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U.K. shipbreaking contract questioned

Special to SunSpot

The recent award of a $17.8 million military contract that eventually went to a British ship scrapyard is under fire at home and abroad -- with environmentalists warning against leaky old ships trolling across the Atlantic Ocean and American companies charging that they were not given a fair chance to bid on the deal.

Yet those accusations -- denied by the U.S. Maritime Administration (Marad), the federal agency ultimately responsible for the contract -- are drawing renewed attention to the way the United States disposes of its ships and could in the long run help struggling domestic companies get more work, say U.S. industry advocates.

Much of that work has the potential to be done in Baltimore, they say -- provided that government agencies and local lawmakers work to get financingand avoid problems that have contributed to the recent bankruptcy ofBaltimore Marine Industries Inc.

BMI, the Sparrows Point shipyard that filed for bankrupcty protection inJune, was among four companies participating in a five-year U.S. Navy pilotprogram -- now winding down -- designed to help the government get rid ofold ships.

While the company's financial problems were not a direct result of a lack ofgovernment work, observers say the situation may have been a contributingfactor.

BMI officials did not return repeated telephone calls seeking comment.

"Part of the work they were counting on was doing scrapping of some of theMarad and U.S. Navy ships," said Ande Abbott, director of the of theInternational Brotherhood of Boilermakers' shipbuilding and marine divisionin Washington. The union, with welders and other members who worked at BMI, represents employees at 43 shipyards nationwide.

"The Maritime Administration just didn't want to pay anybody to do thescrapping," Abbott said. "The strange part of this is, they're willing topay the Brits."

Democratic Rep. Solomon Ortiz of Texas said he has asked the General Accounting Office, the Congressional investigative agency, to audit the transaction. He said he also wanted the GAO to review Marad's ship-dismantling program in general and "let all of us know exactly how much money was wasted in this bad decision."

"The current deal the U.S. made with Great Britain was a bad deal for U.S.taxpayers," Ortiz said. "We are paying more for a job that needs to be done;we are paying people in another country to do it while our industry in theU.S. is deeply hurting -- and could have done it cheaper; and we are riskingdamage to the enviroment by dragging oily, leaky ships across the Atlantic."

Disposing of 'ghost fleet'

The Navy shares ship-scrapping responsibilities with the MaritimeAdministration. The Navy is responsible for disposing of old combat ships,while Marad oversees the dismantling of other vessels, such as merchant ships and supply tankers. The pilot program began in 1999.

According to a Navy spokesman, a warship can be completely dismantled in six to 12 months, at an average cost of $2 million to $3 million apiece, with the price declining as a shipyard gets more work. Between 70 and 120 people can work on a ship during various stages of the dismantling process, the spokesman said.

Marad currently has 108 ships available for disposal, while the Navy has 55, the Navy spokesman said. Known as the U.S. "ghost fleet," the ships are moored throughout the United States with about 70 of them in the James River in Newport News, Va.

The vessels generally are polluted with asbestos, toxic polychlorinated biphenyls (PCBs) -- banned in the 1970s -- and varying quantities of heavy marine diesel oil. Some of the ships served in the Korean War and have been rotting for years.

"We have over a million tons of ships to be scrapped right now, and over thenext 10 years, another million tons," Abbott said.

'Offered the best value'

In July, Marad awarded the $17.8 million scrapping contract to Post-ServiceRemediation Partners, an affiliate of New York real estate firm Pyne Cos.Ltd., which is subcontracting the work to Able UK Ltd. The plan is to send13 ships to a demolition dock in Teesside, England.

To get them abroad, they would have to be towed from Newport News and through the English Channel, one of the world's busiest shipping lanes. This has raised concerns among British politicians and environmentalists.

In addition, critics contend that two partly built oil ships were thrown in the deal at the last minute, adding $3 million to the value of the contract. The tankers, they say, should not have been included because they are not scrap ships, but potentially valuable vessels that could be completed and sold for a profit.

"The deal is about transferring two valuable Navy oilers to a privatecompany," said Polly Parks, president of Washington-based consulting firmRoss & Parks. "What [Marad] failed to reconcile was there are companies here in the U.S. who are dependent upon ship-scrapping."

Christine Bridge, a consultant working with Post-Service Remediation Partners on the deal, said the company subcontracted with Able "because they specialize in environmentally safe recycling and remediation."

Marad said it backed the eventual award to Able after carefully considering a number of bids. "They offered the best value for the taxpayers' money," said Susan Clark, an agency spokeswoman.

Clark said she could not provide figures on how much money Marad issaving in the deal.

The uproar, Parks said, puts pressure on Congress to "fund this program, and fund it domestically."

Other contracts awarded

Congress allocates money each year for Marad to dispose of its reserveships. In its budget request for the 2003 fiscal year, which begins in June,the agency asked for $11 million, saying 28 of its ships posed "serious environmental risks" and needed to be disposed of "immediately."

The Navy has said that it has $7.8 million budgeted for ship disposal andremediation in fiscal 2004.

"You've got enough ships ... to run an industry for about 20 years doingjust federal ships," Parks said.

Marad, for its part, has not determined how many ships it will makeavailable for dismantling, said Robyn Boerstling, another agencyspokeswoman.

She noted, however, that the agency recently awarded contracts to twocompanies -- Esco Marine Inc. and Marine Metals Inc., both of Brownsville,Texas -- to dismantle a total of five ships from the James River fleet.

Marad also is in talks with a U.S. company Boerstling declined to identifyabout a contract to break down four more ships.

But that's still not good enough, some industry observers say.

"I would like to see the domestic industry more utilized," said AllanRoberts, executive director of the National Environmental Education andTraining Center in Indiana, Pa. The group provides training, education andresearch for the hazardous-waste industry. "It's necessary for us to thinkabout these economic-development opportunities rather than sending our taxdollars overseas."

Opposition in Britain

The 13 ships bound for Britain have been sitting in the James River foryears, subjected to an export ban in effect since the early 1990s after The Sun wrote a series of Pulitzer Prize-winning articles that highlightedlabor and environmental abuses at overseas shipyards.

Last week, an Able UK official said the ships would be towed through theEnglish Channel en route to a special dock in Teesside. The route has yet tobe approved by British authorities.

A member of the British Parliament, Liberal Democrat Norman Baker, is tryingto stop the ships from heading to sea.

"I'm lobbying the Department of Transport and Marine and Coast Guard overhere to make sure it's not a done deal," he said last week in a SunSpottelephone interview from East Sussex, England. "Developed countries shoulddeal with their own waste. I can't believe a country like the U.S. hasn'tthe capacity to deal with it."

"I'm not convinced the ships are actually seaworthy," Baker added. "Icertainly don't relish the prospect of decrepit hulks going through theEnglish Channel."

Troubles at BMI

In its June bankruptcy filing in U.S. Bankruptcy Court in Baltimore, BMIblamed its troubles on "a combination of economic factors, includinglower-than-anticipated revenues and increased offshore competition in asluggish economy."

The company, which said it is putting together a plan to keep operatingthrough Oct. 31, reported that more than 75 percent of its business camefrom government ship-repair contracts. BMI also said in the filing that ithas hired an outside adviser to help seek a buyer or arrange arefinancing deal.

A longtime division of the former Bethlehem Steel Corp., BMI was sold in1997 to Veritas Capital, a private investment firm based in New York, for$17 million. The 113-year-old shipyard filed for Chapter 11 protection afterlosing $4.8 million last year and $4.2 million more through May of thisyear, according to the court filing.

The yard no longer is performing ship repair, maintenance or scrapping work.More than 200 employees have been laid off since shortly before thebankruptcy filing.

Specific skills needed

BMI had the facilities and staff to run a scrapping business, said theboilermakers' Abbott.

"It's totally unlike new construction or repair; the types of skills,people, are totally different -- even the type of equipment," he said.

Lonnie Vick, business manager of District Lodge 4 of the InternationalAssociation of Machinists in Baltimore, said the company's troubles stemmedfrom "a lack of available work" and "stiff competition" for what little isout there.

BMI lacked a steady stream of activity, Abbott said. The government "gavethem a couple of ships, but there was never any guarantee they would receiveany more," he said. "You just can't keep a trained workforce that way."

Most of the ships being taken apart today were built between the 1930s and1960s and require trained workers, "not someone you just get off thestreet," Vick said.

The dismantling process itself, he said, also requires specific skills.

"Just like us burners, shipbuilders and welders put it together 35, 40 yearsago," Vick said. "Those same skills." Once the materials are removed, headded, the ship has to be anchored so it does not topple over as it isdismantled.

"You can't just go there and start cutting pieces off," Vick said. "When wewere dismantling ships at BMI, we prided ourselves on our safety record."

But trained workers cost more -- and to encourage a domestic industry, thegovernment may need to increase support for ship-dismantling programs,industry observers say.

"You can't really tackle the problem with $11 million a year," said Parks,the consultant.

Vick added that, while BMI told the bankruptcy court that it isinvestigating other ways to remain afloat, "it looks kind of bleak rightnow. I'd hate to see the shipyard go down."

Besides the loss of jobs, Vick said, BMI is important to the region'sreputation as a shipping hub. "I don't know how you can be a first-classport without some kind of ship-repair facility close by."

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