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Ence Energia y Celulosa SA
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Good morning, ladies and gentlemen. Welcome to the ENCE Third Quarter 2022 Results Presentation.
I now hand over to Mr. Ignacio Colmenares, Executive Chairman; and Alfredo Avello, our CFO. Gentlemen, please go ahead.
Good morning, ladies and gentlemen. Thank you for joining ENCE's Third Quarter 2022 Results Conference Call. Our CFO, Alfredo Avello; and our Head of IR, Alberto Valdes, are also connected. After the presentation, we will be pleased to answer any questions you may have.
Let's start with Slide 4 with the main highlights of these first 9 months results. The strong free cash flow generation and deleveraging achieved driven by healthy pulp and energy prices. The consolidated free cash flow in the first 9 months reached EUR 245 million. This allowed us to reduce net debt by EUR 174 million. We ended the period with a net cash position of EUR 72 million. Note that working capital improvement during the first 9 months was mainly driven by pending payments to the electricity system amounting to EUR 70 million, which will result in cash outflows in future quarters.
As you can see in the following slide #5, our new dividend policy allows us to increase shareholder remuneration in periods like the current one, characterized by a strong free cash flow generation and no leverage. A third interim dividend of $0.09 per share, equivalent to EUR 22 million, will be paid on November 15. The implied payout ratio in the first 9 months will be 100% of net income amounting to EUR 67 million. The final dividend will be proposed along with the release of 2022 annual results at the beginning of next year.
Turning now to Slide 6. I am pleased to announce that we have developed an innovative solution that will allow us to eliminate river water consumption at Pontevedra during droughts, as we had experienced this year. As announced, Pontevedra biomill has been idle since the 20th of July due to the reduced flow of the local river. We expect that the biomill will be able to initiate the ramp-up process around the second week of November, combining this innovative solution and minimizing the river water consumption, once the necessary permits have been obtained and the maintenance works on the water collection infrastructure are finalized following its downtime period. The ramp-up process will be done progressively reaching normal production rate during the second week of December.
In this slide, you can see the estimated impact of Pontevedra downtime in terms of lower pulp production, higher cash cost and lower EBITDA both in the first 9 months and in the full year. I wish to stress that the impact of Pontevedra downtime during the second half of the year will be mitigated by higher pulp prices and the FX improvement. As a result, Pulp business EBITDA in the second half of the year is expected to be similar to the first half despite the temporary downtime.
As you can see in the following Slide #7, tight supply continues to support strong prices. Gross fixed prices in Europe reached $1,380 per ton during the third quarter, more than offsetting the widespread inflation in raw materials. Note that industry specialists expect pulp prices to remain well above mid-cycle levels also next year. On top of strong pulp prices, our revenues have also benefited from an 11% EUR-USD exchange rate improvement compared with last year.
Let's look now at our pulp sales on Slide 8. Pulp sales in the first 9 months of the year amounted to 676,000 tons. This is 80,000 tons less than in the same period last year due to Pontevedra temporary downtime. For the same reason, we expect fourth quarter pulp sales to be around 175,000 tons and 850,000 tons in the full year 2022. Over 94% of these sales went to the European market where our customers benefit from ENCE's unique wide portfolio of sustainable products and shorter delivery times.
Our differentiated products accounted for 18% of our total pulp sales compared to 15% in the same period of last year despite Pontevedra downtime. These higher value-added products are more sustainable and are well adapted to replace plastic and softwood pulp, also delivering higher margins. We aim to increase progressively the sale of these products during the next year towards a target of 400,000 tons.
I will invite now Alfredo to continue reviewing our first 9 months results in more detail.
Thank you, Ignacio. Continuing with Slide #9, you can see how strong pulp prices have more than offset the widespread inflation in raw materials, pushing the operating margin of our Pulp business up to EUR 214 per ton in the first 9 months of the year.
Note that regarding energy, our biomass generate more electricity than that needed for the operation and that we are not natural gas dependent. Also, our raw materials and supplies are largely locally sourced. The year-on increase in the cash cost is mainly due to certain needs of wood imports caused by the shortage of harvesting capacity in the northwest of Spain and the rise in chemical and logistic costs which are directly linked to energy prices. Pontevedra downtime implied a EUR 15 per ton increase in the cash cost of the first 9 months mainly due to lower fixed cost dilution.
Turning now to Slide #10. You can see the strong operating cash inflow of EUR 111 million registered for the first 9 months in our Renewable Energy business with average energy prices of EUR 186 per megawatt hour. These results already include the change in the remuneration parameters applicable to renewables in 2022. This change has no negative impact on the cash flow guidance given in the Capital Markets Day back in March, which already anticipated a similar change.
Energy sales also improved by 19% when compared to the first 9 months of 2021. However, the energy sold was 4% lower compared to the previous quarter. This is explained by the reduced availability of olive-pulp in the market. As you know, we have 3 biomass plants which main supply is the olive-pulp. Well, the change in the regulation and the high gas prices during 2022 have impacted the gas cogeneration plants used by several of our suppliers to drive the olive pomace, reducing, therefore, the production of olive-pulp. As a result, we had to adjust electricity production of our olive-pulp plants to this lower supply availability. It is foreseeable that this situation may continue in the coming months. We are now aiming at energy sales of around 340 gigawatt hour in the fourth quarter or 1,530 gigawatt hour in the full year 2022.
Wrapping up in the following Slide #11. We have delivered another set of strong operating results despite a temporary downtime at Pontevedra. Our Pulp business EBITDA improved by 56% year-on-year, up to EUR 111 million, driven by the strong recovery in pulp prices, which more than offset the widespread inflationary pressure in raw materials and logistics.
In addition, the Renewable Energy business EBITDA reached EUR 96 million driven by the higher energy prices and fewer biomass plants capped by the regulation. Remember that this figure includes a reversal of part of the regulatory collar provision of EUR 40 million explained in the previous quarter, which was partially offset by a EUR 36 million impairment in the book value of certain biomass plants without any cash flow effect.
With such strong operating results, our attributable net income reached up to EUR 67 million in the first 9 months of the year compared with a loss of EUR 193 million in the same period last year, which included impairments and provisions relating to our Pontevedra concession for a net amount of EUR 200 million.
As you can see on Slide 12, we have ended the period with a very strong financial position, which provides us with maximum flexibility to seize any growth opportunities. We reduced net debt by EUR 174 million, down to a net cash position of EUR 72 million at the end of the period with EUR 480 million cash imbalance.
Our Pulp business had a net cash position of EUR 75 million with a cash imbalance of EUR 317 million. Note that we have already repurchased 54% of the EUR 160 million convertible bond expiring on March 2023.
On the other hand, our Renewable Energy business net debt was reduced by EUR 119 million down to just EUR 3 million at the end of the period with long-term maturities and a cash imbalance of EUR 163 million. As mentioned by our Chairman earlier, note that the working capital improvement registered in the first 9 months was largely driven by the pending payments to electricity system which will result in a cash outflow during the coming quarters. These payments are related to the regulatory changes made by the government during 2022 and amount up to EUR 70 million.
Turning now to Slide 13, I would like to mention the highlights of our sustainable performance. We are already at the forefront in sustainable forestry, in circular economy, in social commitment, in gender equality and in corporate governance. Our risk practices have been recognized by independent agencies such as FTSE4Good or Sustainalytics which, in its later study, confirmed ENCE once again as the most sustainable player in the global pulp market.
I would like to highlight the following achievements in the first 9 months of the year. Firstly, Navia has reduced its water consumption by 11% compared to the previous year, and we have developed an innovative solution to minimize river water consumption during the times of drought at Pontevedra. This is an outstanding achievement that strengthens the sustainability of our biomills as well as solid proof of our commitment towards it.
Secondly, we have continued to reduce the order of both pulp biomills, which is already below 1 minute per day. It's the lowest level in Navia's history. These results also demonstrate our firm commitment towards the communities in our areas of influence.
And thirdly, our 27-megawatt biomass power plant in Córdoba has also been awarded with AENOR's Zero Waste certificate. Close to 90% of our production centers have now earned this award. We expect to reach 100% by the end of the year, strengthening our position as a reference in the circular economy.
Let me now return to our Chairman who will continue with the final slides.
Thank you, Alfredo. Continuing with Slide 14, let me update you about our Pontevedra concession. The Supreme Court has delayed its decision about the extension of the Pontevedra concession. The decision was originally expected in October, but it has been delayed in order to reach an aligned verdict in our 2 cases and in the 3 other similar cases from third-parties. We expect a verdict in the next few months.
In any case, may I emphasize the following 4 points. Firstly, we are cautiously optimistic about the Supreme Court decision, following the recent favorable ruling in a similar case. Secondly, the potential closure of the biomill was already provisioned in our accounts last year. Thirdly, we await the Supreme Court decision with a very strong balance sheet, with no net debt and with high liquidity in both businesses. And finally, if the biomill has to be closed, the lost annual free cash flow from Pontevedra will be more than offset by a combination of the Navia Excelente project and by either of the 2 alternatives available to expand Navia production.
Turning now to Slide 15, I would like to give you some further information about the new solution that we are testing to surmount lower river flow level situations at Pontevedra, such as we experienced this year. Our solution uses reverse osmosis technology to regenerate water from our effluent and from the adjacent public waste treatment plant.
In the right-hand picture, you can see the public wastewater treatment plant with these water deposits next to our own woodyard. In the left-hand picture, you can see part of the works designed to connect our biomills to those water deposits. Note that this is an innovation within the global pulp and paper sector and will allow us to offset the risk of freshwater scarcity at our Pontevedra biomill in the future.
Moving now to Slide #16, may I remind you of our strategic road map for the pulp business with modular and adaptable investments and a targeted IRR of over 12%. In our Capital Markets Day back in March, we confirmed that our strategy is to defend our Pontevedra concession and to proceed with our Navia Excelente project. One, we have launched our Navia Excelente project with an estimated investment of over EUR 100 million in the next couple of years to promote the sale of our differentiated products, to diversify production towards fluff pulp and to decarbonize the biomill.
Regarding Pontevedra, we should note a final decision from the Supreme Court in the coming months. Remember, however, that if the Court resolution goes against us, we will proceed with at least the Navia 100 project. As you know, this project consists using the most modern equipment from Pontevedra to build a new line of 100,000 tons of BHKP in Navia with an expected CapEx of EUR 100 million. The combination of Navia Excelente and Navia 100,000 tons will more than compensate Pontevedra's EBITDA in case we need to dismantle it. In other words, we will continue either with Pontevedra and Navia Excelente or with Navia 100 and Navia Excelente, but doing nothing is not an option.
Furthermore, we recently announced together with the regional government of Galicia a new project in As Pontes for the production of bleached recycled fiber from recovered paper mixed with virgin fiber. We believe it is an opportunity to provide a unique product for customers and to increase the circular attributes of their paper products and who are struggling to find the required amount of bleached recycled fiber due to the decline in printing and writing paper. We have started to analyze the first phase of the project with a time horizon through to 2026. The engineering and permit processes will take over 1 year.
Turning now to the following Slide #17, we show you the pipeline progress of our Renewable business. Growth in this business through our controlling stake in Magnon Green Energy is based on the development of its 813-megawatt pipeline, which comprises 373 megawatts of PV, which are almost ready to build; another 300 megawatts of PV projects in the south of Spain at an earlier stage; and 140 megawatts in biomass, which are also almost ready to build.
As announced in the biomass auction held in October 25, Magnon opted for a prudent strategy in a context of widespread inflation impacting EPC and other costs. There are 2 other biomass options planned in 2023 and 2025, for a combined capacity of 240 megawatts and the National Energy Plan includes 400 megawatts more before 2030.
On top of that, you can see in the final Slide #18, we are analyzing several opportunities in Spain to replace gas-fired industrial heating with biomass-fired heating.
May I mention another interesting business we will begin. At ENCE, we have decided to be active in the development of biogas and biomethane in Spain. This would be a new business line based on the circular economy that already drives our 2 main businesses, which has a high growth potential in Spain and which is consistent with our diversification strategy into renewable energies.
Before ending, I would like to emphasize, firstly, we have one of the stronger balance sheets of the industry, both in pulp and renewables. Secondly, despite the impact of Pontevedra downtime, today, we are more resilient. This innovative solution we are deploying will allow us to produce pulp in Pontevedra even in heavy droughts. We have built a huge stock of wood. We expect strong energy and pulp prices in fourth quarter and in 2023. We don't use gas in our process, and we are not self-sufficient in energy but a net exporter.
Thank you for your attention. We would be pleased now to hear any questions you may have.
[Operator Instructions] The first question comes from Cole Hathorn from Jefferies.
If I just focus on the pulp market to start off with, can you talk about the underlying wood cost inflation that you're seeing? Your peers in the Nordics and Central Eastern Europe have been calling out higher wood costs. And I imagine, while you're seeing wood cost inflation in the Iberia region, your dynamics are slightly different. I'm trying to understand if your cost inflation is relatively less than some of your European peers, making you potentially better placed?
Yes. Thank you for your question. Well, let's say, we have a few regions. We have Latin America, Iberia and Scandinavia. I think in the 3 regions, the wood price is increasing. Probably it has increased more in Latin America and in Scandinavia than in Iberia. And as we are not importing from Latin America as other Iberians are doing, we benefit from lower increase in prices.
Regarding chemicals, we are all suffering the same increase. The chemicals we use are very intensive in energy, and then these huge prices of energy are reflected in the chemicals we are buying. And it's the same with the energy and fuels we are using, and it's the same with the freight rates we are paying. Then I think that we have a slightly lower impact due to the wood prices, at EUR 30 more or less, we have all suffered an increase between EUR 100 and EUR 150 per ton.
What is important is that all the analysts today were saying that the bottom price of the pulp used to be $480 because it's the marginal variable cost of the marginal industry, and today, we are more close to $600. And the analysts are also seeing good prices for next year. And I think we will continue benefiting from higher margins.
And then you called out in Slide 18, you have an opportunity for industrial biomass, and I imagine this is combined heat and power plants. Could you give a little bit more color on what could the opportunity be here? I mean is this going to be Magnon partnering with industrial businesses to effectively run a biomass combined heat and power plant and optimize electricity production and sales for these businesses? Because the opportunity is quite big. I mean, I look at your paper and packaging industry as a whole, and there are a lot of gas-powered combined heat and power plants where I imagine a lot of people would like to be using biomass right now.
Yes. We are starting by the food and beverage industry. The food and beverage industry have normally medium-sized gas boilers, and this business is to substitute this gas boiler by biomass boiler. We are talking about small installations of 10 to 30-some-odd megawatts, no electricity, only heat. And that's what we are doing. Today, we have an interesting pipeline, and I hope we will close our first deal before Christmas. And it's a huge opportunity because even at normalized prices of the gas, the biomass for thermal applications, it's more competitive.
And as you know, we are buying 5 million tons of biomass in Spain, and we have a market share of 25% of all the wood we sell in Spain, wood and biomass. Then all these food and beverage industry, they know that it is cheaper to produce heat with biomass than with gas, but they are a bit reluctant because they are a bit afraid about -- they don't know anything about biomass. And well, they trust in ENCE's capabilities.
And my final question is -- and I'm not sure how much you can provide, but you mentioned that you'd be conservative in the auctions in October for the biomass pipeline and you've still got opportunities for 2023 and 2025. However, I just want to find out, if you were able to participate, did you get any insights from where competitors came in with their bids? And any thoughts you can share on the auction process?
Yes. Let me give you several comments. First, we have built a business in biomass. From 2012 until now, we're having an EBITDA of EUR 70 million with no debt, that we have been able to build a healthy business in renewables. And we have been doing that step-by-step, always being very prudent. And we have aborted many, many, many projects because they were too risky.
What happened in this auction? Well, the price you are bidding for the electricity you will sell to the grid is a fixed price for 20 years, no inflation. And let's say that you offer, like one of our competitors have done, at EUR 101 megawatts. You will have this fixed price for the next 20 years. We are not interested in this business.
On top of that, the big difference between the regulation we are benefiting in our existing biomass power plants and the auction of this week is that today, 100% of the energy we are selling is the feed-in tariff. And on the auction of this week, 15% of the energy is at market price. Market price is excellent today, no doubt. It will be excellent next year, no doubt. But after 3 or 4 years, the prices of the energy will go back to EUR 35 or EUR 40 per megawatt hour, and you cannot produce with biomass at these prices. Then, you have 15% of your production sold at prices where you lose money.
And finally, we have been building our biomass business always with EPC contracts and with project finance. The EPC contractor takes the risk of the construction and take the risk of the technology. And the banks who give you the project finance with no risk that -- well, it's like an inspector who inspects that there is no risk, no technology risk, no regulation risks, no biomass risks. And today, the prices the EPC contractors were offering us where very expensive due to the scarcity of what is happening today in the world.
And we all think that the prices of the commodities will go down. We all think that the prices of the wages will go down but we don't have the certainty, and we cannot put money of our shareholders gambling like that. And today, to raise a project finance, it's more expensive than a few years ago. Then we think that it's better to wait, to be prudent, to wait. We can develop the industrial heating business, we can develop the biomethane business and, let's say, what happens next year or in a couple of years on the next auctions.
As you know, because it has been published by the government, HUNOSA, state-owned mining company in Asturias, has been awarded with 50 megawatts at the incredible price of EUR 77 per megawatt hour. Today, we are sourcing our biomass at EUR 60 per megawatt hour. It's an incredible price. A first-class company like Acciona has been awarded at 101, but I don't know their strategy. And I respect this company, I have nothing to say. And another company has been awarded at 106.
Well, those prices are the prices we are selling our energy on the regulated market, in the mills we built a few years ago with this different regulation, with inflation, with 100% of the sales going to the feed-in tariff. And with the capacity, it is very important in our business to go to the secondary market. Today, this year, we are going to make at least EUR 12 million of EBITDA with the secondary market. With this auction, you cannot go to the secondary market. That's why we have been prudent like always, and let's see what we do in the future.
The next question comes from Gonzalo De Cueto from Exane BNP Paribas.
I have a couple of ones. Two questions from my side. First one would be a follow-up on my colleague's question on cost. Could you update us on the situation in north of Spain regarding wood sourcing? Are you seeing any improvement on this front at all? And looking at next year, what could be a reasonable starting point in terms of cash cost? That will be the first one.
Yes. Thank you, Gonzalo. Well, even if Pontevedra has been shut down, we have continued to buy wood in the northwestern of Spain. And today, we benefit from an incredible stock as we never have had in the past. Then we are going to restart Pontevedra, and we face now the fourth quarter and we face 2023 with a huge stock of biomass -- sorry, stock of wood for our pulp business. And then today, we have already started to reduce prices because we have this stock and we can play this game.
What is happening on the wood market in the northwestern part of Spain? Companies who were producing plywood -- well, today, the market has decreased a lot, and they are not competing -- like they were competing last year and the first half of this year against the pulp industry buying eucalyptus. They are out of the market today. That's good news. The pellet industry is not so important in Spain like it is in Portugal. Here, we estimate, in total Spain, no more than 400,000 tons and in the northwestern part of Spain, only 200,000 tons. Then they are working at full capacity, which is good for them. In countries like Portugal, we estimate 3 million tons. Then it's a different situation. Here, we benefit, let's say, from a small pellet industry.
And what has changed on the other side is that today, there are some exports of wood, roughly 20,000 tons per month, to Scandinavia. That's new. This wood is replacing beechwood in Scandinavian pulp industry. Well, it's more or less what the plywood was buying before. It's not a huge problem. Then due to this macro situation I explained and that we have a huge stock of good, we have started to reduce slightly prices. I don't think we will be able to come back to the prices of 2020 next year. But I think at least the wood will not continue to increase, and it may even decrease a bit.
And my last question would be, could you remind us on the maintenance stops you will need to do on the pulp business and also in terms of target in terms of volumes to be produced next year?
Yes, we are trying to postpone our maintenance downtime, instead of January and February as it was planned at the beginning, more to April, May. It's not yet defined. And what was your third question, Gonzalo?
The target in terms of volumes to be produced next year.
Yes, slightly above 1 million tons.
The next question comes from Jaime Escribano from Bank of Santander.
So a few questions from my side. The first one would be more in terms of market outlook. And just based on your information, what are the current dynamics that you are seeing in terms of pricing, both in China and Europe? It looks in November, the high wood price will remain like this. But how do you see, for example, December, January? Do you see prices declining or stable? Or any color you can provide would be very useful.
Yes. Thank you, Jaime. What we see today on the market, let's differentiate in China, Europe and softwood and hardwood. China, in softwood, the market is slightly declining, $10, $20; and in Europe, the same. In hardwood, the market is still strong in China and is very strong in Europe. What is going to happen? I don't know. It's very difficult today to predict what is happening. You see what happened this week with the prices of the gas, negative prices of the gas, nobody expected that. Then I think it's very difficult to see what is going to happen. What I know today is that the market -- our market is strong. Our customers are still benefiting from a strong order book.
In printing and writing, they are not very happy, but printing and writing is only 15% of the total market pulp. And for us, it's not very important. It's marginal. Tissue, where we are very strong, is doing pretty well, pretty, pretty well in Europe. And we don't see a lot of risk of big changes in the prices. As you know, the analysts are expecting good prices for next year, but price is a bit lower than the prices of today. But I don't have more information, Jaime.
And Ignacio, why do you say that paper customers are not that happy because they have lower margins or they are not being able to pass higher prices? Or what is the dynamic there?
No, no, sorry. I said printing and writing paper customers. Yes, in the different segments of the pulp industry where you have the tissue, we're doing pretty well; you have packaging, we're doing pretty well; and you have printing and writing with only 15% of the industry, while in printing and writing, the market is not so strong like it is in other products.
Okay. And just a final question regarding the market. The recovered paper is going down around $50 per ton in the last few weeks. Could you tell us what is the dynamic there? What could be the impact on the virgin pulp, if any?
No, I think there is not a link between recovered paper and virgin pulp. Again, as I was saying before 60%, 65% of the pulp market is going to tissue where recovered paper is not important. Recovered paper is important for printing and writing, and it's important for packaging. And on the packaging, when you buy a box, let's say, with iPad inside, the nice aspect of the box, the white aspect of the box, is virgin pulp and the volume is recovered paper. They are buying at good prices, at strong prices, the white cover, they are buying that today. They are able to buy at cheaper prices the recovered paper. But it is not affected.
Okay. Very good. My second question is regarding the cash cost ex-Pontevedra. You mentioned it's close to EUR 500 per ton. How should we think about the cash cost next year once Pontevedra is up to speed? I don't know if you can give us some guidance. Or at least qualitatively, how should we think about the cash cost, maybe this EUR 500 per ton could make sense for 2023? Or how do you see it?
No. We see more prices today, cash cost on the range of EUR 515 and EUR 500. That's the vision we have today. Let's see what happens with the wood, and let's see what happens with the chemicals because, if the energy remains above EUR 200 a megawatt hour, the chemicals we are buying will still be on the high prices.
Okay. Perfect. And just a final question. Regarding new capacity coming into next year, some investors are concerned that there will be -- I think it's UPM and Arauco ramping up capacity almost at the same time. How do you see the impact of this new capacity in the market?
I am not pessimistic by nature, but being rational, what I say is that Arauco will probably start at the end of this year. They have been delaying, delaying and delaying. Well, we will see -- if they start at the end of the year, like they have said, we will see their pulp on the market at the end of first quarter. UPM, we think they will start at the end of second quarter, then we will see the pulp on the market on the third quarter.
And at the same time, something very important is happening. Bracell, this big line of 2.7 million, 2.8 million tons of Bracell is a double line. And they have announced that progressively, 1 of the 2 lines with a capacity of 1.4 million tons that today is producing BHKP, this line will be switching progressively during the next months to dissolving pulp for the dissolving pulp mills in Asia, then this pulp will be out of the market. And what we see is that the new pulp on the market from UPM and from Arauco will take the place of this pulp today sold by Bracell.
And as you know, the market grows every year between 1 million and 2 million tons, and the market will continue growing. I always say, the same, don't forget that tissue is 60% of our industry, our market. Tissue consumption in the States, in Scandinavia and U.K. is around 28 kilos per habitant per year. In Spain, we are in 15; in intercontinent, we are in 15; and in China, we are below 5. There is a continuous increase in demand in tissue, and that means between 1 million and 2 million tons per year. Then we see as a regime that the new capacity coming from Uruguay and from Chile will be matched with the decrease of production of BHKP by Bracell. And at the same time, the market will continue growing.
The next question comes from João Pinto from JB Capital.
I have 3, if I may. The first one, regarding next year, can you provide us some feedback from your clients how they see next year, knowing that the economic cycle is deteriorating? And do you expect any slowdown in demand? Or do you think that demand will grow as usual?
No. We see a stable, growing demand. As I'm saying, this market is always growing. It's growing 1 million or 2 million tons. The consumption of tissue per habitant worldwide will continue growing. And then we see a good market, yes. And on top of that, today, the inventories of all the customers and the supply chain, it's very short. That's a buffer in case that during one quarter or 2 quarters, the economy cools a bit more than what we expect, then we are not concerned.
Okay. My second question, on the solution for the water issues in Pontevedra, does it require meaningful CapEx or not really?
Well, we have -- we are investing in Pontevedra around EUR 6 million in this solution. And this solution, as you know, we are starting the trials Monday, Tuesday next week. It took us more than expected to buy all the equipment and to install road equipment and to get all the permits. And then we are going to be on trials all next week with this equipment, taking the water from the effluent of the city of Pontevedra and treating this effluent. It's possible to use as an industrial water. And then we hope we will start the factory on middle of November. That's our idea.
That's very clear. And my last question on working capital, there are EUR 50 million in accounts payable to the electricity market outlook. Can you give us some color on this? I thought that these adjustments were made through the return on investment parameters. Could you give us some color, if anything changed?
Yes, we have EUR 50 million of the Energy business, and we have EUR 20 million on the Pulp business, then it's EUR 70 million. You know that the government published a draft modifying the feed-in tariff we are benefiting at the beginning of the year. It's a draft, it has not been confirmed, reducing the feed-in tariff. Then as we are a prudent company, we have been accounting month-by-month, as the new lower prices, the energy we are selling from both businesses, Pulp and Energy. But the law hasn't changed. It was only a draft.
Then today, we have the cash-in we had during the year, a cash-in of EUR 70 million which are not in the EBITDA. And we think that sooner or later, when this draft will be finally published, we will have to give back this money to the government. Then that's working capital, and that's the money which doesn't belong to us. We will have to give back that to the government.
And you know that we have -- we are benefiting from 3 -- well, the price we are selling the energy has 3 parts: the market; plus the RI, the retribution to the investment; plus the RO, the retribution to the operation. This EUR 50 million plus EUR 20 million is the RO, which was reduced by this draft at the beginning of the year. I hope it's clear for you.
What is a very important, João, let me remark, I know that my Chairman has said that, is that this money -- or these earnings are not in the EBITDA. I mean we are reducing our EBITDA by this EUR 70 million. That has to be very clear.
Yes. Very clear. And just to confirm, a follow-up on a previous question, the EUR 515 cash cost that you mentioned before is for the 2023 or for the Q4?
No, it's for 2023.
Your next question comes from Alvaro Lenze in from Alantra Equities.
I wanted to ask regarding the renewable auctions, whether -- I mean because the thing is that not all of the capacity that was to be auctioned has been awarded because no offers were competitive enough. What is your level of confidence that the government will change the maximum price for future auctions? And in this regard, I remember that some of the earn-outs from the sale of the minority stake in Energy business were related to the development of the pipeline in biomass. If you could update us on how confident are you on receiving these earn-outs in the future.
Well, regarding the auctions, I will answer. Regarding the earn-out, Alfredo will answer. We don't have visibility on what the government is going to do in the future. According to the national plan of renewable energies, there are more than 400 megawatts of biomass to be auctioned in the future, then we would wait. But we will -- we don't know when it's going to be. Alfredo?
Yes. Regarding the earn-out, as you know, the first milestone of this earn-out was the collocation of the auction. The issue is that the limits, the limitation that the auction has set for 50% of the megawatts to be awarded to one group, is what we are just talking with our partner. I mean it should be a question of just splitting between this and the next auction rather than anything else. I mean it's just a question that the instructions for these auctions were not all fully considered at that time, but I should not expect anything else.
Okay. And my second question would be on the new pillars or growth opportunities that you have identified, you made at Capital Markets Day in the beginning of the year, I don't remember much mention to this. Is this something that has become a bigger opportunity now or that you have been studying over the last couple of months? Or why are these new growth avenues was not contemplated in the strategic plan?
Well, because we'll disclose what we are going to do when we are sure what we are going to do. And what we've been -- but I think that we said something regarding the industrial heating. We didn't quantify that, but we talked about that on the Capital Markets Day. And regarding the biomethane, we were just creating the team here to develop this business. We were finding the correct partners to develop this business. We were standing this business. it was too early on the Capital Markets Day. Today, it's mature. Alvaro, it's like As Pontes. We didn't mention anything about As Pontes because we were working on that. And once we got As Pontes, we announced As Pontes.
Okay. And last question, regarding As Pontes, we've seen some continued delays in the delivery of EU funds to fund this kind of projects. Do you have any updates on whether the project could be eligible to any type of public funding?
Yes. There is already -- it has been already approved by the government of Spain. I'd say that in Spanish, it's transición justa, a fair transition from the old economy to the new economy, and there is EUR 120 million. For the province of Coruña, EUR 120 million, and it is EUR 200 million for Asturias. And according to the law, we can have 15% of the investments. Now all this package is in Europe, and we think they will publish the convocatorias by first or second quarter next year.
But in any case, 15% of subsidy is important. It helps. But we are so motivated with the business of bleached recovered pulp mixed with virgin pulp in As Pontes. And there are other subsidies which will arrive in the future, and we are not too much concerned about what is going to happen. I think we will benefit from that, but there are other options, also.
Okay. Last question on my side. Regarding the litigation process on Pontevedra, it was delayed to match all the different process and give one final ruling. We were expecting it to be announced earlier in October, delayed, we were now looking for early November. In the release, you indicated that you expect it in the coming months. Could you clarify, do you have any visibility on what the time line should be?
I don't have, unfortunately, more visibility than you. The only thing we know is that we receive from the Supreme Court a document 1 week ago saying that they want to analyze 5 cases which are very similar: 2 are the 2 cases in Pontevedra, the ones of Pontevedra pulp mill; and you have 3 other cases, 1 in the province of Santander and 2 other ones in the east part of Spain. And as they think they are very similar, they want to decide at the same time. All those -- the other 3 cases are also finished and ready to have a verdict. It can be on the next month.
The first milestone will be when the Supreme Court will send to the 5 -- 4 of us a letter saying, in x date, we will give you the verdict. Well, we expect they will send us this letter during this quarter before Christmas. And then we expect to know something, to know verdict, on the first quarter next year. But I have not the certainty. That's only my rationale.
In any case, you know how I am, I'm optimistic by nature, I'm not pessimistic. But the Supreme Court confirmed a concession in the east part of Spain, now 1 year ago. That's why we changed and we are more optimistic today. And if they want to give a solution to the 4 cases, which are different but very similar at the same time, well, we think it's good news.
Next question comes from Edward Bottomley from Berenberg.
Three from my side. So firstly, I was wondering on the pulp market dynamics. So given your comments on pulp supply, so Bracell's switching of the line kind of offsetting UPM and Arauco, continued high cash costs, would it not maybe suggest that pulp prices can sustain the high levels they're at for the moment or at least not drop as much as current estimates from independent experts expect? Or what's your thinking around that?
Yes, Edward, I cannot give you more information. I think that, for the next month, the prices are strong. I have no visibility on what can happen on the first quarter or second quarter because plenty of uncertainties today. We have geopolitical uncertainty. We have the impact of the monetary policies. We have the impact of the fiscal policies. We have the war, the invasion of Ukraine, and the impact on the energy prices. It's very difficult to know what is going to happen. Today, I don't see any reason why the prices should go down. But it is true that the analysts are saying that the prices will be slightly lower next year. That's true.
One thing, Ed. Yes, regarding timing of whatever happens, yes, remember that when we sell, we sell in to the previous or the 2 previous months of the fixed price. So whatever happens in our accounts, we'll have a delay of 1 to 2 months. Just for you to have that, to take that into account.
Yes, of course. And then I guess on a separate angle, looking at the dividend payout so far this year, you've done 100% in each of the first 3 quarters. What should we be thinking for Q4 and then maybe also next year as a reasonable dividend payout ratio?
Well, you do know our dividend policy. With this low leverage, it's going to be very close to 100%.
Okay. And then the last question, sorry, if I may, would be, in the fourth quarter, it seems like we're probably going to have a bit of a ramp-up in CapEx given what happened -- for the lack of CapEx in Q3 and also working capital. Could we have an idea on how big that capital expenditure and working capital impact might be in Q4?
Well, today, we see a lower CapEx in 2022 than the one forecasted. We have been managing that pretty well in terms of paying these investments. And in Pulp, on the Capital Markets Day, we announced EUR 90 million for this year where we are going to have a cash out of only EUR 50 million, including what happened in Pontevedra, and EUR 40 million will go to next year. In Energy, we announced at the Capital Markets Day EUR 20 million and EUR 5 million will go to next year, and we are going only to cash out EUR 15 million. Then on the total company, at the Capital Markets Day, we announced EUR 110 million. EUR 45 million are not going to be paid this year, they are going to be paid on the first half of next year. And then the cash out is going to be only EUR 65 million.
Okay. And on working capital, do we have an idea? Or is it uncertain on your side given the -- having to wait for the government and the electricity payments that you've been booking as working capital?
Could you repeat the question, please?
On working capital, do you have much of an idea what that might look like in Q4? Or are you awaiting the government's clarification on the electricity payments that you've been booking as working capital?
Well, we have this EUR 70 million today, and they are increasing EUR 10 million per month. We don't know where we have to pay that. That is why we stated very clearly that we have this money, but it is not our money. When you do your calculations, you are -- well, I don't know when we are going to pay back this money. When they will definitely publish this debt, I have no idea.
And on the other hand, we have benefit a bit in terms of working capital in third quarter, on the downtime in Pontevedra, because we have stopped to invoice and we have an average of 60 days of collecting, we have improved the working capital for that. But it is true that, at the same time, we have built a fantastic stock of wood. As soon as we restart Pontevedra, we will have again the 60 days of Pontevedra [ customers ].
Thank you. Ladies and gentlemen, we have reached the end of the conference. I now give back the floor to Mr. Ignacio de Colmenares and Mr. Alfredo Avello. Thank you.
Well, thank you very much for your interest. We are in contact. Any further doubts you have, you just call Alberto Valdes, and we will be in contact. Thank you very much, and have a good day.
Thank you very much, gentlemen and ladies.