game changer: china soil pollution prevention and control law€¦ · •soil pollution prevention...

The business of sustainability

Game Changer:China Soil Pollution Prevention and Control Law

Seong Jeon, ERM ChinaTrista Chen, ERM China

12 September 2019

www.erm.com

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

www.erm.com

Today’s Speakers

Seong JeonERM, Partner – China [email protected]

Trista ChenERM, Partner – China [email protected]


www.erm.com

Safety Moment


March 2019 Explosion –Chemical Plant in Jiangsu Province Industrial Zone

https://www.nytimes.com/2019/03/21/world/asia/china-explosion-jiangsu.html

www.erm.com

National�Chemical�Accident�Analysis�Report�2018

Published�by�China�Ministry�of�Emergency�Management�(MEM)

Number of Accident

Number of Fatality

Change of statistic basis


www.erm.com

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


www.erm.com

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


www.erm.com

Game Changer in China – What has changed?


Seong Jeon

[email protected]

Partner, CSM,

Trista Chen

[email protected]

Partner, Transaction Services, ERM China

www.erm.com

Concept to Law… a 15 year Process


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

www.erm.com

Major Actions Taken


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

www.erm.com

Impact – What are clients facing?


Establishes technical standards

Applies to Ag & Ind land

Liabilities can be inherited

Regulatory triggers

Public Records Registration

Supervised/Watch List

www.erm.com

Environmental Risk Level (Low → High)

Jiangsu Province

Shanghai Municipality

Zhejiang Province

Guangdong Province

Henan Province


Map of levels of risk, based on locations of 4,500 companies in key industries and over 700 industrial zones. Source: IPE

www.erm.com

Supervision/Watch List


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)

www.erm.com

On the move?


www.erm.com

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


www.erm.com

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

www.erm.com

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

www.erm.com

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


www.erm.com

Transaction Services Case Studies


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

www.erm.com

Case Study: Redevelopment Zone - 2022 Olympics


www.erm.com

Case Study: Manufacturing Facility


www.erm.com

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.


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?

www.erm.com

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!


www.erm.com

Key Strategies in Your Corporate Role


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.

www.erm.com

Appendix

Key Regulations, Guidelines & Standards


www.erm.com

Regulations, Guidelines and Standards – Key Articles


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

www.erm.com



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

www.erm.com



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.

www.erm.com



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.

game changer: china soil pollution prevention and control law€¦ · •soil pollution prevention...

Documents