Until recently, consulting for pulp and paper projects had been plentiful for engineering companies across Canada. As one of this nation’s major industries, pulp and paper had provided engineering con…
Until recently, consulting for pulp and paper projects had been plentiful for engineering companies across Canada. As one of this nation’s major industries, pulp and paper had provided engineering consultants with great scope for design and conceptualization. This, in turn, fueled expansion of large and powerful companies with sizable staffs and plenty of work.
During the past decade, however, the industry saw a turn. The huge projects evaporated as pulp and paper companies stopped building new mills and focussed instead on the smaller scope modernization of the existing mills in order to maximize return on investment. Many of these paper giants needed to reduce their engineering departments.
At the same time as economic realities were cutting back on the conceptualization of new mills, mergers, acquisition and consolidations were becoming the latest buzzwords in the industry. As Tembec’s CEO Frank Dottori said, during the Environmental Conference in Montreal last April, “Consolidations will continue because the main motivation is to make money.”
This change in the approach to investment, along with the mergers and acquisitions, is the main driving factor for rebuilds of the existing mills in Canada and it is exemplified in the case of the Chandler mill in Quebec.
History of the Chandler Mill
After Gaspesia Sulphite Co. acquired the Chandler mill in April 1937, the mill was shut down for reconditioning. Operations resumed in July and the mill went through various upgrades in the following years. Construction of the first newsprint machine was completed in 1963 and a second machine came into production in July 1968. In December 1981, Abitibi-Price bought 51% of Gaspesia’s common shares. New headboxes and top formers modernized PM1 and PM2 in 1989 and 1987 respectively. PM1 was reconditioned and new press sections were added in 1989. A new Lamb roll finishing system was installed in 1990 to replace the existing system. In 1994, Abitibi-Price acquired the balance of the Gaspesia shares and then sold the mill to a Quebec interest group in the summer of 2000. The new company, Papiers Gaspesia Partnership Limited, is a joint venture between Tembec Inc., SGF-Rexfor and Fonds de Solidarit FTQ.
With sales of over $4 billion dollars, Tembec is a leading integrated forest products company, operating over 55 manufacturing units in New Brunswick, Quebec, Ontario, Manitoba, Alberta and British Columbia, as well as in the United States, France and Chile. It employs approximately 10,000 people, principally in the production of wood products, market pulp and papers.
This year, Tembec is one of the industry’s major capital spenders. Approximately $493 million will be invested by the group forming Papiers Gaspesia in the coming years to convert Chandler’s production to high quality coated paper from newsprint. The project includes a new TMP plant and rebuild of the paper machine as well as other balance of plant items. Construction started in the summer of 2002 with the mill scheduled for start-up in July 2004. When the project is completed, some 260 jobs will be created in the Gasp region.
Engineering a solution
Word of the huge project was quick to spread among the major engineering consultant firms. The contest was vigorous and bidding was highly-competitive.
One of the companies involved in the bidding was ABGS, a recent entry into the consultant world, having been formed in 1994 by four industry experts: Richard Ajami, Jean Bedard, Carl Gagnon and Edward Sexton. From its conception, the company had profitable business operations. Net sales of ABGS were estimated at over $20 million in 2001, with a substantial market share in eastern Canada. However, despite its quickly-growing reputation, the company knew that it would have to include a strategy to strengthen its expertise before submitting a bid for a project of this magnitude and complexity.
On the other side of the Atlantic, Finnish company Jaakko Pyry Group is a global engineering leader in the areas of forest industries, energy, infrastructure and environment. The forest industry business group, operating under the name Jaakko Pyry, had net sales of over $240 million in 2001. It has offices in 15 countries and employs some 2,000 experts worldwide. When it decided to further expand into North America in mid-2002, an association with ABGS seemed a natural fit. Cooperation between the two started prior to the Gaspesia assignment.
“We bid on the Gaspesia project with Jaakko Pyry as sub-contractor, and we were able to get it,” said Carl Gagnon, vice president of operations and one of the JP-ABGS founders, referring to the days when Jaakko Pyry and ABGS were two separate firms.
Shortly afterwards, the Jaakko Pyry Group decided to acquire the business of ABGS and Jaakko Pyry ABGS was born.
So, at a time when many other older and more established engineering consultants were downsizing, the Montreal-based business found itself expanding because of this major project. The newly-created coalition proved Dottori’s point about the economic advantage of acquisitions and mergers.
Gaspesia project
The major modernization will be to convert the facility to high quality coated paper grade production. The services in the modernization of Chandler include process, mechanical, electrical and automation engineering, to be performed by JP-ABGS and various Jaakko Pyry Group companies. Total engineering value of the project amounts to about $17 million.
“This is a complicated project, where you take an existing machine and rebuild it,” Gagnon said, pertaining to the 35-year-old machine. “This is no doubt a huge undertaking.” That is indeed a big project for a firm that had started nine years ago with a small but solid core of expertise.
“Now we can assign 100 people to a project but, back when we started, we were just 30 people and we just continued growing,” said Gordon Murray, manager of business development and studies at JP-ABGS.
The bidding war
Their secret for growth is bringing value to a project, Murray said. When it comes to bidding for projects, engineering firms differ with technical expertise, he explained, but still a major factor in bidding successfully is the price.
“It is really a big factor, because some firms are strictly advocating what they offer (in terms of price), not necessarily to the best interest of the clients,” said Gagnon. “We are not the cheapest but we give good quality,” he explained. And not being the cheapest has cost ABGS some big contracts, where their bid was the second choice. “Sadly, there’s no silver medal in this business. If you finished second, then too bad,” he said.
Gagnon explained that a company’s reputation plays a big role when it comes to bidding with the hope of repeat business. It is especially true in Eastern Canada, where there is a lot of fierce rivalry to land contracts.
As competitive as it is, however, their company doesn’t just bid on all projects that they come across with, simply because putting together a proposal is very expensive with the possibility of no return. Engineering bid packages are complicated documents which need to include details on the scope of the project, cover different fields of engineering and specifications, as well as estimating possible schedules, cost control accounting, project management, just to name a few of the items covered.
“If you go after everything and put out $100,000 putting together each proposal, that’s a lot of money. You have to choose carefully,” said Gagnon.
The firm relies mainly on personal contacts to know about capital spending projects that mills are planning for the future. Normally, engineering firms in pulp and paper rarely go out for public tenders or hear about the projects in newspapers.
“In this industry, when you hear about it in newspapers, you are already six months late.”
Bearish economy means demanding clients
A world-wide pool of expertise was one of the values that Jaakko Pyry brought to ABGS when the companies merged. “With the Gaspesia project, Jaakko Pyry gave us the advanta
ge because we are able to bring in the best technology from both continents,” said Murray referring to North America, where ABGS is based, and Europe, where Jaakko Pyry is located.
Reputation based on expertise is very important. As Murray stressed, engineering companies do not sell widgets, they sell people’s experience. For JP-ABGS, he explained, expertise means involvement.
“You have to be involved with the project, you’ve got to be on the floor, you’ve got to stay close during all phases of a project,” said Gagnon.
Client margins are very low and they have to see profits, he explained. “Clients want to know right away how long the project is going to take, the upfront costs, what’s the scope of the work.
“Timelines are tight these days.”
Better times ahead
While the end of 2002 saw few large scale projects, with Papiers Gaspesia Partnership’s Chandler and Kruger’s Wayagamack being the largest, 2003 is already beginning to shift into more optimistic mode. A moderately brighter economic forecast will allow more pulp and paper companies to seek optimization from their ageing facilities, releasing funds for improvement projects of various sizes throughout Canada. Engineering mandates will include consulting, project development and implementation for mill facility improvement, as well as an increased investment in pollution control and energy conservation.
After a detailed survey of projects within pulp and paper companies for Canadian mills, Pulp & Paper Canada will publish its yearly capital expense report in June.
Print this page
