METHODS TO ENHANCE THE SAFE AND GREEN SHIP RECYCLING CAPACITY IN INDIA

23-NOV-2010, ROTTERDAM

WHAT IS SHIP RECYCLING?Ship recycling is the activity of dismantling ships in order to recover components for reprocessing and re-use, including on-site

storage and treatment.

A highly mechanized process using a small labor force, which is found solely in Western countries in EU, UK and US.

An intermediate process using some equipment but still maintaining a significant labor force, which can be found in Turkey, and China

A non-mechanized process using a strong labor Force, which is found in India, Bangladesh and Pakistan. (Low Productivity, High rate of Fatalities and Environmentally Polluting)

SAFE RECYCLING FACILITY ?

SAFE RECYCLING FACILITY ?

GREEN AND SAFE RECYCLING FACILITY ?

GREEN RECYCLING FACILITY ?

INDUSTRY HISTORY

The ship scrapping industry gradually shifted from industrialized western countries to Asia because of increased labor costs and stricter environmental regulations.

Reduced demand for scrap steel in Europe and Far East Asia pushed major chunksof the markets to theIndian subcontinent whichEmploys low cost beachingMethod and manual labor for ship breaking.

Apart from India and Bangladesh, Pakistan, Chinaand Turkey are the other major players in the scrap trade.

SHIP BREAKING MARKET

SUPPLY(SHIP OWNERS)

-SCRAP PRICE-REGULATIONS

-VESSEL OPERATING COSTS

-FREIGHT RATES

DEMAND(SHIP BREAKERS)

-STEEL DEMAND-2ND HAND ITEMS

DEMAND-TAXES AND LEVIES-INFRASTRUCTURE

NEEDED

Recycling location Method Recycling fraction of total, %

India, Bangladesh and Pakistan

Beaching 71.79

China Afloat 22.22

OECD non-EU Landing, afloat and unspecific: Landing in analyses

5.05

EU (of this UK) Slipway (docking) 0.95 (0.06)

Total 100

(Bio intelligence service, 2010)

MARKET HISTORY2003-LATE 2008

PRE 3RD QRTR. 2008

AFTER 4TH QRTR. 2008•Collapse of ship and scrap steel prices•Local banks withdrew credit lines •halt in local Letters of Credit (LCs)•Western banks unable to negotiate LCs•Relentless supply of ships •More renegotiations than ever before.•More lawsuits, auctions, arrests

•Supply about 300 ships/year•expected to be record years… 900-1,000 ships•USD 2 billion annual turnover•Indian Subcontinent do 75% of the business•China and Turkey gain market share

•More than 5-fold increase in demo prices •Demo ship values exceeded old trading prices•ships destined for scrap went for tradingCargoes available for scrap vessels•Demo buyers became ship owners•Ship recycling capacity shrank

(Bio intelligence service, 2010)

PROBLEM STATEMENT

OBJECTIVE AND HYPOTHESES

IMO’S regulation (13G of MARPOL or new regulation 20) has accelerated scrapping of single hull tankers. This means a super scrap tonnage supply to Recycling yards all over the world. Given the lack of Safe and Green Recycling Capacity ; Inadvertently, it means more fatalities and more pollution than ever before.

OBJECTIVE- How do the facilities in India accommodate this super scrap tonnage without any further deterioration of the existing safety, health and environmental problems? Specifically, how do we enhance the Safe and Green Recycling Capacity in India?

HYPOTHESES: •Recycle more ships per beaching plot or yard•Create more capacity by increasing the number of beaching plots or yards•Capacity Building by Constructing new Green Recycling Docking Facilities

METHODOLOGY

Test the proposed Hypotheses with:•Existing Literature Review•A Multi Criteria Socio-Economic and Environmental Analysis•Case Study

CONCLUSIONS

RECOMMENDATIONS

INTERNATIONAL CONTEXTLEGAL FRAMEWORK

LITERATURE REVIEW

REGIME

SHIPS

FACILITY

OBJECTIVE

All End-of-Life Ships > 500 GT, no coverage of War ships and State Owned ships

The first dismantling- and recycling site, but not any interim facilities or installations for subsequent processing and disposal of waste

Control of ships from design,through construction, operation and at the recycling stage. However, specific requirements for authorization and Environmentally sound management of hazardouswaste not clear until the IMOguidelines, that are currently been developed, are adopted.

All end-of-life ships

All waste managementfacilities, includingcollection, transport,interim- and final recoveryand disposal.

Prior informed consentprocedure (PIC). Theprinciple of environmentallysound management (ESM)of waste applies to allfacilities that recover ordispose of waste and isdefined by guidelines, alsospecifically covering shipdismantling. The Baselguideline on ESM for shipdismantling does not accept'beaching' (impermeablefloors are prescribed for fullship containment)

The ILO has set criteria to govern the disposal and recycling of private ships.

ILO Guidelines are not legally binding, nor are they intended to replace national laws, regulations or accepted standards

The ILO approach is to facilitate step-by-step improvements to the practice of dismantling ships on beaches. The Guidelines suggest that this can be achieved by:•Ensuring there is an inventory of hazardous materials on board;•Decontamination and gas-freeing;•Planning for safe demolition;•Recycling and;•Safe waste management

IMO CONVENTION (not in force, expected in 2020) BASEL CONVENTION ILO CONVENTION

COUNTRY CONTEXT:THE SUBCONTINENT

INDUSTRY FEATURES:•High profit margins / High volatility•Cost and (potentially) environmental effective source for steel production• Significant legacy pollution costs•Mixed socioeconomic record

ENVIRONMENTAL ISSUES:•Direct discharge on land and at sea of oil residues containing significant levels of hydrocarbons and heavy metals•Widespread asbestos abuse•Significant concentrations of heavy metals, Organic Compounds, PCB and TBT in the soil

SOCIAL ISSUES:•Sub-standard working conditions•Significant source of unskilled employment •casualty rates and major occupational Health problems

LITERATURE REVIEW

COUNTRY CONTEXT:INDIA

INDUSTRY FEATURES:•A major but not strategic industry: •Niche steel market player•Commendable in situ efforts to improve environmental and labor conditions and indication of changing industry attitudes counterbalanced by pressure not to loose further market ALANG (Gujarat Maritime Board)•high tidal range, Long gentle slope facilitating beaching of ships•173 plots developed on 10 km. long coast.•High breaking potential of >3-5 million MT per annum•Direct employment to 50,000 people and Indirect: @ 500,000 People)

MUMBAI ( Mumbai Port Trust)•19 plots, cap. 0.5 Million MT/Annum•Beaching of ships, •Direct Employment to 10,000 workers

LITERATURE REVIEW

INDIAREGULATORY FRAMEWORK

LITERATURE REVIEW INSTITUTIONAL MAPPING

MoEF , CPCB

GMB , MMB, GPCB, MPCB

GMB , MbPT

INDIA CONCERNS AND POSSIBILITIES

LITERATURE REVIEW

• Reflagging and Transfer of Ownership to Cash Buyers

• End-of-life ships are ‘beached’ in India containing Hazardous materials (PCB’s, Asbestos, lead, mercury, Anti Fouling paints and plastics causing environmental damage

• Ship breakers ask for ‘pre-cleaned’ ships!

• jobs are controlled by layers of contractors all of whom exploit the workers resulting in poor labor welfare conditions• Misadministration resulting in sub standard ILO, ISO and OHSAS compliance

• Stricter Regulatory Regime required from IMO

• Beaching can be banned, but individual parties can only Implement it

• Basel and EU Waste Shipment Regulations have termed export of HW ‘illegal’. Pre-cleaning to be carried out by Ship Owners. Pre-cleaned ships can then be demolished in India

• Indian Authorities need to eradicate exploitation with Government intervention and application of existing social welfare benefits and monitoring occupational HSE norms

WORLD (GREEN+ NON GREEN)CAPACITY ESTIMATION (1)

LITERATURE REVIEW •Authorization of Ship recycling facility, and Ship Recycling Plan required by SRC (CERTIFICATION) •Prevention of adverse effects to human health and environment (ADVERSE EFFECTS PREVENTION) •Safe and Environmentally sound management of HW (ESM) • Emergency preparedness and response (EMERGENCY PREP.) •Worker safety and training (TRAINING) •Transparency and reporting of incidents, accidents, occupational diseases and chronic effects (TRANSPARENCY) •Exchange and communication of Information (COMMUNICATION) •Treatment of HW (DISPOSAL) •Pollution prevention from spills (POLLUTION PREV.) • Monitoring and publication of progress (MONITORING) • External audit/Third Party audit ( EXTERNAL AUDITS) •Environmental and/or Occupational health and safety certification and management (OHSAS)

Determine Criteria Or Objectives For Evaluating

Ship Recycling Facilities As Per Ship Recycling

Convention ( SRC 2009)

LEVEL OVERALL INDICATOR METHOD COUNTRY EXAMPLES

AAA

High safety levels, state-of-the-art disposal and elimination, double containment in

cutting zones Docking EU

AA

High safety levels, proper disposal and incineration facilities, ship’s hull used as containment, double containment for

breaking keelAfloat: berth and slipway EU, China and (US)

A

Adequate levels on worker’s safety, no incineration of hazardous waste, bunds and

containment in primary cutting zone for keel not impermeable. Hot work and confined space certificates available

Upgraded beaching and landing

Turkey and South-East Asia (upgraded)

Sub-standard

Non compliant facilities e.g. lacking disposal facilities, environmental management or

without proper safety equipmentCurrent beaching

facilities

South-East Asia:India, Pakistan and

Bangladesh (72%)COWI LITEHAUZ, 2008

A Three Levelled System With Levels From The Sub Standard, Through Minimum A Level To The Top AAA Level

.

HYPOTHESES CAPACITY ESTIMATION (2)MULTI CRITERIA EVALUATION (MCE)

Global Dismantling Volume Projection

(Ships)

Global Ship Recycling Capacity

Yards,Expandable

Global Green Ship Recycling Capacity

Sub Continent Non Green Ship

Recycling Capacity(Maximum 72% of

global capacity)

India Ship Recycling Capacity

(Maximum)

Global Shortfall Green ship

Recycling Capacity

Shortfall in Recycling Capacity attributed to India

11.2 >11.2 2.8 8.0 5.5 8.0 5.5All Figures in Million Light Displacement Tons per Annum (MLDTA)-

(Bio intelligence service, 2010 and Author’s Assumption)

•Recycle more ships per beaching plot or yard!•Create more capacity by increasing the number of beaching plots or yards!•Capacity Building by Constructing new Green Recycling Docking Facilities!

HOW TO ENHANCE THE SAFE AND GREEN RECYCLING CAPACITY IN INDIA ?

WHICH HYPOTHESIS OR ALTERNATIVE YIELDS THE BEST SOLUTION ? MCE.

1. Select The Best Possible Alternative With The Help Of (MCE)2. MCE will require clear objectives to be met or achieved with Alternatives Or Options3. The Criteria To Classify All Recycling Facilities By IMO SRC, 2009 Will Be Our Objectives4. The Hypotheses Become Our Alternatives or Options5. Weight Attribution of the Objectives will be carried out to determine importance level6. Running or Operating Cost Estimations of the three Options will be evaluated7. Option giving Maximum Socio-Economic-Environmental benefits or Value per Cost

will be the Best Possible Alternative and our potential solution

COST ESTIMATION OF OPTIONSTHE MOST PROMISING ALTERNATIVE

MULTI CRITERIA EVALUATION (MCE)

AlternativeAlternative 1

(No Additional Beaching Plots)

Alternative 2(Additional

Beaching Plots)Alternative 3

( 11 Green Field Green Docks)

Cost( Million USD) 1.0 1.5 1300

Alternative Value/Cost Rank

(Alternative 1)More ships per plot and no extra plots

and yards on beaches

0.749 1

(Alternative 2)More ships on new plots and yards in

new beaches0.499 2

(Alternative 3)Create new green

ship recycling docks and piers

0.0014 3

PARAMETERS•World Ship Breaking Demand (7.7-11.2 Million LDT/year)

•Alang Ship Breaking Capacity 3-5 Million LDT/Year

•Mumbai Ship Breaking Capacity : no validated info.

•Alang annual Operatiing Costs for 173 plots (option 1)

•Alang annual Operatiing Costs with additional beaching plots>173 plots (option2)

•Cost of 1 Green dock of size 0.5 MLDTA in India with HW cleaning station of 0.25 MLDTA with additional Depreciation costs for a period of 20-30 years (option3)

•SRC Criteria

•Hypotheses

ASSUMPTIONSDemand 11.2Million LDT/Year

Alang Capacity 5.0 Million LDT/Year

Mumbai Capacity 0.5 Million LDT/Year

1.0 Million USD/Annum

1.5 Million USD/Annum

115 Million USD ( not including Inflation )

MCE Objectives

Alternatives or Options

.

PIPAVAV SHIPYARD LIMITEDIndia’s First Green Ship Dismantling Facility

CASE STUDY Date Event

October, 1997

The Pipavav Ship Dismantling and Engineering limited was created under the Companies Act to construct a ship breaking facility in Pipavav, Gujarat.

July, 2000 Freight rates for crude carriers reached a high of $70,000/day.

October, 2000

IMO Marine Environment Protection Committee 45th Session (MEPC45) indicated that phase put of single Hull and Non Marpol tankers could begin

around January, 2003

December, 2003

Marpol Amendments MEPC.111 (50) brought out regulations for phase out of Non Marpol tankers or converted to Double Hulls from 5th April, 2005.

June, 2004 Crude carrier freight rates reached an all time high of $190,000/day

April, 2005

The main business of the company was changed from ship dismantling to ship building and ship repair. The company also changed its name from the ‘Pipavav Ship Dismantling and Engineering limited’ to the ‘Pipavav Shipyard

Limited’ to reflect the change in its primary business focus.

April, 2009

The company commenced commercial shipbuilding production from1st, April, 2009.

WHAT WENT WRONG?•Shipbuilding Industry and freight market offered better revenues•Government Initiatives for the Shipbuilding Sector with Shipbuilding Subsidies at the cost of Ship breaking•Implementation of the IMO regulations deferred for phasing out single hulls and old tankers•Proximity to major ship breaking sites (Alang and Mumbai)•Lack of International Cooperation

Established: Oct., 1997Capacity: 400,000 LDTFeatures: Two Wet Basins; 680m x 65m 680m x 60m Accommodate the largest VLCC Cost: 90 Million USDCommencedOperations: Shipbuilding Operations 01-April-2009

RECOMMENDATIONSCONCLUSIONS MCE:

• MCE shows that there is financial stability in beaching of vessels. It also suggests that any new beaching yards will offer no attractiveness for future entrepreneurism.

•MCE values green recycling yards much more than ordinary beaching facilities

•Green ship dismantling is the way forward with docks and piers for the industry and economic feasibility is doubtful in the sub continent, at least till the time the SRC comes into force; assumed to be 2020.

SHORT TERM:• The scrapping industry needs to be technically and

financially supported immediately to ensure safe and healthy ship recycling with beaching of vessels

• The deaths, diseases and ill effects of unsafe practices, pollutants and HW cannot be prevented till enforcement of punitive regulations is effected

• Stricter compliance with OHSAS, ILO, ISO 30000 Ship Recycling Management System

CASE STUDY:

•The site location to choice of industry was wrong.

•More than the timing of the adventure, Government’s step sisterly attitude dealt a major blow to green ship recycling in India. The GOI, needs a proactive, and comprehensive approach to revive the Ship Breaking Industry.

•International stake holders (IMO and other countries) need to initiate on a Fund Mechanism to provide the necessary impetus for Green Recycling facilities.

LONG TERM:• Upgrade all beaching breaking yards to ‘A’ level and

above

• Improve labor, work, and health conditions. Workers housing and employment terms will need a major overhaul. Much has to be seen on ground in terms of infrastructure like providing housing, sanitation, water, electricity and insurance coverage for the beleaguered workers

• Complete Pre-cleaning may become financially and operationally infeasible but partial cleaning will help in reducing the burden in developing countries like India. It is suggested that partial cleaning be mandatorily enforced to tackle HW dumping and related diseases in ship breaking workers.

• Stricter legislations are required to stop Flag hopping to escape social, economic and environmental responsibilities