Richard Vann – Do modern economics make selling redundant plant impossible?
18 May 2020
Impossible is a strong word. It means something that is completely out of the question. Something that cannot be done.
But of course, this statement is not true of the sale of redundant plant. There are occasions when assets that have reached the end of their useful life for one operator, can still contain inherent value in the eyes of another. A sale, therefore, can go ahead.
It is understandable that people should consider this route. The goal – for any soon-to-be-decommissioned facility – should always be to maximise the return on assets where it is possible and safe to do so.
However, factors such as plant age, former processes, recovery cost, testing, market forces and commercial competition, will all form part of the decision as to what should happen next.
As my dismantling for re-erection column in the March issue of Demolition & Recycling International stressed, the sale of redundant plant should be realistically viewed and often not prioritised as the “Plan A” for an unwanted facility, as the challenges likely to obstruct a sale are significant in both scale and quantity.
Firstly, there are the basic economics of supply and demand at play. In developed parts of the world – across virtually every heavy industry – operators are seeking ever more efficient processing technologies. Sometimes this is to stay on the right side of the law if the ageing plant risks breaching necessary legislative or EHS (environment health and safety) standards.
But there are capacity, ecological, financial and innovation advantages associated with investing in smarter and more modern equipment too, which, collectively, can prove the catalyst for operators looking to proceed with an “out with the old” strategy.
This widespread availability of redundant assets means that from a resale perspective, the market is becoming saturated with standard and off-the-shelf kit, and such plants – or component parts of them – are consequently becoming harder to sell.
Processing markets are becoming further saturated because – as markets are maturing and operators’ expectations are becoming increasingly sophisticated – all eyes are on the latest plant and equipment. But many countries are so proficient at designing and manufacturing “copycat” technologies – often for very affordable investment levels – that any ageing assets would need to be extremely advanced to justify purchasing something second hand as opposed to brand new.
Could you sell a 10-year-old laptop through an online auction site, for example, when so many better, more current models exist – often without breaking the bank? It would probably be a struggle – especially if the laptop is shipped in hundreds and thousands of component parts that require reassembly before it can be used.
The sale of a redundant asset is – perhaps unsurprisingly – far easier if the facility is to be transferred to an operator within the same group as the seller. When RVA was engaged to oversee the decontamination, demolition and dismantling of a manufacturing facility on an 11 ha (27 acre) site on Jurong Island, Singapore, for example, selected plant items were carefully recovered so that they could be transferred to the owner’s sister plants worldwide.
This project was bound by tight timescales, given a commercial driver for the client to exit the site within defined lease and permit parameters. The work was therefore planned sequentially with designated demolition areas handed over in a carefully phased manner. Potential sources of ignition were subject to strict controls, due to the nature of the chemicals housed nearby and the presence of some units which had to remain operational during the initial stages of the programme.
Had this shipment of assets been dependent on the involvement of a third-party buyer, the project specifics may have been quite different, due to the complexities involved. In-house transfers are often easier than external ones, as the owner has control at both ends.
Sometimes, sadly, deals also fall through. And the longer a plant lays idle – whether comprehensively mothballed or not – the greater the chance that an eventual sale will prove difficult. The condition of the asset is likely to deteriorate, and with the passage of time there is usually an increased risk that EHS and legislative compliance will no longer be guaranteed. In addition, the cost of keeping an asset in saleable condition increases exponentially with time and can erode any potential commercial gain.
Acknowledging that the operator will undoubtedly wish to proceed with the most financially advantageous – and hopefully safe – route map for their decommissioning project, a feasibility and options study will prove an extremely valuable modelling exercise before any works begin.
It is crucial to explore all possible project scenarios because, sometimes, the route eventually selected may not have initially been considered or deemed possible, due to false perceptions of the associated financial burden.
The complete clearance of a plant is often the most straightforward and cost-advantageous exercise overall, for example. This is because, from a technical perspective, a full clearance usually only requires a global or battery limits isolation strategy. In simple terms, the plant is usually rendered “cold and dark” so that, once residual hazards have been removed, all structures can then be demolished for scrap and the site taken back to flat slab. This then paves the way for the construction of a new facility, or the sale of the site as is. In many instances the net cost or gain of such a project could be far more attractive than that to facilitate the sale of a redundant plant.
- · Article first published in the April-May 2020 issue of Demolition & Recycling International