Graveyard of ships & workers

Graveyard

By Anto T Joseph Dec 21 2012 , Mumbai

Business is booming at Alang despite huge ecological and human concerns

On October 6 this year, as the ship Union Brave was being dismantled in Alang on Gujarat’s coast, a fire broke out on the half-broken tanker. It made news for a while, especially after the shipbreaker and two others were arrested, which led to a shutdown of the entire yard for five days in protest. There was much chest thumping and finger pointing.

Then it was business as usual. Alang was back to its old ways, which is to say everybody was once again busy thumbing his nose at the law. Alang, as a matter of rule, breaks more rules than ships.

The inter-ministerial committee (IMC) on shipbreaking – formed on the orders of the Supreme Court in January, 2004 -- which is supposed to keep tabs on the goings on at Alang, met on October 18 in Gandhinagar.

E K Bharat Bhushan, additional secretary in the steel ministry and chairman of the body, duly reminded members of the backbreaking task his committee had of overseeing shipbreaking at Alang, specially the safety aspect and adherence to rules.

Clearly, if the fire and the deaths did take place, rules were being flouted with impunity at Alang and the oversight task was not performed very well.

A plethora of rules governs the business of shipbreaking. From the kind of vessels that can be brought in to how the workers are to be treated, every aspect of the deconstruction is covered under some rule or the other. In practice, no one cares.

One key rule is about entry of junked vessels. It says any ship entering India’s junkyard must carry an insurance cover from Protection & Indemnity Club. It must hold a valid third-party liability cover against maritime claims (like oil pollution). In most cases, neither the shipowners, nor the middlemen, nor the breakers bother about these niceties.

Most of the other rules relate to worker safety and health hazards. A lot of toxic stuff goes into the making of ships, at breaking time they leave a trail of poison.

Even the Supreme Court took note of the happenings in Alang. It was on the directive of the court that the inter-ministerial committee was set up. In July this year, the court banned import of all hazardous and toxic waste under the Basel convention. The ban should have rectified some of the things wrong at Alang, but hasn’t.

Over the past decade, the Supreme Court has come up with several rulings about toxic waste. In July 2007, it had put in place a platter of guidelines for shipbreakers in importing, beaching and breaking ships. Those guidelines require a shipbreaker to submit in advance a dismantling plan, giving ship details, an assessment of hazardous/toxic stuff on board, the equipment he has to handle these and to protect workers, how oil and hazardous materials are to be removed. He also needs to obtain a “gas-free and fit-for-hot-works” certificate from the department of explosives. The plan also must identify and mark of all ‘non-breathable’ space in the ship.

“If the court order were to be obeyed, Alang would have to shut down,” says one member of the Alang shipbreakers’ lobby, the Ship Recycling Industries Association India.

In the same order, the court accepted the recommendations of a committee of which the then environment secretary Prodipto Ghosh was the head. The order specified 18 aspects of ship beaching, breaking and waste disposal.

The order prescribed prior decontamination of a ship by its owner – a job to be overseen by the state pollution control board concerned. Burning of any material, hazardous or otherwise, as a way of disposal was banned.

The Gujarat Maritime Board (GMB) and the Gujarat Pollution Control Board were specifically told that their officers should make regular visits to ensure the rules are implemented.

Forget these orders, the basic requirement of insurance cover that must accompany any ship headed for Alang is ignored by most. “Some carry covers from dubious bodies. Nothing is checked. Officers are bribed left, right and centre,” admits the shipbreaker quoted earlier.

Shrikant Hathi, partner in Brus Chambers Advocates & Solicitors, says that if a ship does not have a P&I cover, there is no way a claim can be laid if there is an accident. “Also in such cases, the owner of the ship cannot be traced.”

Bharat Bhushan, IMC chairman, sounds helpless. Implementation of rules is a casualty, and he says “lack of coordination between different agencies has been a big problem.”

The problem, says a former member of the IMC, is that the body has no legal standing. “Since 2004, when it was set up, IMC has met only on 15 occasions. “Chairmen and members are constantly changed,” he rues.

Shipbreaking is big business. Since old, unusable ships cannot be ditched in the middle of the ocean, they are brought ashore and broken. Those in the business like to call it recycling. Normally, a ship has outlived its utility if it has been around for 25 years. In any year, around four per cent of global shipping tonnage is scrapped.

Developed countries abjure the shipbreaking business. So it is left to the lot of developing countries. The world’s shipowners dump their ships at Alang and Darukhana (Mumbai) in India, Chittagong in Bangladesh, Karachi in Pakistan, and also China and Turkey.

India is the biggest junkyard, as it were, having lost the title for a few years early in this millennium to Bangladesh. We are back at the top. With trade down, shipping has touched a bottom this year. There has been a spike in trashing ships. More than 120 plots at Alang are busy; Darukhana’s 19 plots have their hands full.

Shashank Agrawal of Singapore’s Wirana Shipping Corporation, reckons Alang alone breaks 600 vessels in an average year and earns $1.6 billion.

GMB is often accused of failing to monitor Alang; never mind that it has periodically issued instructions to shipbreakers. It is supposed to conducting environmental studies, monitor upgradation to environmentally safe recycling. Another set of GMB rules calls upon shipbreakers to take prior permission under various central and state rules. Fatal accidents can lead to heavy penalties – in theory.

Another grouse against GMB, as expressed by a shipbreaker, is that in two decades, it has collected Rs 600 crore in rents and development charges at Alang, but done nothing to provide basic amenities and infrastructure.

Some fee is collected also by the ferrous scrap committee of the steel ministry. “Whatever little development is being done now is thanks to grants from this committee,” says a disgruntled shipbreaker. The committee, according to him, has an unspent corpus of Rs 150 crore.

In the meantime, thousands of Alang workers, mostly migrant, remain at the mercy of shipbreakers. Workers are not given adequate training; so they are unaware of the hazard that might engulf them.

Alang workers are given training just for the days and put on the job. They have no idea of the rules and regulations governing dismantling. Many are not aware that all pipes should be cold cut, i.e., without the use of fire or heat.

Shipbreakers are required to provide workers with personal protection equipment such as helmet, safety shoes, welding goggles, safety belts, gloves and self-contained breaking apparatus. Few get them.

GMB claims it is pursuing state ITIs to start short-term courses on shipbreaking. A GMB member who also graces IMC, says specific course designs are necessary, keeping in mind the low levels of education and qualification of people who come in for work at Alang. He emphasised that GMB has deputed three safety officers with associated staff to train workers.

Staff benefits are non-existent. They are supposed to work for eight hours, with a maximum of two hours of overtime. In reality, they put in up to 13 hours a day. Each yard has at least 50 workers; the bigger yards engage more than 250 in the peak season. For all the hard physical labour, the workers earn Rs 250 to Rs 350 a day.

According to GMB rules, a shipbreaker working beyond prescribed time limit can be fined Rs 10,000 a day. No one has paid a fine ever. Workers get no paid weekly holiday.

Every worker is supposed to be placed under employees state insurance scheme. The scheme was notified for Alang as far in October 2009. Nobody did for a long time. Then after consultations with shipbreakers, IMC asked them to implement the scheme for their workers with effect from April this year. Only one shipbreaker has done so.

Their excuse is that there is no ESI hospital in and around Alang. ESIC’s stand is that there should be at least 1,000 insured people to start a diagnostic centre and 25,000 people for a hospital.

The Ship Recycling Industries Association India opposes the implementation of the scheme in absence of an ESI hospital. It even challenged the notification before the employees’ insurance court in Bhavnagar and lost its case. It has since gone to the high court in appeal.

IMC’s last meeting noted that a large number of workers had only the minimal facility for healthcare and disaster relief.

“While the upkeep and system within the designated yards is more or less satisfactory, challenges to life and limb are ever present. NGOs engaged in worker welfare have been highlighting the toxic surroundings in which workers have to labour.”

Its minutes say, though, that there is no direct evidence of any impending threat from the toxicity. But the mechanism to check if prior decontamination or detoxification is 100 per cent is inadequate.

“Lack of coordination between GMB and regulatory services like the pollution control board compounds the problem. Adequate safeguards have to be devised and implemented to ensure 100 per cent safe operations,” IMC noted.

A long pending proposal for constructing seven dormitory blocks to house over a 1,000 workers at a cost of Rs 18.36 crore has got the GMB nod finally. Yet, the plan is not off the drawing board as a plea for the grant of Rs 13.13 crore is pending before the ferrous scrap committee. GMB is supposed to provide water, electricity, sewerage and road connectivity to housing site, which requires combining of small plots.

Alang also faces the big dirty job of waste disposal. A new landfill site with a capacity of 100,000 cubic metres of waste has been added to the existing site which is full up. An incinerator, proposed long time ago, is yet to be installed.

Despite a long-standing demand to ban the entry of junk reefer ships (refrigerated vessels), they continue to come in. GMB has not moved on this, when the Mumbai Port Trust imposed the ban recently. Reefer ships use insulation which become hazardous waste. Bangladesh and Pakistan have banned reefer ships breaking. Import and export of such hazardous waste is banned under the Basel convention.

“What is frightening is that tonnes of these hazardous wastes are dumped all over Alang’s neighbouring villages. Trucks and vans stuffed with this waste go out of Alang at night after greasing the people who are posted there to check precisely this transit.

Only a fifth of the hazardous waste goes to the official landfill sites. The rest is carelessly and dangerously thrown away. Environmentalists and a few concerned shipbreakers have called for a ban on movement of trucks in Alang after 9 pm. But, as can be expected, no one is heeding the appeal.

Ships are reportedly carrying toxic waste brought to Alang with false flags and registry. IMC has asked GMB to share with the steel ministry data of such ships on a monthly basis. GMB doesn’t think much of the threats, saying hazardous waste is only a small part (less than one per cent, it claims) of the weight of a ship.

GMB insists that these hazardous wastes are properly removed before permission is granted for beaching.

The shipbreaker quoted earlier admits, “There are absolutely no checks in Alang.” Shipbreakers do pretty much what they want to do, he adds.

All these point to widespread corruption at Alang. “If you pay a bribe of Rs 9-10 lakh, any ship can be brought in. It is an open secret. The monitoring is a mockery of rules and systems. “You are willing to pay a bribe, you can get any clearance at an hour’s notice,” he adds.

It is a long way for Alang before it can cleanse itself.

antojoseph@mydigitalfc.com

High on hazard

By Gopal Krishna, Convener, ToxicsWatch Alliance Dec 21 2012

Alang poses big threat to environment and health of local communities, migrant workers

Alang witnessed yet another death on October 29. Hailing from nor­th India, the migrant worker from Uttar Pradesh in Bhavnagar’s Ste­rling Hospital succumbed to Gujarat’s Alang beach fire of October 6, in which several workers were burnt to death while dismantling a British end-of-life ship.

During 2001 to 2012, officially there have been 173 deaths without anyone being made accountable or liable. In 2011, 27 workers died in shipbreaking activities at Alang beach. Seven workers were burnt to death on October 6, officially, but sources tell us that the death toll is higher. These occupational deaths routinely happen. Nothing has been done to arrest these preventable deaths.

The chief minister of Gujarat says, “There are 52 islands along the coast of Gujarat. I want to make them tourist attractions of international standard.” But he has forgotten about the fate of Alang, which is the worst coastal beach in the world. The Gujarat government took the right step by shutting down the Sachana plots in November 2011, citing massive pollution as reason. In Sachana in Jamnagar district, some private agencies were carrying out shipbreaking work.

The closure order dated November 22, 2011, from the office of chief forest conservator read: “The shipbreaking is termed illegal because this breaking activity is going on in the water of Marine National Park….” The order said, “Because of shipbreaking, harmful objects like arsenic, mercury, asbestos, oil, etc, could harm marine life in the long time. This leads to complex problems for protecting and conserving the marine national park and marine sanctuary.” I submit that these observations are quite relevant for the shipbreaking operations in Alang as well, but the government has ignored the similarity between the two.

The UN special rapporteur’s report based on his visit to Alang beach reads: “…in India, ships are dismantled on beaches, a method commonly referred to as ‘beaching’. This method of ship dismantling fails to comply with generally-accepted norms and standards on environmental protection. Although very little work has been carried out to assess its environmental impact, the dismantling of ships on sandy beaches without any containment other than the hull of the ship itself appears to have caused high levels of contamination of soil, air, and marine and freshwater resources in many South Asian countries, and to have adversely affected the livelihood of local communities surrounding the shipbreaking facilities, which often rely on agriculture and fishing for their subsistence.”

The UN special rapporteur has recommended an independent study to be carried out to assess the actual and potential adverse effects caused by the discharge of hazardous substances and materials into the natural environment. “Such a study should also assess the steps that need to be taken for the gradual phasing out of ‘beaching’ in favour of more environmentally-friendly methods of shipbreaking.”

It has been almost three years, but nothing has been done to make Alang beach a tourist attraction of international standard. Some 6,000 end-of-life ships were permitted in the past 30 years ignoring naval intelligence reports underlining threat to Alang’s coastal environment.

The government has failed to ensure that the guilty officials and shipbreakers are made accountable. In the context of the recent deaths, if the government is sensitive, it would ensure that no deaths happen in future by reopening the old cases of occupational deaths on the Alang beach to set matters right. Those plots, which are more accident prone than mines, must be closed with immediate effect. The migrant workers deserve both medical and legal remedy besides just compensation.

The recent inspection by the Supreme Court-constituted interministerial committee (IMC) on shipbreaking, led by E K Bharat Bhushan, additional secretary, steel ministry, took note of the non-existent environmental and occupational health infrastructure, for the umpteenth time since 2004. It is sad that recommendations of IMC from 2004 to 2012 onwards have not been implemented in breaking yards.

After each accident and death of workers, an inquiry is ordered, but their report remains classified and no action has been taken. All migrant workers who became victims in the fire of October 6 in Plot No 82 on Alang beach belonged to UP. It is not clear whether IMC team inquired about the compensation given to these workers. Only a high-level probe can bring out the names of the others who are dead, but whose whereabouts have not been disclosed so far.

As per the Supreme Court order, district collector of Bhavnagar has to ensure that dismantling takes place as per its directions. Sources have revealed that in disregard to the court’s order so far, the district collector has chosen not to be associated with the dismantling process. Such non-compliance is unpardonable, but appears routine.

At present, the migrant workers in Alang who face discrimination for being Hindi-speaking and are not covered under Employees’ State Insurance Corporation. Workers’ living and working condition remains bad.

The illegal shipment of hazardous waste “from industrialised countries is being shipped to less developed countries under the listed intention of recycling and reclamation,” is a serious problem which has been noted even by Interpol. According to Green Customs Initiative, national and international crime syndicates earn $20-30 billion annually from dumping of hazardous waste, smuggling proscribed hazardous materials. Clearly, environmental crime and escaping of decontamination cost by global shipping companies in collaboration with international recycling industry is a significant and increasingly lucrative business, but the government has turned a blind eye to it. It appears to be a case of aiding and abetting colonialism by dumping hazardous waste at the behest of shipping companies of imperial powers.

The UN report states, “Health facilities in Alang-Sosiya do not possess sufficient human, technical and financial resources to provide any treatment other than first aid for minor injuries. The nearest hospital equipped to deal with life-threatening conditions is in Bhavnagar, more than 50 km away. The Red Cross hospital in Alang, which the special rapporteur visited, can count on only four medical doctors and nine beds to provide health care not only to some 30,000 workers in the yards, but also to the neighbouring villages of Alang (which have a population of about 18,000 people) and Sosiya (4,000 people).” The regime of blind profit on this ecologically fragile beach illustrates how all efforts by the Supreme Court and UN agencies have been undermined with impunity.

The environmental and occupational health crisis due to the hazardous industrial activities on the beach, and huge dangers from the shipbreaking industry to local communities and the environment remain unaddressed.

http://www.mydigitalfc.com/industry/high-hazard-463

The business of shipbreaking

By Anto T Joseph Dec 21 2012 , Mumbai

Alang Ship Recycling Yard is one of the largest ship recycling yards in the world. In an interview with Anto T Joseph, Gujarat Maritime Board vice-chairman & CEO, Pankaj Kumar says, Alang has undergone various stages of development and has witnessed spectacular growth since its inception in 1982. Excerpts:

Alang is the world’s largest shipbreaking yard, and year 2012 has been one of the best years for the industry. What is GMB’s contribution to the industry’s growth?

Year 2012 has been historic for GMB. During the year, GMB recycled 415 ships; the highest number recycled till date at Alang, and in the process, 3.86 million tonne (light displacement tonnage or LDT) was recycled. This financial year, up to November, 266 ships were handled at Alang and 2.62 million tonne has been recycled, which in itself is a phenomenal achievement, when worldwide, the shipbreaking is at an all-time low.

GMB’s contribution has been multifold. We have taken up various initiatives like environment protection, safety and labour welfare measures, health measures and the regional development at Alang, a few of which are mentioned below:

1) Creation of the state-of-the-art training and labour welfare institute.

2) For scientifically disposing off the hazardous waste and solid waste, we have created two landfill sites. For housing migrant workers, GMB initiated a project for constructing housing facilities in a phased manner.

3) We provide services such as fire brigade, emergency response van and 108 emergency medical services.

4) Infrastructure development such as approach road, water supply, safety institute, sanitation, streetlights and fire-fighting equipment in place.

5) Realising that the nearest full-fledged hospital is at Bhavnagar, we have signed an MoU with GVK-EMRI for 108 Ambulance service, especially at Alang.

What are the difficulties faced by GMB in implementing rules and regulations (especially the supreme court order) at Alang-Sosiya? Do you think monitoring has been lax?

Alang-Sosiya Ship recycling yard is being run as per supreme court order dated September 6, 2007, which laid down the steps to be taken by various government agencies such as Customs, GMB, directorate of industrial health & safety (DISH), Gujarat Pollution Control Board, Petroleum & Explosives Safety Organisation (PESO, an institute of the central government) and the Atomic Energy Regulatory Board (AERB).

Only after the NOC is obtained from above the agencies, beaching of the vessel is allowed. Also, the interministerial committee (IMC) headed by the steel ministry, is monitoring the overall working of Alang-Sosiya recycling yard from time to time.

In a recent fire, seven migrant workers were killed, exposing poor safety gears used by them. Is GMB taking any action against the shipbreakers that are making migrants work without adequate safety measures?

Safety of workers and beaching operations are of prime importance to GMB. After the establishment of safety training institute, the rate of accidents has come down drastically. The last such fire accident took place in Alang in 2009. The recent accident was an unfortunate event and we been very sensitive on the issue. Strict action is initiated against the plot owners and we strive for ‘zero tolerance’. When such casualties happen, an immediate detailed inquiry is initiated and the plot where the accident happens is closed down with immediate effect till the inquiry is over. GMB also imposes penalty on the ship breaker and ensures that the family of the deceased is compensated financially as per the provisions of the regulations.

To prevent accidents, we have appointed 10 safety officers and labourers are given extensive training. We have also evolved a mechanism of safety audit. All ship-recycling activities are conducted under the direct supervision of these safety officers.

Despite several deaths of workers from accidental fire, are tankers allowed to break at Alang-Sosiya that are not ‘gas-free for hot work’?

Tankers are allowed to break or beach only after getting clearance from PESO at anchor prior to beaching. The fire incidents have been controlled to a large extent. After 2009, only in 2012, there was a major accident. The cause of the accident was leakage from pipelines when they were being decontaminated as per guidelines of PESO and department of safety and health (DISH). From 2008 to present, about 180 oil tankers have been safely recycled and we are working constantly to improve and plug any loopholes in safety measures along with inputs from other agencies.

Is the supreme court-directed desk clearance looking into all details of ships arriving at Alang for breaking? There are reports that most ships come to Alang without any protection and indemnity (P&I) cover or a certificate from the recognised classification society?

Various authorities as mentioned undertake the desk review, as per the directions of the Supreme Court earlier. Only on receipt of the clearances from various authorities, the ships are allowed to be beached at Alang.

As per the supreme court order, the work of various agencies like customs, GPCB, AERB and GMB has been well defined. During the desk review, emphasis is given on the condition that no vessel of hazardous nature is allowed to be beached. Only after clearance from the above agencies, the vessel is allowed to be beached.

Prior to beaching of any vessel at Alang, every ship is considered a normal ship and it has to comply with all international and flag state regulations for sailing vessels. Only after beaching, the ship ceases to be a vessel. It is pertinent to note that any vessel can only sail or get port clearance from the last port only after all its certificates required for sailing are in proper order. So it may not be true to say that most ships come to Alang without any P&I cover or certificate from a recognised classification society. It is pertinent to mention here that the vessel owner is liable for criminal negligence for putting a vessel to sea if he tries to circumvent any law.

Permission to use plots (lease) has expired in September 2009. Why is it not renewed for such a long time?

The validity of the earlier regulation has been extended and there are no cases where lease permission is not renewed.

antojoseph@mydigitalfc.com 

Ban the Ban

By P S Nagarsheth, President Iron Steel Scrap & Shipbreakers Association of India  

Dec 21 2012

Seen as biased towards steel makers, the barrier to re-rollable steel imports will hit shipbreaking hard

The steel ministry has issued The Steel and Steel Products (q­u­a­lity control) Se­c­ond Order, effective September 12. This order is nothing but a death sentence for the secondary steel sector, particularly for the shipbreaking industry, as it seems to have been deliberately issued to favour the major steel producers. A previous order on similar lines was forced to be withdrawn after detailed scrutiny and after considering all pros and cons.

Shipbreaking is mainly viable where scrap based re-rolling mills are operative. More than 90 per cent of world shipbreaking takes place in India, Bangladesh, Pakistan, China and Turkey.

Direct rolling of re-rollable scrap saves one process of melting. Conversion from ship to scrap costs about Rs 3,000 per tonne. So import of ships for breaking should be continued to be given preferential treatment as eligible for raw material imports. The shipbreaking industry supplies substantial quantity of re-rollable and steel melting scrap for scrap based re-rolling mill and induction and arc furnace.

Internationally scrap is defined only in one category — melting scrap. In India and other developing Asian countries, scrap is segregated into two categories: one is melting scrap, and the other, re-rollable scrap. The definition for melting scrap is same nationally and internationally. There is no definition given for re-rollable scrap internationally, as very few countries have re-rollable scrap processing capacities.

India had a customs tariff heading previously for re-rollable scrap, but following the introduction of harmonised international tariff headings, there is no tariff heading now for re-rollable scrap. Thus, technically import of re-rollable scrap into India is banned at present and the shipbreaking industry faces the problem of clearance of its re-rollable scrap output, although Indian Standard (BIS) 2549 defines re-rollable scrap as also the import policy.

Bangladesh has inserted an item in their customs tariffs, viz “7204.29.10 … Other (re-rollable scrap)” to solve this problem. India is one of the world’s leading shipbreaking countries. Although it lost its premier position to Bangladesh during the past few years, this year it has recaptured the No 1 slot. Ships were diverted to India during the past two years due to environmental issues in Bang­ladesh. But now that the Supreme Court of Bangla­desh has laid down the procedure for shipbreaking, operations have resumed in full swing in that country.

The global ship demolition capacity is about 12 million tonnes. But normal supply of ships for demolition is about six million tonnes a year. The global shipping industry is in very bad shape right now, owing to recession in the international market, resulting in record flow of old vessels to demolition yards. With all demolition yards over occupied with vessels, there has been a sharp fall in ship prices, which is now in the range of $400 per LDT, or almost equivalent to the international price of steel scrap. Demolitions are expected to touch a record 11 million tonnes this calendar, rendering the industry highly competitive and risky.

The new order by steel ministry will only help create monopoly by major steel producers and raise steel prices. This is also against the principles of WTO, as import of non-BIS items are prohibited, while such items are permitted for export. Out of over 19,000 BIS standards published so far, only a few, and that too mostly consumer items, have been made mandatory. So, there is no justification for making this order mandatory for raw materials such as steel.

When it was created under the pretext of discouraging the use of non-critical long products in construction industry, there is no justification for including flat products, which are not used for construction.

Introduction of BIS 15­911 shows the acceptance of consumption of non-critical items. It is said that this standard is introduced to protect shipbreaking and similar industries. However, it does not serve that purpose because no non-critical raw material is available to produce the items falling under BIS 15911. If the intention is to promote the production of items under BIS 15911, then those items falling under BIS 2549 should have been exempted in the order. One cannot expect to produce non-critical items from raw materials conforming to BIS.

Although the order has been issued, for want of detailed rules and regulations and setting up of implementing authorities, this order has remained on paper and not yet been implemented. In fact, there are practical difficulties in implementing this order. The new order will create large-scale unemployment and thousands of crores of rupees worth capital expenditure would turn into dead investment. It will promote large-scale corruption, as there is no infrastructure to monitor about 60 million tonnes of steel covered by this order.

Considering the adverse impact of the order, we would strongly suggest that it should be withdrawn or postponed till such time as effective administrative machinery has been set up to tackle all the problems outlined above.
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Merchants at sea

By Shashank Agrawal, group legal adviser, Wirana Shipping  

Dec 21 2012

Cash buyers, an important bridge between ship owners and shipbreakers, have come under stress due to low margins and a tough underwriting market Companies buying used ships from original owners for recycling in third world countries on 100 per cent cash payment are know as cash buyers. For vessels purchased on “as is’ basis, the cash buyer takes over the vessel at the delivery port and then boards his own crew. The vessel is re-flagged, given a new name and a fresh set of insurance cover for its voyage to breaking yards.

It is estimated that at least 98 per cent of vessels bought for recycling are sold via cash buyers who act as intermediaries between vessel owners and ship recyclers. Ship owners remain completely secure as their final payment from cash buyers is not contingent upon receiving funds from ship recyclers.

Among themselves, the biggest cash buyers deal with 300 ship recyclers in India, Pakistan, north and south China, Turkey and Bangladesh.

Judicial intervention

India has seen its fair share of litigations involving the ship recycling market. The arrival of the Mv Blue Lady in 2007 caused a huge uproar allegedly owing to the huge quantities of asbestos and other hazardous materials onboard. The Supreme Court handled the matter, laying down stringent regulations for the ship recycling industry. The salient features of the order were:

1. Submission of the ship-recycling plan. 2. Details of the vessel, including best possible quantities of waste onboard. 3. Ship recycling schedules with sequences of work. 4. Operational work procedures. 5. Availability of work handling equipment and PPEs. 6. Plan for removing of oil and cleaning of tanks. 7. Hazardous waste handling and disposal plans. 8. ‘Gas-free for hot works’ certificate issued by the competent authority. 9. Identification and marking of all no breathing spaces. 10. Identification and marking of all places likely to contain hazardous waste. 11. Confirmation that ballast water has been exchanged in high seas. 12. Dismantling stage. 13. Waste water downstream stage.

At Alang, five government agencies are involved for inward clearance of ships for recycling. These are the Gujarat Maritime Board, Gujarat Pollution Control Board, Explosives Department, Customs and Atomic Energy Research Board.

Over almost quarter-of-a-century, ship owners have tended to accumulate a huge pile of outstanding legal claims and liens in India, with the outer anchorage at the delivery port turning into a battleground between several ship owners and their creditors. Unfortunately, cash buyers started getting drawn into these battles for no contractual liability of theirs. Upon delivery, the vessels would start getting seized, sometimes just short of beaching and sometimes even on the beach. This causes serious hardships to the cash buyers who are in any event paying top dollar for each vessel, working on extremely low and limited margins, tough underwriting market conditions and now being forced to even underwrite such claims to which they had little or no connection.

We have seen recent cases where vessel owners, despite having clear and confirmed ‘recaps’ of the fixtures with cash buyers, tend to dishonour the confirmed ‘recaps’ and resell the vessel to other third-party buyers for higher prices. Often, this leads to serious disputes and most likely force parties to approach the appropriate courts seeking relief, including arrest of the vessel in question.

Shiprecycling vs Shipbreaking

Often we see publications switching between the words ‘ship recycling’ and ‘ship breaking’, and perhaps, the confusion stems from the ‘lack of knowledge’ in the eventual end use of the vessel by yards. During the process of ship recycling, several items, such as steel plates, ropes and chains, generators, boilers, furniture, beds, crockery sets, utensils, electrical items, sanitary wares, mirrors, glassware and fridges, among others, are recovered for reuse and recirculation in the market.

In short, the recycling markets have developed a ‘reuse’ market for every nut, bolt and the kitchen sink found on board the vessel. This industry is entirely ‘self dependant and reliant’ and, in fact, supplies all the essential items to the world at large and is the backbone for many indirect industries in the Indian subcontinent.

More than 7,500 vessels have been scrapped at Alang so far since 1983 generating steel output in excess of 90 million tonnes. In an average year, Alang recycles about 600 vessels with annual sales turnover from this activity of about of about $1.6 billion. Certainly, ‘breaking’ would not generate this revenue income!

The International Convention on the Environmentally Safe and Sound Recycling of Vessels (May 2009 of Hong Kong) is a welcome step since it has provided, for the first time, an international convention that addresses and hopefully systematises all the operations, so that the health and safety of workers and prevention of environmental pollution, both at sea and ashore, can be ensured and verified.

Ship recycling is effective due to its high demand of ship steel, which is much cheaper and durable that steel generated from the usual iron ore process. A healthy, vibrant and growing ship recycling industry is good for the environment as it helps prevent possible accidents of old vessels at sea and prevents possible abandonment by the owners of their aging fleet.

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