Paper manufacturer, Pan African Paper Mills is seeking a cash injection of Sh325 million and conversion of shareholder debts totalling Sh752 million into equity, to stay afloat.

The company owes the government Sh366 million in royalty arrears as of June 2007, according to sources involved in the effort to turn around the loss making company.

The company also wants a reduction of the royalty charge, a levy on wood harvesting, to about 50 per cent from Sh1,200 per cubic metre to Sh700. The government owns 41.1 per cent of the mill. A taskforce appointed to advise on the firm's revival also proposes that the government should inject Sh140 million into the company to improve cash flows.

The company is also seeking a debt to equity swap from the principal shareholder Birla Group of India of Sh386 million. Birla Group owns 54.4 per cent of the company and provides management services.

The taskforce's proposal that Birla Group injects Sh185 million in cash into the business is said to have been adopted by the Birla Group board of directors.

The company is seeking the cash injections to plug a loss of Sh320 million incurred in the post election violence which was aggravated by the rising cost of fuel oil.

Pan Paper's accounts are also weighed down with trade creditors, who are to be approached for a write down of at least 50 per cent.

In its financial report for the year ending June 2006, Pan Paper's operating profits were Sh415 million against accumulated interest charges on the debts of Sh730 million.

Treasury said as a short term measure, the government has agreed to reduce the amount of royalty payable to Sh210 for every cubic metre, and has requested the Kenya Forest Service to provide additional wood to the company.

Pan Paper was started in 1969 and manufactures about 120,000 tonnes of paper per year for the local and regional market. In the recent past, the company has faced intense competition from cheaper imports. Finance Minister Amos Kimunya recently said there were plans to fast track plans for the proposed electricity co-generation project, which will enable the company reduce its dependence on fuel oil and power from the national grid.

Niranjan Saha, the company's CEO, said a third of Pan Paper operating costs are energy related. Last year, the company adopted an elaborate energy management system that detects deviations in efficiency levels on a daily basis.

"Through this we are able to initiate remedial actions in time," he said. The company has installed energy efficient motors, stopped idle running of equipment, replaced ordinary lamps with energy saving lamps and controlled illumination levels.

Pan Paper is Kenya's only paper manufacturer and the largest in eastern and central Africa. It is located in Webuye, Western province and it offers direct employment to 1,600 employees.