In all probability 2016 will be a record year for mergers and acquisitions in the chemical industry, thus continuing a growing trend. The value of global transactions has been increasing for years. Whether we consider the merger of Dow Chemical and Dupont or BASF’s takeover of Ciba: companies merge, demerge, and optimise their product lines. This almost always involves restructuring of production sites. For example, as a consequence of its Ciba takeover, BASF has transferred dyestuff production from the chemical industry region of Basel to India, sold its industrial paints division to Akzo Nobel, and made room at its Ludwigshafen site for a billion-euro plant for production of TDI (toluene diisocyanate). Decisions about re-development are made at the level of top management and have to strike a balance between costs, time, and image. If it is necessary to adapt a site to meet future demands then management faces the question of how to dismantle existing plant with minimum negative financial impact and without loss of reputation, negative environmental impact, nuisance to neighbours, and interference to ongoing production.
First Step: Strategic Decision
Compliance with its own set of corporate values will be the main focus of attention for most companies: They will prioritise environmental compatibility, industrial safety, avoidance of image loss, and adapt their scheduling and cost planning accordingly. However, scheduling offers anything but soft options because the new plant construction project on the site to be cleared has usually been planned well in advance, making timely completion of dismantling work absolutely essential if considerable additional costs, drops in sales revenues, and loss of market share are to be avoided.
Inclusion of External Expertise is Appropriate
Arcadis, a global leader in planning and consultancy for “Natural and Built Assets”, accompanies chemical companies in their construction, dismantling, and environmental projects in all project phases. Inclusion of external expertise already at this early stage is useful if an enterprise does not have an internal department familiar with specific questions surrounding plant decommissioning: Is decommissioning technically and logistically feasible? What risks and costs are involved? And: What are the time requirements? Many chemical industry sites have evolved over a period of over a hundred years and are in a permanent state of change. An up-to-date overview of all infrastructure facilities is often lacking but is important for assessing the risks for industrial safety and environmental protection as well as for estimating the cost of decommissioning. Thus supply and disposal lines often criss-cross the construction area or lie in the immediate vicinity of the decommissioning project. This requires a prior disentanglement to permit production to continue during demolition work. Logistical questions also have to be answered: How can operations continue during decommissioning of buildings and plants and any remediation measures that may be necessary? Is it necessary to alter routes through the site in order to organise removal of demolition material and excavated soil without obstructing access to other on-site facilities? As a general rule, decisions about timing made by responsible persons at this early stage can have very negative consequences in the case of a misjudgement. For example, if they allow too short a time for cleaning the production plant and building to be decommissioned the costs of subsequent disposal or demolition can increase considerably or stoppages or accidents may even occur.
Substantial Revenues Possible
Costs are offset by revenues – and in the case of chemical plant this often has more potential than is generally assumed: The value of the plants and equipment to be decommissioned is often underestimated by operators. Many vessels used in the chemical industry are made of high value steels which, depending upon their composition, will have a significantly higher scrap value than conventional steels. Early valuation of the assets and market opportunities at hand therefore greatly reduces bottom line costs for the company and makes the decommissioning project more readily calculable. Documentation of the value of these assets and what happens to them also enhances transparency. However, one factor in any estimate of revenue is beyond control, and that is the scrap price, which has been prone to wide fluctuations in recent years.
Important: Detailed Data Acquisition
After the first phase, in which company management considers, examines, and reaches a decision about different variants, site or project management takes over. Specific planning can then begin. Detailed data acquisition at the earliest possible stage, ideally immediately after it has been decided to cease production and before the plant is shut down, improves the calculability of the overall project. The plant operator can exert a decisive influence on subsequent costs by providing as much information as possible in this early phase. Fewer studies then have to be performed, the conclusions reached are more reliable, and subsequent execution is safer. Moreover, the personnel with the best knowledge of the plant will still be available to clarify any issues that may arise. On the basis of these data and the conclusions drawn from detailed studies, a concept for decontamination and demolition can be developed which ensures a high rate of recycling and hence minimised disposal costs.
Examination of existing approvals belongs to the task of data acquisition: Approvals issued for plants in keeping with the Federal Immission Control Act, for example, frequently also contain rules for decommissioning. In addition, official requirements and legal provisions also have to be observed. Demolition approvals are required in some of the German federal states. Not immediately obvious requirements such as nature and species conservation also have to be examined with regard to their relevance for the decommissioning project and scheduling: For example, a tree that cannot be felled in spring or nesting birds may block work on an entire construction or demolition site. As a rule, practical and lawful solutions can usually be worked out in collaboration with the approving authorities – however, the dialogue must be conducted in a proactive manner.
Fire Protection and Industrial Safety
This also applies to fire protection and industrial safety: Chemical companies have a wealth of knowledge about handling hazardous substances, but less about the specific hazards associated with decommissioning activities which may also influence the safety concept of their site: Changes may result for fire fighting, for escape and rescue routes, or for contact persons. An example from a current project serves to illustrate this point: Located just a few centimetres away from an outer wall due for demolition were the supports of bridges carrying numerous supply lines – including high voltage current, hydrogen, and ammonia – which are absolutely essential for operation of the entire site. This is a challenge not only for security of supply but also for fulfilling the aim of “zero industrial accidents”.
Challenge of Construction Logistics
This example also underscores the importance of logistics expertise in plant decommissioning: Supplies to and waste disposal from ongoing production at the site must be assured. Things can become expensive if a plant suddenly has no electric power or natural gas, especially if neighbouring plants do not belong to the same company – for example in an industrial park or in the case of withdrawal from a joint venture. With respect to the removal of demolition and other materials it should be established whether the existing route capacities are sufficient, how trouble-free removal can be organised, and whether provisional access routes or heavy haulage are necessary. In addition, Ex zones often also have to be considered in chemical production. Dust, shocks, and vibrations can seriously interfere with sensitive processes and account has to be taken of safety distances necessitated by working with heavy machinery and construction conditions.
Good Specifications – Low Risk Premiums
The following should be considered when putting work out to tender: The more preparatory work has been done, i.e. the clearer the project specifications have been formulated, the lower will be the risk premiums and the fewer the subsequent negotiations that will be necessary in the course of the project. Tendering and awarding of contracts to construction, demolition, remediation, and disposal companies requires extensive expert knowledge. Prequalification, audits, certification, and evidence provided by established management systems such as SCC (Safety Certificate Contractors, a combined occupational and environmental management system) may be of help in selection, but are no substitute for the experience gained in successfully completed projects. A frequently underrated factor is whether the bidder has sufficient insurance cover. Exclusion of the “asbestos risk”, for example, or a “radius clause”, which excludes material damage within a perimeter defined by the height of a building, drastically limits the insurance cover and transfers the risk to the company contracting out the work. Companies often underestimate the time required for the actual decommissioning measures. As a rule, decommissioning takes longer than the preceding shut-down and cleaning of the plant, which is more extensive in the case of a decommissioning project. Intense scrutiny is important during construction activities to facilitate early recognition of delays and quality problems, as well as problems caused by unforeseen obstructions – such as the surprise discovery of forgotten supply lines – and to appropriately adapt the further course of the project.
Documentation and Conservation of Evidence
The fundamental goal of a decommissioning project is to hand over a site which is in such a state as to ensure that no further demands come from the subsequent user. This requires accurate, complete, and legally sound documentation of the measures undertaken, monitoring measurements, and test results, particularly with regard to the construction pit bottom. Keeping a record of information concerning adjacent buildings and plants helps to prevent demands from neighbours.
Concerning Communication: Engaging the Residents
Before any work begins companies should not neglect the importance of public relations, especially communication with residents. An effective approach is not only to disseminate information via the press but also to reach out directly to the public and to invite them to information events in order to address specific issues.
Arcadis Germany GmbH