2014 in Review: Dr Nikos Mikelis, GMS

The European Commission is about to create a major divide in the world’s shipbreaking industry. “The Commission is currently proceeding in a path that will wreck the establishment of the international safety and environmental standard for the shipbreaking industry that was adopted under the auspices of IMO, (the not yet in-force Hong Kong Convention)”, says Dr Nikos Mikelis, non-executive director of the world’s leading cash buyer, GMS.

The European Union brought into force its own legislation at the end of 2013 that stopped short of banning shipowners from using shipbreakers that rely on beach locations to dismantle ships. The wording of the new legislation, that was negotiated and agreed by the European Council and Parliament, was left unclear on whether the beaching of ships will be banned or not when the legislation is fully applied in the next four years. It is therefore important to note Dr Petros Varelidis, Greek environmental attaché to the EU and a leading expert in the writing of the EU recycling regulation, who emphasizes that the EU regulation does not ban beaching, as the European Council realizes that it would have been counterproductive to do so. 

Nevertheless, the European Commission is currently preparing clarifications to the new regulation in the form of a document on Frequently Asked Questions (FAQ), and the first draft of the FAQ, which was made available for public comment in September 2014, makes it clear that the Commission intends to interpret the regulation as banning the beaching of European flagged ships. 

This is because beaching is seen as a controversial practice in view of risks to workers and concerns about environmental pollution, according to some officials in the European Commission and to environmental activists. Furthermore, the proponents of a European ban to beaching are also claiming that this will support the European shipbreaking industry, bringing much-needed new jobs in European countries.     

Once the FAQ is published, shipbreaking yards will be able to apply to the Commission to be included in the European List of approved ship recycling facilities. On the basis of the draft FAQ, it would appear that yards in China, Turkey, and Europe will be approved. Unless the Commission makes a wise last minute U-turn, none of the shipbreakers in South Asia, who operate around 70 percent of the world’s ship recycling capacity, are likely to be accepted. Thereafter, the new legislation will fully apply to the recycling of EU flagged ships, either when the European List of approved yards reaches a capacity of 2.5M light displacement tons (ldt), or from 31st December 2018, whichever is the earliest date.
 
For the last 14 months Chinese needs for ferrous scrap have plummeted and it is only extremely generous government subsidies to Chinese flagged ships that are recycled in Chinese yards that have kept the yards in business. As an example, the two largest shipowners in the world - COSCO and China Shipping - have been scrapping large numbers of ships this year. “China’s ship recycling industry has basically become a domestic market” says Mikelis.

Turkey’s shipbreaking industry is relatively small, representing between 2 and 4 percent of the world’s ship recycling capacity. Furthermore, periodically, imports of cheap ferrous scrap depress the Turkish shipbreaking market, as is the case presently. 

The new regulation provides that each European country will authorize its own shipbreaking yards, which will then be listed directly into the European List. “While there should be no difficulties in the approval process of European yards, it has to be understood that Europe’s capacity for recycling large ships is virtually non-existent, with few European yards focusing primarily on the recycling of small, domestic trading, and government owned ships. Even then, most ships in the above categories tend to be recycled in Turkey’s Aliaga breaking yards.”  

The European Union is the second largest net exporter of ferrous scrap in the world, with volumes that are not far behind those of the leading exporter, the U.S., and with almost twice the volumes of the third largest exporter, Japan. The vast majority of the ferrous scrap exports from the European Union go to Turkey (63 percent of EU’s gross exports in 2013), with some quantities also being exported to Egypt (9 percent), India (8 percent), China (4 percent) and Pakistan (2.5 percent). 

“It therefore makes economic nonsense to be relying on the establishment of a shipbreaking industry in Europe for large ships, in order to produce ferrous scrap that will have to compete with other European ferrous scrap, and that will have to be transported to countries most of which already recycle ships,” says Mikelis. 

“Recycling ships in Europe so that their steel can be exported to countries with shipbreaking industries also makes environmental nonsense, as these countries do not only use the steel from shipbreaking but also make great use of all other materials, equipment, stores and furniture that are found on a ship, unlike Europe where most of the second hand goods would find their way to landfills.

“The European Commission could use the new EU ship recycling regulation to encourage shipbreaking yards in South Asia to improve their safety and environmental performance”. Mikelis believes that the shipbreaking yards in India, Bangladesh and Pakistan that are making positive changes for worker safety and environmental protection should be encouraged and supported by the international shipping community, as well as by the European regulator. As it stands, the FAQ interpretation shuts the door and removes all incentives from the yards that are trying to improve their operations. “That surely cannot be the intention of the European Union”, he says.

Moreover, “a European ban is unlikely to keep ships off beaches,” says Mikelis. “Instead, in the last year or years of their life, ships could be reflagged out of Europe and still arrive in South Asia for recycling. It is naive to think otherwise. A classic case of throwing the baby with the bathwater”, he says.

“Instead the EU, with the fleet of its 28 Member States, should be a force for positive change. Excepting the Commission’s FAQ, the text of the European regulation on ship recycling is compatible with the Hong Kong Convention, which aims to encourage the upgrading of recycling facilities in South Asia and elsewhere, rather than exclude them because of their reliance on beaching. The Commission needs to see the bigger picture.” says Mikelis. 

Dr Nikos Mikelis graduated in naval architecture from the University of Newcastle and obtained Master’s and Doctorate degrees from London University. He has worked in ship classification; and then for a shipping company as superintendent, technical manager and then director. In 2006 he joined the IMO, from where he retired at the end of 2012 as Head, Marine Pollution Prevention and Ship Recycling section. Currently he is a consultant and a non-executive director of GMS, the world’s leading cash buyer.

He has served in senior positions in shipping industry bodies, such as Council Member of Intertanko, Chairman of the Intertanko Safety, Technical & Environmental Committee, member of the Safety of Navigation & Protection of the Marine Environment Committee of the Union of Greek Shipowners, and Chairman of the London Greek Technical Committee of Det Norske Veritas. He has written over 50 learned papers and numerous articles in the maritime press and is a freeman of the City of London.