Is Bangladesh's shipbreaking industry sustainable?

Despite having so many green financing options in Bangladesh's banking industry, the shipbreaking industry's transformation has yet to be accommodated to avail any of these funds. Photo: Reuters

Recently, a mega forum on ship recycling was organised in Singapore by TradeWinds, the world's biggest shipping news service. This type of event on the same subject occurs regularly every year. Nevertheless, last year's event has gained added significance due to Bangladesh's ratification of the Hong Kong Convention (HKC) in June 2023 for safe and environmentally sound ship recycling.

According to this, the Government of Bangladesh (GoB) will not allow any ships to be dismantled in a yard that is not HKC-certified after 26 June 2025. 

I have participated in this event for the first time with the expectation of experiencing a series of panel discussions addressing all the burning points. All these points need immediate attention for a sustainable way out to create a level playing field for all the industry's stakeholders.

It is important to comprehend why this ratification movement in Bangladesh is critical to the global ship recycling industry. Many end-of-life vessels are dismantled in the South-Asian belt, where Bangladesh handles the majority share of the pie. Therefore, the ship recycling industry is eagerly anticipating Bangladesh's preparedness to handle the global volume of vessel recycling in a compliant manner, taking into consideration all the points that need addressing before claiming itself as a safe and environmentally sound recycler.

It will not materialise without going through a rigorous modification process in our existing recycling facilities, ie, (1) yard development as per prescription to meet all regulatory requirements, (2) downstream waste management solutions, (3) a well-trained group of workers who are proactively concerned about health, safety, the environment and (4) the record of proper documentation of all the complied activities for subsequent audit/inspection.

After the adoption of HKC to protect the environment from hazardous material and also to protect humans exposed to health risks during the dismantling of an end-of-life vessel, the regulatory push has piled up since 2009. 

Naturally, all vessels have a generic life cycle, and it has to end. Due to continuous awareness of health, safety and the environment, the end-of-life cycle process is getting harder every day in terms of exposure to legal, financial and reputational risks.

This paves the way for middlemen to come to the bigger picture, balancing the whole buy-sell process, especially for the South Asian yards. Popularly, the industry calls them cash buyers – they apparently come as a saviour to manage all the bottlenecks of the life-cycle process of a vessel. With cash buyers, ship owners technically manage their legal, financial and other risks related to selling a ship for breaking to its ultimate preferred destination to the highest bidder.

It is to be noted that the world's largest fleet owners are in the western part of the biosphere, and they are regulated by European Union Ship Recycling Regulations (EUSRR) and European Union Waste Regulations (EUWR), restricting vessel movement from the Organisation for Economic Cooperation and Development (OECD) to non-OECD countries. However, recently, China has outdone Greece to become the world's largest ship-owning country, accounting for a global market share of 15.9%. 

Another burning issue is CO2 emissions. It will significantly impact the global steel business in the coming days. Nations exposed to producing steel from the basic raw materials are now under pressure to reposition their capacity under an Electric Arc Furnace (EAF) based solution. This will significantly trigger the requirement for heavy consumption of melting scraps in the exporter's destination, which are the key raw materials of the long steel industry in Bangladesh. 

Hence, the industry ought to look for synergy with the recycling industry, which is currently undergoing all the modification processes to get a SoC (Statement of Compliance) with HKC.

Despite our yard owner's ongoing, sincere effort, a big question is running through the minds of the stakeholders who participated in Singapore's TradeWinds event – how do the HKC-compliant yards of Bangladesh handle downstream waste management in the absence of a central TSDF (Treatment, Storage, and Disposal Facility)?

The good news is that the government is working with the Japan International Cooperation Agency (JICA) to address the matter. Until then, the current HKC-compliant yards in Bangladesh have extended one-to-one MoUs with the subject matter specialised for managing hazardous materials. However, asbestos will be a key concern in the absence of IHM (Inventory of Hazardous Materials) in the vessels in question that will be dismantled.

Our HKC-certified recyclers are proactively working to get the IHM report through an external expert at their own cost. However, according to the International Maritime Organisation, it is the clear responsibility of the ship owners or sellers/cash buyers to carry up-to-date IHM in every vessel until it's been sent for scrap.

At the end of the day, it is simply a business calculation for Yard Owners. The compliance expected by the stakeholders cannot be ensured free of charge. The cash buyer, seller and beneficial owner of the end-of-life vessel need to comprehend the fact that going forward, especially after June 2025, recycling will be costlier in general as the yards used to offer high prices are not expected to be operational unless the deadline is further extended.

It is a matter of great concern that, despite having so many green financing options in Bangladesh's banking industry, the shipbreaking industry's transformation has yet to be accommodated to avail any of these funds. 

Given the deadline of June 2025, all dedicated recyclers have started to invest in complied yards without having any offering of refinancing under any of the Green Funds currently available in Bangladesh's financial market. The investors may lose competitiveness due to the higher cost of funds, which further seems to be climbing since the lending cap has been released.

By taking cognizance of all the ongoing changes and upcoming challenges, it is pivotal to connect the dots to build a sustainable green steel industry by adopting the circular economy concept with the direct intervention and continuous supervision of all the interrelated authorities of the government.

Mohammed Tarek Uzzaman is an ex-banker and Group CEO of a private company. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.