Onerous energy costs have been highlighted as the main reason for the downfall of the Bridgewater Paper Company.
Further damage to the firm was caused by the age of the paper mill and general inefficiency of the technology in use. Customer pressure to push prices down (prices were reduced by 10% in 2009 as a result), against high energy costs and the high cost of waste paper also weighed on its trading results.
As a result of its poor performance administrators to the firm Ernst and Young believe the final figure Bridgewater owes will be approximately £150-200m to its non preferential creditors, although a spokeswoman told MRW that not all claims have been submitted yet.
Ernst and Young reported in its Statement of Administrators Proposals that Bridgewater was unable to pay the monthly energy costs it incurred from its contract with npower. In 1998, it had agreed with the energy company to build a combined heat and power plant on site to supply electricity and steam to the mill. However, with peak prices in 2008 and 2009 rising to £2.2 million per month, it was unsustainable.
The report said: This was significantly above market value and contributed to the gross losses incurred. Bridgewater failed to reach an agreement for reduced energy costs despite several discussions with npower over the past 18 months.
A statement from RWE npower said: BPC chose to structure their energy payments at a discounted rate initially, rising progressively over the years. When the global recession resulted in their parent company filing for bankruptcy protection back in April 2009 we offered to revise their payment structure and lower rates but our proposals were rejected by BPCs parent company, even though BPC were trading at a loss.
Building and operating the CHP plant on site represents a significant investment by us and we have 17 employees working there, so BPCs closure is a disappointing outcome for both companies.
In mid- February this year, Bridgewater sold Cheshire Recycling, the recycling arm of Bridgewater Paper Company, to Palm Paper the same day it entered into administration. Ernst and Youngs report revealed Palm paid £800,000 for Cheshire Recycling. (See MRW story)
The administrators are still looking for a buyer for the firm as a going concern.