game changer: china soil pollution prevention and control law€¦ · •soil pollution prevention...
TRANSCRIPT
The business of sustainability
Game Changer:China Soil Pollution Prevention and Control Law
Seong Jeon, ERM ChinaTrista Chen, ERM China
12 September 2019
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Agenda
Game Changer: China Soil Pollution Prevention
01
02
03
04
05
Safety Moment
Game Changers in the Regulations
Impacts on Your Operation
Impacts on Transactions
Key Take Away and Strategies
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Today’s Speakers
Seong JeonERM, Partner – China [email protected]
Trista ChenERM, Partner – China [email protected]
Game Changer: China Soil Pollution Prevention
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Safety Moment
Game Changer: China Soil Pollution Prevention
March 2019 Explosion –Chemical Plant in Jiangsu Province Industrial Zone
https://www.nytimes.com/2019/03/21/world/asia/china-explosion-jiangsu.html
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National�Chemical�Accident�Analysis�Report�2018
Published�by�China�Ministry�of�Emergency�Management�(MEM)
Number of Accident
Number of Fatality
Change of statistic basis
Game Changer: China Soil Pollution Prevention
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Business risk exposure
To the Owner/company To the Managers
Penalty
Compensation
Remediation/improvement
Relocation
Stop production (temporaryor permanent)
Company reputation
Penalty
Administrative discipline
Criminal liability
Game Changer: China Soil Pollution Prevention
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The company shall implement safety management with full compliance
Compliance Audit & Training
Onsite Safety Support
Hazard Identification & Risk Assessment
Safety Management Advisory
Safety Leadership & Culture
Safer & Better Business
Performance
Game Changer: China Soil Pollution Prevention
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Game Changer in China – What has changed?
Game Changer: China Soil Pollution Prevention
Seong Jeon
Partner, CSM,
Trista Chen
Partner, Transaction Services, ERM China
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Concept to Law… a 15 year Process
Game Changer: China Soil Pollution Prevention
2004• Notice on Effective Prevention and Control of Environmental Pollution During Relocations
2005• Solid Waste Pollution Prevention and Control Law• Pollution Control Regulation on Hazardous Waste Chemical
2008• Circular on Strengthening Soil Pollution Prevention and Remediation, (MEP)[2008] 48
2009• Tort Law
2012• Notice on Safety for Redevelopment Industrial Sites
2016• Soil Pollution Prevention and Control Action Plan (baby version of 2018 Law)
2017• Contaminated Site Soil Environment Rule (Trial)
2018• Soil Environment Management Rule for Industrial and Mining Site (Trial)
2019• Soil Pollution Prevention and Control Law - Effective on 1 January 2019
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Major Actions Taken
Game Changer: China Soil Pollution Prevention
2006 - Legislative Subject Research initiated
2010 - Expert Consultation Draft completed
2012 – Legislative process started
June 2017 – 1st Draft for Public Consultation released
January 2018- The 2nd Draft for Public Consultation released
31 August 2018 – The bill was approved at the 5th
Session of the 13th National People’s Congress
1 January 2019 - Law comes into effect
Soil Pollution Prevention Law of PR China
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Impact – What are clients facing?
Game Changer: China Soil Pollution Prevention
Establishes technical standards
Applies to Ag & Ind land
Liabilities can be inherited
Regulatory triggers
Public Records Registration
Supervised/Watch List
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Environmental Risk Level (Low → High)
Jiangsu Province
Shanghai Municipality
Zhejiang Province
Guangdong Province
Henan Province
Game Changer: China Soil Pollution Prevention
Map of levels of risk, based on locations of 4,500 companies in key industries and over 700 industrial zones. Source: IPE
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Supervision/Watch List
Game Changer: China Soil Pollution Prevention
High Risk Sectors
Chemical Pharma Manufacturing Oil & Gas Non-ferrous metals
Triggers
Store, handle, manage hazardous material Generate >100 tons of hazardous wastes per year Near sensitive areas (residential, water bodies)
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On the move?
Game Changer: China Soil Pollution Prevention
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Operation
Site Closure
Legal obligation
Government reporting
Capital Project Development
Establish baseline condition
Divestiture
Management business risk
Strategize a favoring contractual
allocation of risk and liability
Acquisition
Identify environmental liability
Establish contractual warranty
The Impact on Property Transactions
Polluter PaysLiability Transfers
Legal and financial implications due to environmental legacy issues in transactions
Game Changer: China Soil Pollution Prevention
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The Impact on Property Transactions – Buyer’s Perspective
Lack of baseline informationSoil and groundwater baseline condition of a target asset is often unknown
Challenge in defining ‘polluter’
Absence of implementable mechanism towards defining a polluter
Liability transfer
Inherit the relevant legal liabilities for an existing subsurface contamination, warranting actions for risk mitigation and remediation along with transfers of asset/share
Business impact and implications
Protection through establishment of contractual warranty and escrow
Assets’ valuations adjustment
Conducting a Phase II ESA can:
Identify subsurface contamination liabilities associated with target’s assets based on investigation results
Beneficial forming deal negotiation strategy and decision
Providing buffers for deal negotiation with respect to clean-up liabilities during an asset transaction
Provide scientific evidence to a buyer in forming a sound decision on a transaction considering the legal and financial implications
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Early planning
Starting early so that subsurface contaminant risk can be identified before bringing assets to the market
Allocate sufficient budget for divestitureprocess
The Impact on Property Transactions – Seller’s Perspective
Contaminated site management
Allow sufficient time for investigation, delineations, corrective actions or other mitigation measures to do with contaminations
Manage uncertainty due to the need of government and expert panel interactions
Deal negotiation support
Prepare negotiating and fallback positionsDividing and sharing legal liabilities and
understanding financial implications of assets valuations
Strategize a favoring contractual allocation of risk and liability
Conducting a Phase II ESA can:
Potential deal failureInadequate assessment and valuation of environmental issues and poor execution of M&A and transition planning in challenging market condition
Taking a ‘buyer’s mind set
Managing uncertainty in the buyer’s mindset can unlock business value during divestitures for sellers
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The Impact on Property Transactions – Regulatory Triggers
Transaction
Is the Target a
listed PSPF1?
Applicable rules suggested the target can
be a listed SPF in the future?
Applicable rules2
suggested the target can be a listed PSPF in the
future?
Any significant contamination risk
identified during Phase I EDDA
Up to the client to decide as to whether a Phase II ESA can be beneficial for the deal; potential disclosure obligations towards a buyer as well as local authorities would have to be considered.
Regulatory trigger:A seller is obligated to perform a mandatory Phase II ESA
Phase II ESA is highly recommended:Recommends buyers to lead the statutory investigation to ensure the investigation is to be done is a manner that is technically acceptable and sound not only meeting the Chinese technical guideline but also the buyer’s internal corporate requirements, if any.
Phase II ESA is highly recommended:Following listing as a PSPF after an acquisition, the target asset will likely be subject strictly scrutiny on soil and groundwater pollution prevention and control. The buyer would have obligation of conducting regular subsurface investigation and stand exposed to contaminates risk control or worst case clean up.
Phase II ESA is highly recommended:In the absence of a Phase II ESA, the buyer will very likely take over contaminants risk control or worst case clean up liability without knowing the nature of the liability.
Phase II ESA is recommended:From a risk mitigation perspective
Yes
Yes
Yes
Yes
NoNo
No No
For sellers
For buyers
For sellers
For buyers
1. Priority soil contamination prevention and control facility2. Industrial and Mining Enterprise Soil Management Rules and Management Rules on Inventory of Key Pollutant Discharge Units
Game Changer: China Soil Pollution Prevention
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Transaction Services Case Studies
Game Changer: China Soil Pollution Prevention
Understand the local regulation requirements
Identify key steps and timeneeded for the exit investigations
Discuss with business leader and environmental leader about requirements and plans
Early engagement of expert panels for consultations of exit investigation scope of work
Investigation result indicated contaminations and HHRA result indicates unacceptable risk, i.e. remediation is needed
Remediation cost and time estimations for business decision making
A MNC company decided to close down one of it’s operation in China, north of Shanghai:
- Site was used as a fertilizer plant prior to acquisition
- No entry due diligence was done prior to acquisition
- Regular GMP has been implemented following ASTM standard, with contaminations identified
- No soil and groundwater monitoring has been done following latest Chinese technical standard
- Business unit would like to sell the site asap, but environmental department is not sure if contaminated site can be sold without clean up
- Time is the biggest concern – business wants complete the sell / shut down by 2019
Business decision to be drawn:
Higher value return from sells vs site closure
Remediation now addressing liability vs future uncertainty of liability
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Case Study: Redevelopment Zone - 2022 Olympics
Game Changer: China Soil Pollution Prevention
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Case Study: Manufacturing Facility
Game Changer: China Soil Pollution Prevention
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This is a RealityIf your answer is yes to any of the questions below, the new regulations have direct impact on your operations and the bottom line.
Game Changer: China Soil Pollution Prevention
Do you have a facility in China in any of the following high risk sectors – chemical, manufacturing,pharmaceutical, metallurgical?
Does your facility produce, use, store, recycle, or dispose of toxic and/or hazardous waste?
Does your facility generate >100 tons of hazardous waste annually?
Do you plan to retire asset, relocate, transfer (equity, shares, asset)?
Is your facility/asset on the Watch/Supervision List?
Is your facility/asset on the Polluters List?
Has there been reported spills, releases, accidents?
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Key Takeaways
Enforcement in China is a REALITY
While the “theme” may change (air, soil, groundwater…..), this is happening!
The “new” Soil Law is a game changer that will directly impact your operations andthe bottom line.
MNC’s currently operating or with future plans to operate in China must have astrategy.
Time to act now!
Game Changer: China Soil Pollution Prevention
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Key Strategies in Your Corporate Role
Game Changer: China Soil Pollution Prevention
Take proactive approach with regular engagement with your regional and China EHS team to obtain up to date understanding of your operations in China
Early engage with business leaders in discussions about plans for acquisitions, site closures and/or divestitures – understand the business plan
Ensure corporate policy and requirements are well communicated within the organization and implemented accordingly – protect the bottom line
Allocate sufficient time, resources and budget with early planning
Safety Liability Sustainability
The business of sustainability
Thank you Seong JeonPartner, Contaminated Site Management [email protected] 86-18302149739Shanghai, China
Trista ChenPartner, Transaction [email protected]+86-13816920720 Shanghai, China
© Copyright 2019 by ERM Worldwide Group Limited and/or its affiliates (‘ERM’). All Rights Reserved. No part of this work may be reproduced or transmitted in any form or by any means, without prior written permission of ERM.
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Appendix
Key Regulations, Guidelines & Standards
Game Changer: China Soil Pollution Prevention
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Regulations, Guidelines and Standards – Key Articles
Game Changer: China Soil Pollution Prevention
Chapter II Planning, Standards, Baseline Investigation and Monitoring
Article 12
All assessment program must comply with “Soil Quality Standard - Risk Control Standard for Soil Contamination of Agriculture Land, GB15618 - 2018, and “Soil Quality Standard - Risk Control Standard for Soil Contamination of Development Land, GB3660-2018
Article 15
Establishes the National Soil Environment Monitoring System
Article 17
Regulators to focus monitoring of industrial sites used to:
Produce, use, store, recycle, or dispose of toxic and hazardous substances
Store or bury solid wastes
Where pollution accident occurred
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Regulations, Guidelines and Standards – Key Articles
Game Changer: China Soil Pollution Prevention
Chapter III Prevention and Protection
Article 18 – Construction and land use plans must conduct EIA including:
Potential adverse impact & corresponding preventive measures
Article 21 – Supervision List
Report discharge data annually & Establish a screening system for pollution risk
Develop & Implement self-monitoring plans and submit monitoring data
Article 22 – If you are on the Supervision List
Before commencement of decommission and demolition work, you must prepare complete decommissioning/demolition plan that include pollution prevention and control measure, and register the report with local government
Article 32 – Prohibit new construction, reconstruction and expansion of construction projects which may cause soil pollution to surrounding residential and sensitive areas
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Regulations, Guidelines and Standards – Key Articles
Game Changer: China Soil Pollution Prevention
Chapter IV Risk Control and Management and Remediation
Articles 35 - 37
Investigation, report/format guidelines
Articles 38 to 43
Risk control, remediation activities, including source removal, pollution prevention and control measures, information disclosure, impact assessment, post management, etc.
Articles 45 to 48
Responsibilities of polluters, land users and government authorities
Articles 62 to 64
For the first time groundwater pollution prevention and control is included and cleanup required based on risks (Human Health Risk Assessment – HHRA)
Article 66
Specifies how a site can be removed from the contamination risk control and remediation list, stress that no construction work can be carried out at the contamination other than remediation work before it meets the risk control or remediation target.
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Regulations, Guidelines and Standards – Key Articles
Game Changer: China Soil Pollution Prevention
Chapter V Guarantee and Supervision
Article 71 - For the very 1st time, establishes a fund system for the prevention and control of soil pollution (Chinese version of the Superfund).
Cleanup of contaminated site in which polluter cannot be identified. It stresses that before the Soil Pollution Prevention and Control Law comes into force, the land user not polluter can apply for the fund for risk control or remediation activities.
Article 77 - Relevant Government Departments are granted the authorities for the 1st time to enter the potential contamination to investigate & remediation, if necessary
Article 78 - Seize or impound non-compliant facilities, equipment, and assets if the enterprises:
Cause or may cause serious soil contamination by discharging toxic and hazardoussubstances in violation of any law or regulation.
Destroy or conceal relevant evidence.