Thanks to competition, shipowners also demand higher price for demolition
Only a few global fleet owners are dismantling their end-of-life ships at green ship recycling facilities in Alang, Gujarat, rendering many such yards under-utilised, amidst intense competition that has nixed the price advantage yard owners had hoped to get when they invested in the upgrade some two years ago.
Currently, 72 of the 120 working plots at Alang – home to the world’s longest stretch of ship breaking beaches – are certified for green recycling standards set by the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships that was adopted by the International Maritime Organization in 2009.
Another 10 yards are being audited for HKC certification.
To be sure, the HKC has not yet entered into force globally because it has not been ratified by the requisite number of signatory states (including India) meeting the gross tonnage and recycling volume prescribed by the Convention.
Ship breakers at Alang – often criticised for the beaching method of chopping ships with its impact on humans and environment – have voluntarily upgraded to become green facilities.
They invested in the upgrade hoping to benefit from buying ships for recycling at a lower price than the market rate, so that they can sell steel scrap at a higher price and make money.
But, with 72 yards conforming to HKC, there is stiff competition among ship breakers for buying vessels.
The current market rate for recycling ships at Alang is in the range of $420-430 per light displacement tonnage (LDT), depending on the type of ships.
Because of competition, price differential between green and non-green recycling has narrowed. Secondly, out of 72 HKC-compliant yards, only 10-12 are getting green vessels for recycling. Whereas, in other yards, ship owners are not insisting on green recycling.
“There are more HKC compliant ship breaking yards now and lesser number of ship owners looking for environment friendly recycling. As a result, lesser number of yards are getting the benefit of green recycling,” says Anand Hiremath, Head, Research and Development, Lead Coordinator for Responsible Ship Recycling at Global Marketing Systems (GMS) Inc, the world’s largest buyer of ships and offshore assets for scrapping.
“More number of ship owners should be responsible and should opt for green recycling services,” Hiremath told BusinessLine.
Eye EU certification
With low pricing advantages, HKC-compliant yards are in a fix. They cannot chop ships without following the green ship recycling standards after buying at market rate. Because, that would expose them to the risk of their compliance certificates being revoked. Hence, by default, they have to carry out green recycling without any monetary benefit.
Alang breakers are now looking to get some extra mileage by gaining entry into a list of yards being approved by the European Union where all EU-flagged ships can be dismantled by separate rules framed by the EU. Eleven of the 72 HKC-compliant yards have applied for inclusion in the EU list including those run by top breakers, such as Leela, Priya Blue, Kalthia and Arya. A team from the European Commission visited Alang recently to audit a couple of these yards.
“We have to get clearance from the EU to be included in their list of approved yards. Once we get the EU certificate, we feel that we’ll get some extra benefit because all the EU flagged vessels have to mandatorily come to EU certified yards only for recycling,” says Rajesh Arya, who runs two HKC compliant yards at Alang.
“In today’s world, the fittest will only survive,” says Arya adding that investing money in the upgrade had not fetched the desired benefit due to competition among a large number of HKC certified yards. “But then, without taking risks, nowadays no business can run,” he says.
“If we don’t get a ship for recycling at a discount, we leave it because we don’t want to lose money after spending so much to become green facilities,” Arya adds.