Dr Nikos Mikelis comments on the EU decision that Alang EU Ship Recycling Regulation applicants will not be joining the EU list of approved yards
The European Commission (EC) has stated that no vessel can come to India from OECD and EU countries, which effectively upholds the Basel Ban Amendment, which entered into force in December 2019. There had been hope that the EU Ship Recycling Regulation (EU SSR) would allow EU-flagged ships to go to non-OECD countries, hence hopes had been raised amongst four or five of the pre-eminent facilities in Alang (all Class NK HKC compliant already) that they may soon become EU compliant.
However, this is now all immaterial and owners of EU-flagged vessels are today facing the grim reality of scrapping their vessels in only six Turkish facilities and several much smaller ship recycling facilities (34) within the EU, which have neither the ability nor capacity to scrap significantly sized vessels. To put things into perspective, depending on where the vessel is located, owners of EU-flagged vessels may forfeit 100% or even more of their asset value (if located in the Far East for example and having to make the voyage all the way over to EU facilities). Prices on offer in the six EU-approved Turkish yards are only around 25% or lower from prices currently on offer in HKC-approved sub-continent facilities. We know of examples where owners have had to pay to recycle ships in the EU.
The residual value of a vessel is an asset on the balance sheet. The EU’s refusal to approve Alang yards will result in owners paying for vessels to be dismantled in Europe, turning an asset into a liability. Is this what EU Regulators had in mind when they pushed through EU SRR? For EU owners, is scuttling a ship going to become an option instead of recycling? What does this say about the EC and its refusal to accept Indian yards, despite four major classification societies (NK, Rina, LR and IR classes) now approving over 77 yards in Alang (with many more to follow) and many of the world’s major blue chip/listed shipowners likewise sailing their vessels to these largely improved facilities?
"Many owners may be forced to find loopholes and not follow the law, making a mockery of the policy"
This new decision should serve as a major wake up call to owners of EU-flagged vessels, many of whom are based in Europe already and should have taken more interest in the discussions and arguments over the years. It is the depreciation of their assets in the long run that is going to hurt the most. Indeed, many owners may be forced to find loopholes and not follow the laws in order to avoid devaluing their vessels, making a mockery of the policy itself. For now though, the shipping world, and in particular the EU Shipowner’s Associations, must face up to this most intransigent, draconian and ineffective EC ruling that will limit the scrapping of EU flagged/based ships to restricted and insufficient ship recycling facilities in only OECD and EU countries, thereby nullifying the worth of their previously valuable end-of-life assets.
We expect that as long as progressive yards in India and more generally in the subcontinent are not approved for the recycling of European flag ships, there will be an exodus from the European registries of ships before they reach their end of life. It will therefore hurt Europe and will also diminish the relevance of the European Ship Recycling Regulation. After all, the industry has voluntarily accepted the Hong Kong Convention as its safety and environmental standard. Having more than one standard is not what the shipping industry needs, nor is it going to help the ship recycling industry achieve a common global minimum standard.
Dr Nikos Mikelis is the former head of IMO’s ship recycling section and advisor to GMS