulted in: - Higher capital expenses for construction not considered in the project budget - Unexpected higher operational cost (incl. maintenance cost) - Loss of efficiency in production and intra logistics - Significant demolition works on existing buildings and outdoor facilities to implement future expansions - Disturbances of the existing operation during the construction period of the expansion - Compromises concerning intra logistics for expansions To avoid such surprises in an advanced phase of the project we have developed some years ago a pre-engineering service called Integrated Site Development or known by its abbreviation as ISD. ISD is an approach to develop and design a project with the consideration of all kinds of factors, which might have an impact on the project in terms of cost, time, quality as well as future developments on site. ISD is a modular project development system containing a basic study and in addition, several modules like risk assessment, site assessment, sustainability assessment, logistics, time schedule, budget estimate, visual impact study. To conduct the basic study a lot of initial data and decisions from the investor are required and some of them are probably not as easy to ascertain in this phase of a project, for example: - Number of Tissue machines to be installed (in phase 1 and totally in future) - Production capacity of Tissue machine - Technology of Tissue machine - Raw material to be used (virgin fiber or recycled fiber) - Required storage capacity and type of storage - Number of converting lines - Concept for intra logistics - Etc. Based on the initial data all departments of the plant, dimensioning and the location of each building on the plot will be determined. In addition, a conceptual design of all underground services shall be prepared to avoid demolition or relocation of underground services when future expansions of the plant will be conducted. Why is it so important to take into account all these topics already in the initial phase of the project? The reason is that the investor determines by freezing the mill site layout or site development plan whether consciously or not- at least 75% of the total construction cost for buildings and site civil works, the basis of the efficiency of the intra logistics of the mill and probably also a significant amount of cost for future expansions. The result is that in the initial project phase, when the investor defines the overall layout of the plant, the highest potential on influencing the capital expenses exists and can be taken advantage of by the investor. Even if the quality standards of buildings and outside facilities would be significantly reduced in a later stage of the project one wouldn t be able to influence more than 20% of the total construction cost in the best case, without reducing also the footprint of the buildings and paved areas. It is our experience at minimum 5% of the total construction cost should be reserved as contingency fund in the budget that cannot be influenced and is attributed to unforeseen circumstances and challenges during the construction of the project.

5 As already stated in the beginning of my speech the average lifecycle of a tissue machine in Europe is to be considered between 30 up to maximum 50 years. The lifetime for industrial buildings in Europe still considered being 50 years. The justified question may arise if it makes sense in nowadays to design an industrial facility to last such long period of time. And, I agree that especially looking to the speed of the technical development it is very complicated or even mission impossible to forecast all future production- and intra logistic needs for decades. Tissue manufactures have different opinions how to deal with this problem. There are investors focusing on the capital expenses only, others are also taking into consideration life-cycle cost as for example maintenance- and operational cost. Who Is Right? In Europe, we perform a service called a building condition assessment known by its acronym BCA for several tissues manufacture. Meanwhile we have performed this assessment for many tissue mills in various European countries. The BCA is a tool to make maintenance cost for buildings more predictable and to have realistic figures in the annual budget and it delivers also a lot of other useful information for new projects. Two of the results of the BCA for all these mills have been that the majority of the buildings are in use at least 40 years and that maintenance- and operational cost are more than double than the initial construction cost. Considering these facts it seems to be reasonable to take into account not only the optimization of the capital expenses for the construction of a new project but also to have a strong focus on maintenance- and operational costs as well as sustainability. Once the buildings are dimensioned, it is also essential to focus already on design criteria, quality standards and construction materials of each department under consideration of their intended function. Examples for additional important factors to be considered during the basic design phase of the buildings and before determining the structure and construction materials to be used in each department are: - Exterior / Interior climate (humidity, impact of chloride on buildings, work efficiency) - Dust formation and easy cleaning - Accessibility for maintenance (Reducing downtime for maintenance) - Risk of corrosion and corrosion protection (Reducing downtime due to major repair works) - Durability of construction materials (Reducing downtime due to major repair works) - Usage of sustainable materials and products - Energy saving (e.g. heat recovery systems, usage of daylight) - Fire risk and fire protection (Reducing fire risk and prevention of total loss) Once the first draft of the basic design is finalized, the design will be reviewed and commented by several experts concerning process, fire risk- and fire prevention, sustainability (especially if the investor intends to achieve a LEED of BREEAM certificate). In addition, the majority of the construction materials for the various departments are determined already in this project phase. This is important because the choice of construction materials has a big impact on construction cost as well as a significant impact on future maintenance cost, as well as durability of the structure of the building. Let me elaborate on this with an example: One major point of discussion when we talk about the building materials for tissue machine buildings is, to use steel or concrete (pre-cast concrete) for the structure of this specific building. Meanwhile most recent tissue machine buildings in Europe, from leading tissue manufacturers, are built with precast concrete elements, not only because in some European countries there are regulations which require that the structures for tissue machine buildings must be fire rated for at least 1.5 hours and consideration for maintenance cost and durability of the structure. In a tissue machine hall we face relative humidity in areas above the machine and stock preparation up to 85% and temperatures up to 140 degree Fahrenheit (60 C ) above the Yankee Dryer but

6 what is even worse for the steel structure are the chlorides coming from some coating chemicals in the process. The chlorides and damages on the corrosion protection coating of a steel structure during construction and operation of the plant which can t be completely avoided, together with the high humidity within those buildings cause in most cases massive corrosion issues already after a few years. Therefore, the difference in maintenance cost between tissue building build in a pre-cast concrete or steel compared over a period of at least 30 years is significant. A precast concrete building has a very small maintenance cost if any at all for the first 10 to 15 years, provided that the pre-cast elements have been designed in the right way to avoid penetration of chlorides and resulting impact on the rebars. On the other hand, a tissue machine building made of steel has already major corrosion issue after 3 years, which cause annual maintenance cost between 3 5 % of the construction costs of the steel structure. After receiving all comments from the various experts on the draft basic design and determination of building quality standards the so-called 40% design will be finalized. The site development plan, the basic design of each department and the specification of the building quality standards taking already into consideration all various aspects of the project, are the basis to prepare the request for proposal (RFP) to the contractors, as well as the cost estimate for the construction of the greenfield project. With the right approach for the design of a greenfield project, as for example with the integrated site development (ISD) method, a cost estimate with an accuracy of +/- 5% can be achieved. Ingredients Conducting A Successful Project CAD system regardless of brand or complexity and the features is only a tool that cannot replace the knowledge and expertise a well setup design team brings to the table. To my experience the following ingredients are needed to have a successful and sustainable greenfield project: - An overall project manager who has a comprehensive view on all disciplines - Engineers having in depth know how in designing and constructing a tissue mill - Choice of the right site - Committed authorities and stakeholders - Site development plan already considering all various aspects of the project and future expansion - Basic design of all departments considering use, intended operating life and life cycle cost - Realistic time schedule and budget - Detailed RFP describing the scope and complexity of all works - Choice of suitable type of contract for the construction works - Committed contractors with sufficient capacity and skilled labor force Even knowing all these factors on every project, it is a new challenge as there will be always some factors which are unforeseeable requiring diligence and the ability to adapt to the circumstances and present opportunities to resolve the challenge presented. From my prospective I m looking forward to participating with our engineering firm in the near future in further projects in the U.S., where the joint know how of experts from different countries or continents will result in outstanding projects. Many thanks for your attention.

7 Design Of Greenfield Projects European Approach And Lessons To Be Learned For North America

8 Some Facts 40 55% of total investment cost for a integrated tissue mill are related to buildings and civil site works Operational lifetime between 30 and 50 years Highly automated processes influence not only operation but also significantly the mill site layout

9 The Comprehensive View 3

10 The whole is more than the sum of its parts Aristoteles

11 Selection of Site

12 Regional and national environment factors Transport distance Utilities / Energy cost Availability of skilled labor Funding / taxes and incentives Building regulations Climate / weather conditions Committed authorities / stakeholders Complexity of approval procedures

13 On-Site factors Size and shape of the plot Cost for land purchase Soil conditions / Groundwater Topography Zoning restriction Flood risk Environmental issues Access to main roads and railroad Tie in location to utilities

14 Selection of Site

15 What is Integrated Site Development?

16 Risks without detailed Basic Study Higher capital expenses for construction not considered in the project budget Unexpected higher operational cost (incl. maintenance cost) Loss of efficiency in production and intra logistics Significant demolition works on existing buildings and outdoor facilities to implement future expansions Disturbances of the existing operation during the construction period of the expansion Compromises concerning intra logistics for expansions

17 Integrated Site Development BASIC STUDY Additional Modules Environmental Assessment Site Assessment Intra-Logistics Time/Cost Sustainability Assessment

18 Integrated Site Development

19 Ingredients Conducting A Successful Project

20 Important Factors Overall project manager with a comprehensive view on all disciplines Engineers having in depth know how in designing a tissue mill Right choice of the site Committed authorities and stakeholders Site development plan already considering various aspects Basic design of all departments considering operating life Accurate cost estimates and realistic project budget Realistic time schedule showing dependencies in between all activities Detailed RFP describing the scope and complexity of all works Choice of suitable type of contract for the construction works Committed contractors with sufficient capacity and skilled labor force

21 Thanks for your attention!