From orange to red: How shipbreaking pays the price for downgrade in industry category
Highlights
- The industry reclassified as "red" from less hazardous "orange-b" in early March
- 42 ships awaiting environment clearance since then
- These ships expected to produce 5 lakh tonnes scraps
- Steel mills also feel the pinch as they used to collect around 50% of raw materials from shipbreakers
The shipbreaking industry, which has been in trouble for a long time owing to disruption in importing scrap ships for the dollar crisis, could resume imports at a limited scale some three to four months ago, but it got stuck again thanks to a change in its industry category – from less hazardous "orange-b" to highly hazardous "red" – in the Environment Protection Rules.
The changes, brought in early March this year, made a second round of environmental clearance for breaking every ship mandatory, which industry insiders say causing delays and losses. The required clearance earlier could be obtained in just 48 hours.
Keep updated, follow The Business Standard's Google news channel
They added that they are incurring Tk6-7 lakh each day for a ship for the delays as they imported these ships with bank loans.
According to the Bangladesh Shipbreakers and Recyclers Association, some 42 scrap ships worth Tk6,000 crore have been on yards for the last three months and they cannot be broken down due to lack of environmental clearance. The delays are not only causing loss of money but also creating a shortage in scrap supplies to steel mills and increasing the skilled labour crisis.
"The shipbreaking industry has been witnessing stagnation over the past year due to the decrease in raw materials imports amid the dollar crisis. The entrepreneurs are now in a new crisis because of the prolonged waiting time for environment clearance," Abu Taher, president of the association, told The Business Standard.
"We are incurring TK2.5 crore in bank interests every day against the stuck ships. Besides, workers' wages are being paid without work. Some skilled workers also left yards in the past few days, which is concerning," he added.
Mentioning that the damages are irrecoverable, Abu Taher said even if the ships are allowed to be cut, getting skilled labour back will become difficult.
Shipbreakers will fail to survive if the situation prolongs, believes Sekandar Hossain Tingku, chairman of KR Group. "We are already hit hard by dollar price hikes. If we incur money yet again for environmental clearance it will be a survival battle," he added.
"When I bought the ship a year ago, the dollar exchange rate was between Tk85-90. Old ships imported through deferred LCs are now paid at Tk110 per dollar," Sekandar explained.
After imports, entrepreneurs can start cutting ships on approvals from multiple agencies. All of them, including the environment department, used to give their nods fast, according to insiders, but now environmental clearance takes unpredictable time.
It is happening because the Ministry of Environment, Forest and Climate Change in early March published a new version of the Environment Protection Rules with the provision to obtain a second round of clearance from its headquarters after the regional office for each ship.
The headquarters hold approval meetings every 21 days, insiders said, and added that if a ship fails to get clearance in the first meeting, it gets stuck for the next meetings, which is the reason behind the delays.
When contacted, Environment Department Chattogram Region Director Md Ferdous Anwar told TBS that the shipwreck industry was in the "orange-b" category and there was scope to cut ships with permission from the Chattogram office only.
As this industry has been listed in the red category, entrepreneurs need approval from the head office, he said and added that they have received applications for cutting 38 ships over the past one-and-a-half months.
"We have given 30 approvals and sent these to the Dhaka office for final approval. The issues of delay in approval and loss of businessmen have already been discussed. We will take action if we receive instructions from the high-ups," said Ferdous Anwar.
Department of Environment Director General Abdul Hamid could not be reached for comments. Meanwhile, State Minister for Environment, Forest and Climate Change Habibun Nahar told The Business Standard that shipbreaking yards pollute the environment which is why it has been categorised as "red" again. "The Department of Environment will scrutinise applications and inspect the ships before giving clearance," she added.
The shipbreaking industry in Chattogram was first categorised as "orange-b" in 1997. In 2007, it was brought to the "red" category, and in 2020, it was reclassified as "orange-b".
Steel mills feel the pinch
The country's steel mills, which collect some 50% of raw materials from shipbreakers, have started to feel the pinch of the crisis in the shipbreaking industry.
The prices of rods have been on the rise for long. It has now reached Tk1 lakh per tonne.
"The delay for getting the nod to dismantle ships from the authorities concerned is disrupting the supply chain of raw materials for the steelmakers," said Meherul Karim, chief executive officer of KSRM Group – leading steel makers that also owns a green shipbreaking yard named Kabir Ship Recycling Facilities.
"We make billet from scrap ships and then produce different grades of steel. Due to shortages of scrap ships, the steel makers are experiencing a scarcity of raw materials."
President of Steel Re-Rolling Mills Owners Association of Bangladesh M Manjur Alam said 43 out of 50 steel factories in Chattogram closed operations in the last three years due to the inability to adjust selling prices with production costs. The few factories which are in operation cut their production to 40% to survive amid the shortage of scraps and fuel price hikes.
Meanwhile, shipbreaking workers formed a human chain at Sitakundu of Chattogram last Saturday and said they are losing jobs amid halts in ship-cutting activities due to delays in environmental clearance. They demand an immediate solution to the crisis.
