Segment 2 Of 2 Previous Hearing Segment(1)
SPEAKERS CONTENTS INSERTS
Page 9 PREV PAGE TOP OF DOC Segment 2 Of 2 DISPOSAL OF MARITIME ADMINISTRATION VESSELS
Wednesday, May 24, 2000
House of Representatives, Subcommittee on Coast Guard and Maritime Transportation, Committee on Transportation and Infrastructure, Washington, D.C.
The subcommittee met, pursuant to call, at 10:20 a.m., in Room 2167, Rayburn House Office Building, Hon. Wayne T. Gilchrest [chairman of the subcommittee] presiding.
Mr. GILCHREST. The Subcommittee on Coast Guard and Maritime Transportation will come to order. Our apologies for the vote that delayed the start of the hearing for a few minutes. We appreciate your patience.
I ask unanimous consent that my statement be submitted to the record.
We are here today to get some understanding of the fairly complex interagency, interjurisdictional problem of ship-scrapping in the hope that the testimony given this morning by the witnesses will give us some idea of the progress made on the problem of scrapping ships under the Navy and MARAD jurisdiction. It is a complex, difficult problem, given the state of regulations in the Nation and the fact that the United States wants to be a responsible player in this growing international problem; but it seems to me it is also a fairly small problem.
That is, the number of ships out there that need to be scrapped may bewhatever the total number is, anywhere from one to 300, I guess, depending on condition of the vessel, but it is a finite problem that I think we can get our hands wrapped around if everybody participates; and I hope this morning we hear a vigorous plan put forth by the administration which will be included init wasn't included in this budget, but maybe in next year's budgetwhat we do with this finite problem.
Page 10 PREV PAGE TOP OF DOC Segment 2 Of 2 Do we export some? Do we abide by some EPA regulations to clean out the toxins? Do we find a suitable program in the U.S. to begin scrapping these ships? Do we consider the Navy ships and MARAD ships as one? Will the administration agree or even ask for that concept so we can expedite the serious problems that are in Virginia, Texas, and California, but especially the James River in Virginia?
We would like to hear from each of the witnesses two things: If you are representing the administration, we would like to hear the administration's plan to eliminate this problem. And then we would like to hear your personal perspective on how we eliminate this problem as an independent-minded, thinking American citizen. Do you have any other innovative ideas that could be put forth this morning?
I think with the ideas that Mr. Bateman has come up with in the defense bill, the ideas that Mr. DeFazio has put forth, and some of the ideas that will be expressed by myself today, I would like to get this whole problem resolved in this session of Congress so that there is a very specific strategy to eliminate these aging vessels. And perhaps we can complete that task today.
At 11:00, I have another markup, so we will recess about 11:00 and then my guess is that will be about a 15-, 20-minute recess, and we will come back into the hearing.
I yield now to the gentleman from Oregon, Mr. DeFazio.
Mr. DEFAZIO. Thank you, Mr. Chairman, for scheduling yet another hearing on ship-scrapping, our national policy of being penny wise and pound foolish. The problem seems to get worse every day. The ships are probably right now spouting leaks as we meet and dither.
If I represented the district where a large number of the ships sit, I would go for any kind of a solution. I would have tremendous frustration, and I understand the frustration of the gentleman from Virginia. But I believe that there are options that are before us that are affordable, that we should pursue. We can scrap them in the U.S. and I would scrap them responsibly, not incidentally providing jobs to Americans in an industry that is under capacity at the moment.
Page 11 PREV PAGE TOP OF DOC Segment 2 Of 2 We can send them overseas, see them pulled up upon the beach in India and watch on television as the people are maimed and killed in dismantling the ships by hand with hand tools, or we can watch them sink at anchor; and I think it is a pretty easy decision for me where we should go.
So how are we going to get there? What is and what are the proposals that the administration will put forward to deal with the MARAD ships and the Navy ships on a more expedited basis? How will we better utilize the capacity which exists in the United States and only doesn't exist because of the artificial barrier created by Congress that you have to make money somehow disposing of floating or on-the-verge-of-sinking hazardous waste sites. That is not a place to make money, and I want to examine what just the sinking of one of these ships could cost in terms of not only environmental destruction but dollars and cents. What are we really saving here?
So I look forward to the testimony, Mr. Chairman, and hope it we can come to a solution in this Congress.
Mr. GILCHREST. The gentleman from New Jersey?
The gentleman from Virginia, Mr. Bateman.
Mr. BATEMAN. Thank you, Mr. Chairman. I appreciate being allowed to be something of an interloper in your subcommittee hearing this morning. It is a very important one and is on a subject that I have been very interested in for a number of years, going back to that time when I served on the then Merchant Marine and Fisheries Subcommittee where we wrestled even with scrapping ancient and unneeded MARAD vessels, even in that bygone era.
We still have the problem. We have done next to nothing to solve it except to aggravate it. We have had deadlines in statute by which the obsolete vessels that have been identified must be scrapped. That deadline is something like September of 2001. There is no one alive who thinks that we have the capability to meet that statutory deadline, so the bill that moved through the Armed Services Committee has extended that deadline.
Page 12 PREV PAGE TOP OF DOC Segment 2 Of 2 My recollection is that it calls for a study of how we can solve this problem. It also seeks to obviate the constraints on these vessels being scrapped in foreign yards where historically we have derived revenues from the sale of vessels for scrapping purposes, which help feed the maritime administration budget for a number of programs, including the State and national maritime academies, with a residue of the funds going into MARAD for purposes of seeing that the program for scrapping was sustained.
It is a simplistic view perhaps, but I see little reason why we should accept an inordinately high degree of environmental hazard in the waters of the United States of America because we are concerned that some other government in some far foreign land with a huge unemployed and starving population is anxious to do this work and people willing to pay for us to have it done, because we are sensitive tomore sensitive to their environmental laws than they are. I don't think that is the reason or rational trade-off that should prohibit us from having these vessels scrapped where people are anxious to have the business and are free of the kind of constraints that perhaps, where appropriate, we place upon how it is done in this country.
I am not so much a fan or leading cheers for scrapping vessels in foreign shipyards. I am very much concerned that the vessels get scrapped before they become an environmental disaster in our waters, and I have heard no one with the political will to put the kind of money, either in the Navy's budget or in the Maritime Administration's budget. To get this job done and to get it done in American ship-scrapping facilities becomes probably a multibillion dollar program, and until somebody is willing to step forth with that money, I think we have got to solve the problem by other alternatives unless and until someone comes up with that money.
But that is the dimension of the problem we are facing and, yes, we need ingenuity. We need people to fully understand and recognize the problem is there and a determination to solve it.
Page 13 PREV PAGE TOP OF DOC Segment 2 Of 2 I don't see a likelihood in the environment in which we now work of someone coming up with that solution that provides a billion or more dollars to scrap useless vessels before they become an environmental disaster. Short of that, it is time to start moving these vessels to places where they will be scrapped and where it will not be exorbitantly expensive for the taxpayers of the United States.
I thank you.
Mr. GILCHREST. I thank the gentleman from Virginia. When you get two interlopers together, you don't have interloping. You said thank you for allowing you to be an interloper on this committee. We are close to interloping on your jurisdiction in your committee with ship-scrapping, but I guess we can join forces together here and resolve that issue.
Mr. BAIRD. Thank you very much, Mr. Chairman. I would like to echo my friend Mr. DeFazio's observations. These are our ships. We need to dispose of them quickly and responsibly, but I would underscore the responsible element there.
We have capacity within our own lands to begin environmentally responsible, economically affordable, job-creating disposal within our own country. There are shipyards within our Northwest region that could do this tomorrow, that have proven their ability to do this tomorrow and I think we need to step up to the plate.
The notion that we would save our taxpayers' dollars by shipping our naval or MARAD vessels overseas to be scrapped, and in substandard conditions, on the environment; that we would allow PCBs to be dumped in foreign oceans rather than to be disposed of properly in certified waste sites within our own country is important to me. I don't think that is the reputation we want internationally.
I don't think the United States wants an international reputation that we pass our garbage and toxic waste to other countries. I don't think we want to say that we are going to save our taxpayers' dollars by having foreign workers risk their lives disposing of our ships, and frankly, I don't think we want to say that we are going to export high-paying family wage jobs to other countries because we won't step up to the plate ourselves.
Page 14 PREV PAGE TOP OF DOC Segment 2 Of 2 We have the facilities now in our own land to dispose of these ships. We can dispose of them efficiently, we can dispose of them responsibly; and in the process, we will create jobs while doing the right thing.
So I want to underscore the point, I agree absolutely that we must begin with the scrapping of these ships and move forward with that, but I would profoundly disagree that the solution to that is to export toxic waste that will be dumped in a foreign bay when we actually have a global environment that impacts all of us ultimately, in the end. So I would put a marker down strongly for domestic resolution to this problem in an environmentally responsible and expeditious fashion.
Mr. GILCHREST. Thank you, Mr. Baird.
Mr. TAYLOR. What is the joke about everybody's got an opinion and something else? I would hope our witnesses at some point would comment on the option of taking these vessels offshore in America and making artificial reefs out of them.
I happen to be a nut when it comes to the enhancement of the environment, and I realize what the gentleman from Maryland is saying and the gentleman from Virginia, the gentleman from Washington, but I am inclined to believe it is our problem. We ought to solve it in agreement with the gentleman from Washington, but I have got to believe if we took the time to run a cost comparison of either scrapping in America or selling them overseas or looking at the enhanced value to the environment of making reefs out of them, I think you would come out fairly favorable towards the reef option. That is why I would hope in your testimony, or at least in the months that we have to make this decision, that you would get back to us with that option.
Just for the heck of it, Mr. Chairman, I would certainly hope that based on what you had to say about the overlapping responsibilities, quite frankly, we have gotten ourselves in a pickle with, first, the demise of the Seapower Subcommittee when the Democrats ran the House and then the demise of the Merchant Marine Committee when the Republicans ran the House; and there really isn't anyone who has got the single focus on this type of issue.
Page 15 PREV PAGE TOP OF DOC Segment 2 Of 2 I would sure love to see the Republicans or the Democrats bring back the Seapower Subcommittee to focus on this. I think the Nation needs it and deserves it. We need a committee that at the end of the year has a work product to show that we have done something to maintain our nation's maritime might and address issues like this, so I hope our witnesses could get around to that during their presence.
Mr. GILCHREST. Thank you, Mr. Taylor. Maybe you and regardless of who is in the majority next year can work to bring those two committees back into being. I know I was thinking nostalgically when Mr. Bateman referred to the Merchant Marine and Fisheries Committee. I am sure Mr. DeFazio and Mr. Taylor were as well.
Our first witnesses on this panel are Ms. Bonnie Green, Deputy Administrator for Inland Waterways and Great Lakes, MARAD, U.S. Department of Transportation; Rear Admiral Anthony Lengerich, Director, Industrial Capability, Maintenance Policy and Acquisition Logistics Division, U.S. Navy; Thomas J. Howard, Deputy Assistant Inspector General for Maritime and Departmental Programs, Department of Transportation.
Thank you very much for coming this morning. We look forward to your testimony.
TESTIMONY OF BONNIE M. GREEN, DEPUTY ADMINISTRATOR FOR INLAND WATERWAYS AND GREAT LAKES, MARAD, U.S. DEPARTMENT OF TRANSPORTATION; REAR ADMIRAL ANTHONY W. LENGERICH, DIRECTOR, INDUSTRIAL CAPABILITY, MAINTENANCE POLICY AND ACQUISITION LOGISTICS DIVISION, U.S. NAVY; AND THOMAS J. HOWARD, DEPUTY ASSISTANT INSPECTOR GENERAL FOR MARITIME & DEPARTMENTAL PROGRAMS, DEPARTMENT OF TRANSPORTATION
Mr. GILCHREST. Ms. Green, you may begin.
Page 16 PREV PAGE TOP OF DOC Segment 2 Of 2 Ms. GREEN. Good morning, Mr. Chairman, and members of the subcommittee. I welcome the opportunity to be here today to discuss an issue of great importance to the Maritime Administration, the disposal of obsolete government vessels.
As you know, MARAD is the government's disposal agent for merchant and noncombatant military-type vessels of 1,500 gross tons or more. Currently, there are 112 vessels slated for scrapping, located at the three reserve fleet sites. This number is expected to grow to 134 at the beginning of the year 2001 if additional vessels are not scrapped.
The agency has taken title to over 40 Navy ships for disposal in the last 2 years. MARAD is committed to scrapping these vessels safely, economically, and in an environmentally sound manner. Under the National Maritime Heritage Act, the agency is required to dispose of obsolete NDRF vessels by September 30, 2001, in a manner that maximizes financial return to the United States.
Historically, MARAD's primary means of disposing of obsolete vessels has been to sell them for scrapping. From 1987 to 1994, MARAD sold approximately 130 obsolete vessels for scrapping overseas. During that period, the agency received an average of $108 per ton for those ships. The gross return for scrapping an average ship overseas was about $600,000.
Since 1995, MARAD has not scrapped any vessels overseas due to concerns raised by the Environmental Protection Agency regarding the export of hazardous substances. MARAD and the EPA entered into negotiations in an attempt to continue scrapping ships overseas. As a result, the EPA issued a discretionary enforcement letter to MARAD in November 1995 allowing the export of two ships for scrapping once all polychlorinated biphenyls, or PCBs, had been removed. That procedure was unworkable since it would have resulted in vessels that could not be towed safely to another location for scrapping.
In 1997, MARAD and EPA signed an agreement allowing foreign ship disposal after removal of liquid PCBs and readily removable solid PCBs. However, prior to implementation of this export agreement, the Department of Defense formed an interagency panel on ship-scrapping to review the process for scrapping government vessels.
Page 17 PREV PAGE TOP OF DOC Segment 2 Of 2 In January 1998, MARAD agreed to refrain from selling any vessels for scrapping abroad until such time as the panel had completed its review. In addition, in the fall of 1998, an executive memorandum requested that MARAD and the Department of Defense refrain from scrapping vessels overseas until at least October 1, 1999. This was to ensure that the panel's recommendations would receive full consideration. MARAD complied with that request.
The interagency panel reviewed the government process for scrapping ships and made recommendations regarding economic soundness and environmental and workers' safety. It also concluded that all options for ship-scrapping, including overseas scrapping, should remain open.
Since 1996, MARAD has focused its efforts on the domestic ship-scrapping market. We have revised our solicitation process for domestic sales. We have incorporated environmental and safety issues as part of the award. Bidders are required to submit a technical compliance plan addressing environmental, worker health and safety issues. They must also provide business and operational plans that describe their knowledge and ability to scrap ships. Vessels are awarded to qualified bidders on the basis of price only after a review of the technical compliance plan, compliance history and a site visit. During the scrapping process, MARAD conducts both announced and unannounced visits to the scrapping site to monitor the contractor's compliance with the contract.
The capacity of the domestic market for buying and scrapping obsolete MARAD ships is limited, and the drop in the price of scrap steel has eroded the profitability of existing scrappers. Four bidders have satisfied the requirements of MARAD's technical review since 1997, and only nine of the 22 ships sold domestically during that time have actually been removed from the fleet sites. Three of these vessels sold for $10 each.
One sales contract for five vessels was terminated last year because the purchaser did not take possession of the vessels. We are likely to face a continuing backlog, given the number of ships waiting to be scrapped.
Page 18 PREV PAGE TOP OF DOC Segment 2 Of 2 I know that you are aware that we have 40 NDRF vessels in extremely poor condition, so time is critical in this effort. The cost of maintaining each NDRF vessel is approximately $20,000 per year, but over a period of 18 months from June of 1998 until December of 1999, extraordinary expenses in maintaining these vessels total $2.7 million.
As obsolete vessels in the NDRF continue to deteriorate, the cost of upkeep will rise. The cost of dry-docking a vessel to prevent it from sinking is estimated to be about $900,000 per vessel. Beginning in 2002, MARAD will be forced to dry-dock 16 vessels per year to avoid environmental problems if scrapping does not resume at a faster pace.
Mr. GILCHREST. What was $900,000 a year?
Ms. GREEN. Per vessel to put them in dry dock for environmental issues if we are unable to scrap.
In the meantime, ships are monitored closely to prevent sinking or hazardous discharge.
MARAD's authorization proposal for fiscal year 2001 contains a provision that would extend the deadline for the disposal of obsolete NDRF vessels from 2001 to 2006. We intend to develop and implement a program to scrap these vessels safely, economically, and in an environmentally sound manner beginning with those vessels in the worst condition. In addition, Maritime Administrator Clyde Hart recently wrote to Carol Browner, Administrator of the Environmental Protection Agency, about the resuming of overseas scrapping.
Mr. Chairman and members of the subcommittee, we appreciate the concern that you have shown in this area, and we want to assure you that we are working diligently to resolve this matter as soon as possible. This concludes my statement. I would be happy to answer any questions you may have.
Mr. GILCHREST. Thank you, Ms. Green.
Rear Admiral Lengerich.
Page 19 PREV PAGE TOP OF DOC Segment 2 Of 2
Admiral LENGERICH. Good morning, Mr. Chairman, distinguished members of the subcommittee. I am pleased to appear before you today to discuss the Navy's approach to reducing our inventory of excess ships. With your permission, I would like to submit my prepared statement for the record and take only a few minutes here to give a short summary.
Mr. GILCHREST. Without objection, so ordered.
Admiral LENGERICH. The Navy's inactive fleet has 57 ships designated for scrapping. The decision to scrap a ship is made only after carefully evaluating all the other options, and these would include retention as a mobilization asset, sale to an allied nation, use as a memorial or historical museum, use for training, or use as a weapons development asset. The Navy's primary interest is to dispose of our excess ships in a manner that is environmentally sound, economically neutral, and worthy of the proud service these ships have performed for this Nation.
Historically, the scrapping rights to our ships have been sold to domestic ship-breakers. Environmental concerns, worker safety, and changing economic conditions have impacted the methods and locations available to scrap our ships.
Up until the mid-1990s, domestic ship-breakers were willing to pay for the rights to scrap Navy ships because the value of the metals and equipment in the ships had offset their costs and provided some profit. This reinforced our expectation that Navy ships could be scrapped at no cost. However, since 1996 eight scrapping contracts have defaulted, causing the Navy to expend over $12 million to return 28 ships to safe storage condition.
So within the Navy, we face a dilemma. Our backlog of ships to be scrapped was growing but there was no means to scrap them at no cost to the Navy. Consequently, we began in 1997 to work with the EPA to determine the conditions under which scrapping might be accomplished overseas.
Page 20 PREV PAGE TOP OF DOC Segment 2 Of 2 In 1998, the increased interest of Congress and the public resulted in both a vice presidential and a Secretary of the Navy moratorium on overseas scrapping. At the same time, the Under Secretary of Defense for Acquisition and Technology created an interagency panel to explore the problems and solutions to disposing of excess Navy and MARAD ships.
The panel recommended that the Navy conduct a pilot program to determine the conditions under which domestic scrapping would be feasible. Consistent with this recommendation, the Navy developed a ship disposal project with a pilot phase designed to quantify the technical scope and costs associated with ship-scrapping. The pilot phase is currently under way.
The goals of our project are to, one, document all the processes, costs, revenues, and hazardous material generation, while demonstrating an environmentally sound and cost-effective method for dismantling ships; two, to minimize the Navy's net cost of ship disposal by realizing a fiscal return on the scrap metal and equipment sales; and three, to develop a viable domestic capability to scrap additional ships from the Navy's inventory after the pilot project was completed.
A significant feature of the project is that the Navy, not the ship-breaker, assumes the risk associated with the vagaries of the scrap metal market and equipment resale. The ship-breaker's profit is set in the terms of the contract. By decoupling the scrap markets from thecontractor's profit or loss, the contractor can then establish a stable economic model within which he optimizes his scrapping processes.
In September of 1999, we awarded four Indefinite Delivery/Indefinite Quantity contracts for the pilot phase. The initial task order under each of these contracts is to dispose of one ship under a Cost Plus Incentive Fee structure. Progress to date has been satisfactory. The data concerning the process is utilized and the cost/revenue stream is being collected, but has not yet been analyzed.
Page 21 PREV PAGE TOP OF DOC Segment 2 Of 2 The last of the four ships should be completely dismantled and all of the materials recycled by the fall of this year. Task orders to dispose of additional ships may be awarded in the near future to one or more of these same ship-breakers these task order awards will also be made under the pilot portion of the project and will provide additional data related to start-up costs and steady-state operations.
Future task orders will be madeawards will be made after careful examination of the data collected during the pilot and are dependent upon the availability of funding.
In summary, the Navy is committed to dismantle our excess ships in a way that is environmentally sound, publicly acceptable and advantageous to the Navy. The ship disposal project assists in accomplishing these goals while providing empirical data on the processes and costs associated with domestic ship-scrapping. We also realize that no matter who might be contractually responsible for scrapping our ships, the hull is recognized as a naval vessel almost until the last vestige of the ship has been recycled into new metal and, thus, in the public's eye, the efficacy of the process is a responsibility of the U.S. Navy.
Mr. Chairman and members of the committee, this concludes my remarks. Thank you for your interest in our program. I would be happy to answer any of your questions.
Mr. GILCHREST. Thank you very much, Admiral.
Mr. HOWARD. Thank you, Mr. Chairman. I ask that my statement be submitted for the record, and I will summarize my remarks.
My statement is based on our March 10 report on the MARAD ship-scrapping program. The Office of Inspector General has identified the MARAD ship-scrapping program as one of the 12 most pressing management issues facing the Department of Transportation.
The Department, the administration, and the Congress face a challenge in determining how to dispose of MARAD's fleet of old, environmentally dangerous vessels in a timely manner. MARAD will not meet the legislative mandate to dispose of these ships by September 30, 2001. The current approach of selling ships for domestic scrapping is not working. It also will not be able to gain meaningful financial returns on these ships.
Page 22 PREV PAGE TOP OF DOC Segment 2 Of 2 MARAD maintains its ships in the water at three locationsthe James River in Virginia, Beaumont in Texas, and Suisun Bay in California. The picture being displayed shows a few of the ships in Suisun Bay. The one in the foreground is the Mission Santa Ynez. It is 56 years old and has been awaiting disposal for 25 years.
Environmental dangers associated with these old, deteriorating ships are increasing daily. The so-called ''worst condition'' ships average 50 years old and have been awaiting disposal for 22 years on avarage. The ships contain hazardous materials such as polychlorinated biphenyls (PCBs), asbestos, lead-based paint and fuel oil. Some have deteriorated to the point where a hammer can penetrate their hulls. If the oil from these ships were to leak into the water, immediate and potentially expensive Federal and State action would be required.
MARAD currently has 114 obsolete ships awaiting disposal. As shown in the chart being displayed, this number has grown from 66 in 1997. It is expected to reach 155 by the end of fiscal year 2001. As shown in the next chart, only seven ships have been scrapped since 1995. This represents a significant change from 1991 through 1994 when 80 ships were scrapped overseas. Recent sales to domestic scrappers have only yielded between $10 and $105 per ship. This is down from an average price of $433,000 per ship during the early 1990s.
MARAD's inability to reduce the backlog of ships awaiting disposal is attributable to the loss of overseas sales, limited domestic scrapping capacity, and the Navy's pilot program. Since 1994, MARAD has been relying on the domestic ship-scrapping market, but capacity is currently limited. Only four companies have passed MARAD's technical compliance review to scrap ships. Although MARAD sold 22 ships to these domestic scrappers since 1995, 13 are still moored in MARAD's fleet. Recent contractor delays and a default by one contractor raise a question as to whether the ships will be removed.
The Department of the Navy experienced a similar inability to sell its obsolete combatant ships in the domestic market. In 1998, Congress authorized and appropriated funding for a pilot project allowing the Navy to pay domestic contractors to scrap ships. Last year, the Navy awarded contracts amounting to $13.3 million for the scrapping of four ships.
Page 23 PREV PAGE TOP OF DOC Segment 2 Of 2 The contractor that defaulted on MARAD is scrapping a ship under the Navy pilot program. MARAD is coordinating with the Navy on its initiatives, and it is pursuing alternative disposal methods. However, no one of the methods has the potential to singly reduce the backlog of ships awaiting disposal.
In our March report, we recommended that the Maritime Administrator take several actions: first, seek legislative approval to obtain an extension on the disposal mandate and eliminate the requirement to gain financial returns on vessel sales; develop a proposal seeking authority on funding to pay domestic contractors to scrap ships and target the worst condition ships for priority disposal; continue to pursue programs to improve scrapping sales and identify alternative disposal method for its obsolete ships; and finally, in its authorization request for fiscal year 2001, MARAD proposed a 5-year extension to develop and begin implementing a plan to dispose of these ships.
We do not believe it is acceptable to begin disposal within 5 years, considering the current condition of the ships, the environmental risk, and the costs to maintain them. In our opinion, the legislation should require MARAD to develop a disposal plan and substantially dispose of these ships within 5 years. Further MARAD's plan needs to identify viable disposal methods, set milestones, and target the worst-condition ships for priority disposal.
This concludes my remarks, Mr. Chairman.
Mr. GILCHREST. I thank you for your testimony.
We have a markup in the Resources Committee where both Mr. DeFazio and I have a bill that is being marked up. So with the patience and tolerance of the gentlemen from Mississippi and the State of Washington, we are going to recess for, we hope, no longer than we think 20 minutes. These bills ought to go pretty fast.
Let's say we will recess till about 11:25. Thank you.
Page 24 PREV PAGE TOP OF DOC Segment 2 Of 2 [Recess.]
Mr. GILCHREST. The subcommittee will come to order. I appreciate your tolerance for our schedules here. Just a couple of questions.
First, Ms. Green, and maybe Mr. Howard, how many ships are subject to potential environmentalserious environmental problems that we now have, for example, those in the James Riverthat pose a threat of sinking, and of those ships that pose a threat of sinking, can they be towed to foreign ship-scrappers? What would be the cost of towing them to foreign ship-scrappers versus having them scrapped here in the United States?
Ms. GREEN. I would say about 40 of the vessels in the fleet are at high risk. In terms of the cost of towing some of those vessels to a foreign port, that is a dollar figure that I would have to get back to you on. Several of those vessels have, in fact, been sold for domestic scrapping, but the contractor did not perform and they are remaining in the fleet. So, by and large, I believe that they are capable of being towed some distance, but I don't have a cost.
[The information received follows:]
Tom Howard of the Department of Transportation's Inspector General's Office noted on following pages that in the past MARAD has not paid to have vessels towed overseas for scrapping. Purchasers have taken possession of the ships in the United States and towed them to the scrapping facilities.
Mr. GILCHREST. Mr. Howard, did you want to respond to that?
Mr. HOWARD. Yes, sir. Of the 40 worst-condition vessels, 28 of them are in the James River. As to the figure on what it would cost, in the past, when the ships were sold overseas, MARAD did not pay to have them towed, so I am not sure that figure is readily available.
Page 25 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. Who pays to have them towed?
Mr. HOWARD. The purchaser takes possession of the ship and tows it to the foreign shipyard is the way it occurred in the past.
Mr. GILCHREST. So that would be a fairly huge expense.
Would any purchaser want to tow a ship that would need special renovations overseas, the cost of that? Is that likely?
Mr. HOWARD. Sir, I think it has been in the past because they have made a considerable amount of money by selling the scrap; when they break the ships and cut them up and sell the scrap, they are making somewhat of a profit off of it.
Mr. GILCHREST. The ships in the James River, especially the 28 ships in the James River thatI guess you are saying they pose a potential danger of sinking?
Ms. GREEN. Danger of sinking, and in several instances, there is still fuel on board these vessels that hasn't been removed so that some action would have to be taken.
Mr. GILCHREST. What prevents MARAD from taking that fuel off now, or from taking the asbestos or PCBs off those ships now? Is that the statute, that you have to make money on those ships? There is no flexibility with the maintenance of the fleet to remove those hazardous materials?
Ms. GREEN. In the case of the fuel oil, we have in fact removed oil from several vessels that there was a risk where we have, in dialogue with the Coast Guard, decided that was the appropriate course; but these vessels are at anchorage in the river, and looking at the removal of asbestos or hazardous materials in terms of a vessel that is obsolete and waiting for scrap is not something that we have explored.
Mr. GILCHREST. We had a hearing 2 years ago. A lot of this happened prior to those hearings.
Page 26 PREV PAGE TOP OF DOC Segment 2 Of 2 The fundamental reason that we still have 40 potential, or 40 very dangerous, hazardous ships in three parts of this country, that there has been nothing done to them to remediate the problem, is that because of the inability of the administration and the Congress to sit down and resolve this issue in a much bigger-picture, more comprehensive way?
Mr. HOWARD. Yes, sir, I would say so. MARAD right now is required pretty much to rely on the domestic market. It is also required to sell its ships to gain a financial return. That requirement prevents it from doing as the Navy is doing in its pilot program, and that is paying contractors to scrap the ships.
Mr. GILCHREST. So your recommendation, Mr. Howard, to extend the deadline from 2001 to 2006, which I think is in Mr. Bateman's language on a defense authorization, to reverse the statute that requires MARAD to make money on these ships, what would you want to do? Do you have a recommendation?
You said the financial returns would have to be eliminated. Do you have a recommendation on the language for that?
Mr. HOWARD. Yes, sir. Yes, we do; and we can provide you one for the record if you would like a specific one.
We saw that as a first step, sir. Everyone realizes they won't meet the 2001 deadline, given the numbers of ships in the inventory right now. The requirement to sell them is another obstacle. We saw that elimination as the first step in moving towards a program that would provide MARAD the authorization and funding for a program similar to the Navy's, to actually pay domestic contractors to scrap the ships.
Mr. GILCHREST. My last question to maybe all of you, including the Navy: The Navy now has a pilot program that, Admiral, you said seems to be pretty successful.
Admiral LENGERICH. Yes, sir.
Mr. GILCHREST. There are two parts to this question. One is, the Inspector General of the Department of Transportation estimated that all these ships would cost about $500 million to be scrapped domestically; and if we extended the deadline to 2006, that is basically a little less than $100 million annually. If we attempt to do that here, I think a more efficient way of dealing with all our ships is to bring that $500 million appropriation under one program so that the Navy and the MARAD ships are considered in that one program.
Page 27 PREV PAGE TOP OF DOC Segment 2 Of 2 Any comment to that?
Ms. GREEN. I thinkI believe that the $500 million number for the MARAD vessels is the minimum, and I think it is not unreasonable to expect the cost to go as high as a billion dollars for the number of vessels that we have right now with the vessels we anticipate receiving in the next several years, so that the number will grow significantly and that $500 million number as a minimum is looking only at the MARAD-NDRF vessels that need tothat require disposal; and does not have any bearing, I don't believe, on the Navy vessels and their own program.
Admiral LENGERICH. I guess I should say, we are not interested necessarily in becoming the masters of a number of ships to dispose of them.
Our project in taking care of the Navy, we do well. But what we have done, sir, is create an industry domestically that is capable of scrapping ships and available to MARAD to scrap ships if they have the resources and the authorization to do that; and that did not exist previously. So the pilot program has created at least the understanding of what it costs and the capacity in the country to do that now. Whether it is enough capacity over time, that is a math problem I haven't done, sir.
Mr. GILCHREST. Thank you.
Mr. DEFAZIO. Thank you, Mr. Chairman. Mr. Chairman, I would like to go to the issue, the fact that the federal government has to make money, because I think there is another way to look at this. I would like to change the law, but I am wondering, even within the existing law, if the actual language of the statute is in a manner that maximizes the return on the vessels to the United States.
Now, there are two sides to a return. One is cash in pocket and the other is return in terms of avoided costs. Now, we have already heard about the annual costs for maintenance, the potential dry-docking of this one ship$900,000, I believe, was the cost. What is the cost of one sunk ship; in terms of avoided costs? If we lose one at any one of these places we are talking more than if one were sold. If you are talking a few million to responsibly scrap it, is there anybody there who believes that the environmental mitigation, the cost to float the ship and then to deal with it would be less?
Page 28 PREV PAGE TOP OF DOC Segment 2 Of 2 I see heads shaking. I guess that is something I would like to pursue with both OMB and CBO, which is whether or not we need to be looking at this. Maybe this is dynamic scoring, which the Republicans only do when they want to do taxes, but maybe we can get them to do it here, too.
Some are more enlightened than others, Mr. Chairman. So I am certain you will be supportive of this concept. I think that is something we have to look at.
Ms. Green, on the number you put out, the minimum at $500 millionI hope you will remain, or if you can't, one of your staff will hear from Cascade General, because they are going to put down some pretty hard numbers which would bring down the cost per ship dramatically and even be below Navy costs. So I would hope that you can do that, because I think we can responsibly deal with these ships at a lower number.
Just one more questionI guess perhaps Mr. Howard would be the one most likely towell, I am not sure who can answer this question.
We have these PCBs on board. What is the cost history to remove the PCBs in order to export the ship?
Ms. GREEN. The initial EPA guidance was that all PCBs would have to be removed from the vessels. If you did that, the vessel is no longer capable of being towed, so the secondary position of the EPA was that you would remove the liquid PCBs and the easily accessible solid PCBs, so that the vessel could then be towed to a foreign yard for scrapping.
Mr. DEFAZIO. So removal of all PCBs would basically incapacitate the vessel; they wouldn't be able to float.
Ms. GREEN. You would have to dismantle the ship to do that.
Mr. DEFAZIO. Just removing those that are removable so you still have a floating hulk, what is that cost per ship? Do we have a number?
Page 29 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. HOWARD. Sir, I don't think there is a number. That is part of what the Navy pilot project is developing. They are quantifying costs to remove the PCBs and the other hazardous materials.
Admiral LENGERICH. I can offer a number, sir.
We do prepare ships for use as a training device. We sink them on occasion. We do have to do that, clean the PCBs off of them, take the readily disposableon the order of a quarter million dollars for a fleet tug size up to a million dollars for a cruiser. That gives you some feel for comparison.
Mr. DEFAZIO. It is interesting, because then I guess if we are looking atI assume the numbers we are seeing quoted, both the higher numbers we have in the record for ship-scrapping domestically, and responsiblyyou include responsible PCB disposal by the contractor in your pilot program and in your projections. So thatand that will certainly be a question I will be willing to ask Cascade General, given the number you have given us there, how they think they can scrap at these lower numbers. That is of concern to me.
Ms. Green, given what I hear of these shipsand I have yet to find the time to go down there and look at them; I think it would be interestingI suggest to the chairman, you might want to hold a hearing down there on the deck of one of them, and maybe something interesting would happen during the hearing and would attract some press. Maybe in the hold would be a more interesting place.
But do you have concerns about whether or not these ships, if you were exporting them, might not get there?
Ms. GREEN. I think that there are several vessels that we would have those concerns about at this stage in terms of having any substantial towing involved whatsoever.
Mr. DEFAZIO. Given the press of votes here and Mr. Baird may have some questions, I yield back the balance of my time.
Page 30 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. We are going to reassemble. We will recess for the vote. It will be about 15 minutes. Thank you.
Mr. GILCHREST. The subcommittee will come to order. Thank you again for your patience.
We should be done with this hearing somewhere before midnight tonight, I am sure. Whenever the China vote ends. I yield now to the gentleman from Washington, Mr. Baird.
Mr. BAIRD. Thank you very much, Mr. Chairman. Let me first address a question to Mr. Howard.
In your testimony, you talked about the capacity and apparently lack of capacity, at least in the testimony. But as I read it, that lack of capacity is best defined really as a lack of capacity under the existing laws.
Where the law is to change and allow shipyards to scrap ships without this requirement for maximum return, there would probably be actually quite a bit of capacity to move forward quickly?
Mr. HOWARD. Yes, sir, I agree with that. I think it is interesting to note that under the Navy pilot project, three of the four contractors were not formally scrappers, but when the Navy began to pay, they became interested in the market so the market did expand.
Mr. BAIRD. Let me then, if I may, just summarize as I hear the status quoand correct me if I am missing something, but it seems that the status quo is, we have a number of ships that are fairly rapidly deteriorating. They are costing significant amounts of money to maintain currently. They pose a fairly significant risk of actual sinking, which would pose substantial cost and consequences in terms of the environmental damage and the cost to remediate those environmental damages.
Page 31 PREV PAGE TOP OF DOC Segment 2 Of 2 We have experienced that when we sell or send these ships to foreign scrappers. Their conduct in terms of protection of workers is pretty abysmal. We lose a number of foreign workers on these scrapping jobs, and their conduct in terms of contamination is certainly not the kind of thing we want to feel good about exporting.
Meanwhile, we have domestic shipyards that have capacity to scrap the ships if we do the work at home; they have the technological ability and the experience and they have environmental knowledge. Would that summarize more or less the status quo? Am I missing something?
It seems like thatso it seems to me, Mr. Chairman, we have, as you and I were discussing a bit ago, a real opportunity here to do the right thing and the right thingyou know, there is a fellow from Washington State named Robert Fulghum, and he wrote the book ''Everything I Need to Know I Learned in Kindergarten.'' one of those rules is, you clean up after yourselfkind of basic. We forget to do it sometimes.
It seems to me the right thing here is to keep control of the MARAD ships in MARAD, where I think the MARAD has good potential to do some of this work or to supervise it, sustain the environmental standards. I know we have a crisis with these ships, but I don't think we want to solve that by reducing the environmental standards, certainly not at home, and I just don't accept the argument that we send it abroad and destroy other people's environment.
But we need to remove this requirement for maximum return. It is restricting our own shipyards' abilities to do the right thing.
Then we need to prioritize the scrapping order, I thinkthe point made in your testimony, and I think well made. We need to fund it. We need toI have no problem at all going before the American people and saying, this is our responsibility; it will cost us money and it may cost us $500 million; but it's the right thing to do, and I have no problem putting my name to that.
Page 32 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. Bateman earlier said, somebody has got to step forward. I would step forward in a heartbeat and say, it is the right thing to do.
Then I think we need to regionalize it. We need to make sure that we maintain scrapping and decommissioning facilities throughout the country for a couple of reasons. It doesn't make sense to me to ship, as the testimony we have heard, I think we want to make sure we don't have only one location where we have to ship all the ships to, or transport them to, because that poses a risk.
Secondly, it makes sense to me to have expertise throughout the region so when a ship becomes time to decommission in one area, there is a facility near that ship to do the decommissioning, and they have expertise.
Third, and quite frankly, distributing the economic opportunity there also makes sense for the good of the process, as well.
So, Mr. Chairman, I appreciate the expert testimony we have heard and hope this committee can take a leadership role in that process.
Mr. GILCHREST. Thank you, Mr. Baird.
One follow-up question. We understand that the Senate version of the defense appropriation bill contains a provision for Department of Defense funds, for scrapping vessels maintained by MARAD.
Does anybody on the panel know about how much money that is? Have you heard?
Ms. GREEN. I believe it is $10 million.
Mr. GILCHREST. If that, in fact, passes and those funds are appropriated, what could MARAD do with that $10 million? I guess unless we change the law or take Mr. DeFazio's interpretation of maximizing the benefits to the U.S., dynamic scoringthat is interesting. I never could figure out dynamicI know nature's dynamic. Human personality is dynamic. Would the law have to be changed, in your interpretation of the law right now, so that $10 million could be actually used to get rid of the worst ships, let's say, in the James River? What could MARAD do with $10 million?
Page 33 PREV PAGE TOP OF DOC Segment 2 Of 2 Ms. GREEN. Assuming that we are able to spend that money, because it has been allocated for MARAD's vessel scrapping, we would issue a solicitation for domestic scrapping of several of our most at-risk vessels in compliance with environmental and worker safety standards, using the expertise that we have gained in the past few years for those vessels we have scrapped in the domestic market.
Mr. GILCHREST. SomebodyI don't know if it was Mr. Howard or Ms. Greensaid that. So $10 million is not going to go very far.
Mr. HOWARD. Sir, one other thing I might add on the Senate bill. The version that I saw also contains language directing MARAD to scrap them overseas to the maximum extent possible.
Mr. GILCHREST. Mr. Stevens or Mr. McCain or both?
Mr. HOWARD. McCain.
Mr. GILCHREST. I was thinking, Mr. Stevens' appropriation number.
Somebody said that you are working with EPA to solve the environmental problems. What does that mean? Solve the environmental problems so they canthe toxins can be efficiently remediated in the ships before they are shipped overseas?
Ms. GREEN. I work with EPA in developing the technical compliance program. We work with them in the domestic market. In terms of any potential foreign scrapping of vessels, there is a notice by EPA to the foreign government and a process for technical compliance that has yet to be finalized.
Mr. GILCHREST. I see.
Admiral, you said that you thought the pilot program was working well?
Admiral LENGERICH. Yes, sir.
Mr. GILCHREST. Would you recommend that that particular pilot program be continued, so it is not a pilot program anymore, through an annual appropriation or expanded to scrap the Navy ships?
Page 34 PREV PAGE TOP OF DOC Segment 2 Of 2 Admiral LENGERICH. The pilotthe programthe ship disposal project has a first phase. It is the pilot, so it is already structured to continue after we get enough data out of the pilot to scrap ships. The contracts, however, are structured for Navy vessels, so we wouldn't use that program to get those contractors to scrap MARAD ships. We would enterwe would obviously have to talk about it with MARAD if that $10 million came into defense appropriations, how to use that, what contracts to structure, so that they could award ina different vehicle in a different program.
Mr. GILCHREST. Would you need some type of legislative fix in order to get some of the worst MARAD ships intowith that $10 million into the existing pilot program that the Navy is using right now?
Admiral LENGERICH. I don't know, sir. I can take that and get back.
I don't know the legal ramifications of MARAD and the color of the appropriation, of the money that would come; and can it be used on non-naval vessels. If the naval vessels were transferred, are they Navy anymore? There are a number of factors I haven't worked through, and I think they would bear some study to look at.
Mr. GILCHREST. Is it your understanding that the Navy continuesthe Navy assumes that it will have a specific appropriation annually just for ship-scrapping?
Admiral LENGERICH. We have incorporated in the budgets that are before Congress now and the ones we are preparing inside of our operations and maintenance budget a line to continue scrapping after the pilot. We do have a plan right now with funding projected to continue to scrap ships at small numbers domestically.
Mr. GILCHREST. So basically the Navy never fell under the language that you had to maximize benefits to the United States in scrapping ships?
Page 35 PREV PAGE TOP OF DOC Segment 2 Of 2 Admiral LENGERICH. That is correct.
Mr. GILCHREST. Mr. DeFazio.
Mr. DEFAZIO. I take a little different take on that.
Ms. Green, is there anything, as the Navy is transferring another 28 vessels over to MARAD, that requires them to be put into the NDRF? They can turn the vessels over to you. MARAD has title, possession, whatever.
Why would we have to make a designation? Does that automatically designate them, because you possess them, into the NDRF? I am getting at the point ofagain going back to the requirement over which I have a different opinion in terms of return, but is there a way perhaps to avoid that totally by not putting them into the NDRF when the Navy turns them over?
They have to give them to you because they are merchant type-ships. I understand that. That is required by law. But is there anything in law that requires when you take them or anything that automatically designates them into the NDRF, or do you have to do another step to adopt them into that?
Ms. GREEN. MARAD's role is the government agent for disposal of merchant vessels, noncombatant vessels for the Navy. MARAD uses Navy funds for this readiness and maintenance program, and as part of that, these vessels have been transferred into the NDRF.
Mr. DEFAZIO. But there are another 28 coming. My questionperhaps you are not a lawyer, but I am trying to get at a legal technicality, and I am not a lawyer either, but if you took them, the Navy has to give them to you under law. But you could take them and not necessarily designate them as NDRF, and then you don't have the constraints of having to maximize return or whatever on the disposal of those ships?
Ms. GREEN. I am not a lawyer, and I would have to get back to you with that possibility.
Page 36 PREV PAGE TOP OF DOC Segment 2 Of 2 [The information received follows:]
Mr. DEFAZIO. That is a wonderful attribute. That would be great. Neither of us. Get back to me on that; I would appreciate it. It is sort of a subtlety, but since we are dealing with a wrongheaded law, I am trying to figure out ways around it.
Have any or all of you visited the Brownsville facility?
Admiral LENGERICH. I have not, sir.
Ms. GREEN. I have not.
Mr. HOWARD. Sir, I have not personally, but my team has.
Mr. DEFAZIO. Your team has?
Mr. HOWARD. Yes.
Mr. DEFAZIO. Is the team with you?
Mr. HOWARD. Yes.
Mr. DEFAZIO. Would the team like toI am curious. The photos I have seen, it looks notalthough they are using machinery, it looks not too dissimilar from what I have seenapparently these are in a river, a noncontained area, and looks like they are kind of pushed up on shore.
Could someone briefly describe what is going on there? Would that be possible?
Why don't you come to the microphone if you could and please identify yourself for the record. It would be great.
Ms. STEELE-NELSON. I am Pamela Steele-Nelson of the Department of Transportation, OIG.
Page 37 PREV PAGE TOP OF DOC Segment 2 Of 2 Two of our team members did go down to the Brownsville facility and toured it, and what you just said is an accurate description of what the facility looks like there. There is a river. There are ships. They are awaiting scraping. There is a scrap yard where ships have been moved out onto the yard.
We actually saw the physical scrapping of one vessel while we were there at the facility, and they tend to hire people coming fromacross the border from Mexico to do the work there, very low-paying jobs, but it isthat is pretty much the way it is set up.
Mr. DEFAZIO. That is helpful. Because, Admiral, at the time, I was very surprised, given the past record of the Brownsville yard in terms of environmental labor law violationsI guess perhaps of a different operator, but the same facilitythat the Navy chose them as a pilot.
Were they chosen because they were cheap?
Admiral LENGERICH. Under the award structure, they participated with others and came out as a winner in that engagement for the contract.
Mr. DEFAZIO. But not because of their high quality work force, environmentally sound practices, but because they were a low bidder and they met some minimum threshold?
Admiral LENGERICH. Yes, sir, the criteria we generally use in those cases; and this one was the best value. It is also a different contract, so the consideration of what they had to do beforesometimes you have to turn a blind eye in the contract environment and say, this is something new and different, and that can play too. I don't like that, but.
Mr. DEFAZIO. That is sort of a consistent problem, it seems, with Federal contracting, turning a blind eye.
Admiral LENGERICH. I must say in the performance of this contract, to date it has been satisfactory, and EPA has been there, their folks have been there looking at their environmental remediation, the way they do business, and we find no fault so far.
Page 38 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. DEFAZIO. Okay. Can you shed any light on this, the issue I was quizzing Ms. Green, the nonattorney, aboutabout if you have to transfer these ships, that is apparently required because they are merchant related?
Admiral LENGERICH. That is our understanding.
Mr. DEFAZIO. Can you shed any light on what designation they might have to or would receive at the point of transfer other than you get them out of your inventory?
Admiral LENGERICH. From our perspective, they are out of our inventory, and it is a MARAD decision on how they designate them from there on out. If they do designate them for the NDRF, then, of course, we pay the maintenance on it.
Mr. DEFAZIO. Perhaps the motivation is, if they get designated into the NDRF, they get some money for maintenance?
Admiral LENGERICH. I wouldn't want to speculate, sir.
Mr. DEFAZIO. On the issuewould you be anxious to retain those ships and deal with them yourself in your existing program?
Admiral LENGERICH. I think we haveI haven't talked with the program manager behind me here, but I think there is certainly a mechanism in the Navy to do that and there is a way to obtain appropriations to care for those ships and eventually dispose of them.
From a national point of view, they are going to cost to dispose of. Whether I dispose of them or MARAD disposes of them, the cost is probably pretty much the same.
Mr. DEFAZIO. So you are in a pilot program. If you had more obligations, would you look to reopen bids, look for additional vendors of services, given you would have a larger inventory and sort of a greater sense of urgency.
Admiral LENGERICH. Depending on the availability of funding to do the scrapping, that would be one thing we would have to look at. If there is only funding enough for one ship for one contractor, thenhaving more then makes it difficult.
Page 39 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. DEFAZIO. If you were given the allocation for more ships with funding, you would be basically looking.
Admiral LENGERICH. I think that would be the responsible thing to do, yes, sir.
Mr. DEFAZIO. Thank you, Mr. Chairman. I have no further questions.
Mr. GILCHREST. Thank you, Mr. DeFazio.
Mr. TAYLOR. Thank you. I am trying to follow all of this.
Mr. DEFAZIO. You just build ships down there. You don't scrap them.
Mr. TAYLOR. This is true.
I would guess I was probably a party to the 1994 law that has made this incredibly difficult for you all, because I was on the Merchant Marine Committee, and I think we are dealing with the unintended consequences of that. So what I am searching for is, how could weI am seeking your guidance.
How could we revise that policy to fulfill most of what everybody up here is seeking, and that is to have someone in a position, who has a set of congressional guidelines that gives them the discretion to, A, get these vessels oil free, the minute they are excess, get the oil out of them and at least get rid of that hazard, which is fairly inexpensive; then, B, go about the process of getting the PCBs and other harmfulparticularly harmful things out of it; and then, C, giving the person the authority to seek bids, find out what the vessel's value would be, either soldand then compare that to the value that would be created from creating a target for the Navy or establishing an artificial reef off of one of the coastal States that would like those things.
Page 40 PREV PAGE TOP OF DOC Segment 2 Of 2 It all depends on where you come from. I doubt there are folks from California who would want that. I know in Mississippi we have a group of citizens that actually contribute their own money to buy old barges and old tugboats and take them off shore and sink them in permitted sites.
But I would think the key to all this would be to have the guidelines to where someone can make that call. If the price of scrapped steel is very low and there is no value to selling it, then make the call to donate it to one of these organizations to make reefs out of them. If the price is high and the taxpayers can get a decent return on the dollar, once again give that person the discretion to say the best way to serve the citizens would be to sell this one rather than to sink it. How difficult would that be, Admiral?
Admiral LENGERICH. Let me allow MARAD to go first, because it really addresses their questions more.
Ms. GREEN. MARAD has donated 51 vessels to be artificial reefs. The last vessel that we donated, which we still have in our possession, it was a 4-year process with the Environmental Protection Agency to get their approval to use this vessel for an artificial reef.
Mr. TAYLOR. Where was that, Ms. Green?
Ms. GREEN. This is the SPIEGEL GROVE, and it is eventually going to go to Florida.
Mr. TAYLOR. If I may, I am of the understanding that the EPA is inconsistent in that, in some areas, they are more likely to allow this sort of activity to happen than in others; and having been a Member of Congress when we moved offshore drilling, I think 50 miles off the coast of Florida or something ridiculous right after the Exxon Valdez, I would think Florida would be one of those sites where it is harder than, say, off the coast of Louisiana or Mississippi where there are actually groups actively involved in this sort of.
Page 41 PREV PAGE TOP OF DOC Segment 2 Of 2 Ms. GREEN. That has not been our experience. The vessel is still in our possession because the approvalthe technical compliance for the removal of PCBs has not been approved by EPA, so until such time as that has been agreed to by EPA, the vessel cannot move.
Mr. TAYLOR. Is there a standard, industrially accepted standard, for the removal to a certain parts per thousand, parts per million?
Ms. GREEN. I am not aware of a standard, but since each vessel is different in terms of the liquid and solid PCBs that it contains, I don't know just what is involved in the mitigation of PCBs on this vessel.
Mr. TAYLOR. Could you send someone to see me who is?
Ms. GREEN. I will find someone who hasperhaps at the EPA, who could address that.
Mr. TAYLOR. I am sorry for interrupting. Please continue.
I can also tell you in the course of a year, we will sink several vessels off the coast of Mississippi. This is all done by a private group, who don't have all your expertise and don't have all the time that government employees have, and they get it done. So obviously it can be done.
So the question is, why aren't we, as a nation, doing it? Why are we finding roadblocks? Why can't one government agency trust another government agency as much as they trust private citizens to do it?
Ms. GREEN. We simply do not have the authority under the Toxic Substances Control Act to make any decisions regarding the hazardous substances on these vessels. The ability of the private sector to do that outside of the government process, it is a different requirement, and unfortunately, absent EPA approval, we are not in a position to go forward with scrapping or removal of hazardous material.
Page 42 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. TAYLOR. All that having been said, we are the lawmakers. We are in a position to change the law. Would you be willing to give us some guidance in helping us to develop a workable program?
Ms. GREEN. Absolutely.
Mr. TAYLOR. That is what I am asking for.
Ms. GREEN. Absolutely. We are anxious to move forward on the scrapping of these vessels.
Mr. TAYLOR. I hope you are getting my point. I don't want scrapping to be the only option. If we can make some money for the taxpayers, fine. But I think there ought to be someone who has the legal authority to make a yes/no callscrap, make a reef out of it, whatever.
Ms. GREEN. In addition to this particular vessel that will eventually be an artificial reef, we transferred a vessel out of Suisun Bay in California last year to our ship foundation, to be used for classroom space. We transferred another vessel last year. So we are looking at every opportunity. We are in the vessel disposal business, which does not necessarily mean scrapping, but in many instances that is where we are.
Mr. TAYLOR. Let me bring up a fourth subject which hasn't been broached, and I realize I have not been here the whole time.
I travel to Latin America quite a bit, and I am always impressed, when I have visited their navies, how one man's trash is absolutely their treasure. And since there is some cost associated with getting rid of these vessels, is there an active participation on the part of MARAD or the United States Navy to at least say to some of these countries, ''Hey, this is available. You want it? Take it off our hands.'' .
Do we do that as a nation?
Admiral LENGERICH. Yes, sir, from the Navy's point of view, we do. If we don't need it as a mobilization asset, the next priority is to make it available for foreign navies.
Page 43 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. TAYLOR. What about the MARAD? Do you all ever get involved in that?
Ms. GREEN. Once we are given these vessels and the Navy has determined them obsolete, we are not in a position then to look at selling them to another country.
Mr. TAYLOR. Why not?
Admiral LENGERICH. Just to clarify a misunderstanding, the offer to foreign sales is made for Navy ships before they are sent to MARAD.
Mr. TAYLOR. I understand.
Again, Ms. Green, no telling how many 50-year-old Peruvian gunboats I have been on, but there is a bunch of them out there.
Again, one man's trashhas MARAD taken the time to look at that option? It would obviously be a low-cost way of disposing of the vessel and possibly creating some goodwill for our country. So I am asking, have you looked into it and would you have any useful legislation that would allow you to do that?
Ms. GREEN. It is not an option that we have today in the procedure where the Navy.
Mr. TAYLOR. Would you like that option, Ms. Green?
Ms. GREEN. I think that we could certainly look at that option, based on the determination of the Navy that, A, they would no longer have a use for the vessel, and B, they haven't determined another party that would have an interest. I think that the opportunities would be limited, but we would certainly be pleased to look at that.
Mr. TAYLOR. Could you send me that section of the law?
Ms. GREEN. Absolutely.
Mr. TAYLOR. Because possibly that needs to be revisited.
Page 44 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. Anything else, Mr. Taylor?
Mr. TAYLOR. Again, I would certainly like someone from your different agencies and your legislative end, legal end, to help me work on some language, hopefully help us work on some language that would at least create this mechanism.
The United States Forest Service does not have to come to Congress every time they want to sell a tractor-trailer. We set some reasonable guidelines and we count on reasonable government employees to implement them. I, quite frankly, don't see why we should have a different view of obsolete vessels. As long as we have reasonable guidelines that are designed to protect the taxpayers, then I trust you all to do the right thing.
So I would ask you to help us develop those reasonable guidelines.
Mr. GILCHREST. Thank you, Mr. Taylor.
Mr. Howard, and Admiral Lengerich, Ms. Green, thank you all for your testimony. We look forward to working with you on this issue to get it resolved.
Ms. GREEN. Thank you very much, sir.
Mr. GILCHREST. Our next panel will be Mr. Daniel Romanchuk, Senior Vice President and CEO, Baltimore Marine Industries, Inc., accompanied by David Cassidy, President and CEO, Steven F. Sullivan, Vice President of Human Resources, and Robert M. Bates, Government Affairs Representative; and Frank Foti, President and CEO, Cascade General, Inc.
If you are still in the audience, you may come forward.
TESTIMONY OF FRANK FOTI, PRESIDENT AND CEO, CASCADE GENERAL, INC.; AND DANIEL H. ROMANCHUK, SENIOR VICE PRESIDENT AND CEO, BALTIMORE MARINE INDUSTRIES, INC., ACCOMPANIED BY DAVID CASSIDY, PRESIDENT AND CEO, STEPHEN F. SULLIVAN, VICE PRESIDENT OF HUMAN RESOURCES, AND ROBERT M. BATES, GOVERNMENT AFFAIRS REPRESENTATIVE
Page 45 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GILCHREST. Gentlemen, thank you for your patience. We are glad that we have some private-sector expertise. I was going to let Mr. DeFazio introduce Mr. Foti from his district.
And the gentleman from MarylandI think you are all from Maryland, from Baltimore. The Orioles won with a home run by Cal Ripkin. I think it was last night or the night before. Last night in the bottom of the ninth.
Mr. BAIRD. Will the gentleman yield?
Mr. GILCHREST. Mr. Baird.
Mr. BAIRD. That was a sad moment, I must say. They beat the team from my Washington State.
Mr. GILCHREST. It was a happy moment for us after a long dry spell.
Mr. DEFAZIO. Thank you, Mr. Chairman. Actually, Mr. Foti is from my greater district, shall we say. I would love to include Portland in my district or my responsibilities otherwise, but at the moment, my district is south of there. But I am quite familiar with his facilities. I think the committee will be very interested in his testimony.
What you will hear from him is that there is a possibility of doing a completely contained, extraordinarily environmentally responsible, safe, family-wage-job method of dealing with this problem, the ship disposal problem, at a considerably lower cost than those that have been put to us in earlier testimony. This will be, I believe, of great interest to the committee.
I would urge the chairmanI know he is familiar with the Northwest and has been in that area, but we might invite him back this summer to come out and tour the facility and actually see the potential there, because I think we have got something that could be a model for the Nation and also really help us. Anytime you can lower the costsay, by 50 percentof disposing of these ships, which I think we will hear about, we could be saving the taxpayers a quarter of a billion dollars.
Page 46 PREV PAGE TOP OF DOC Segment 2 Of 2 And being the fiscal conservative you are, Mr. Chairman, I know you are interested in that.
Mr. GILCHREST. Mr. Foti, you are first.
Mr. FOTI. I thank the committee also for giving me the opportunity to be here today. I have a statement to submit for the record; I will cover some things orally.
Thank you, Mr. Chairman and the committee for giving me the time today. I have a statement to submit for the record and I also have some oral remarks if that is okay. I have never done this before, so if I miss a step in protocol, I apologize in advance.
Mr. GILCHREST. That is fine. This is just a situation where responsible adults are exchanging information. So you can take it away.
Mr. FOTI. That is a tough task for me to meet up with, but I will give it my best.
Thanks also to Congressman deFazio for the time he has taken in looking into this problem and also putting a bill forth that gives one potential solution to it.
My name is Frank Foti; I am Chief Executive Officer of Cascade General in Portland, Oregon. Cascade General operates the Portland Shipyard, which is one of the largest ship repair facilities in the United States. We are the largest commercial ship repairer on the U.S. West Coast, non-Navy, nongovernment. Less than 30 percent of our business is dependent on government work, 70 is commercial.
Our primary areas of trade are the repair and refurbishment of Alaskan-born oil tankers. We also work on cruise ships. We also are one of the contractors that repairs and refurbishes ships sold for foreign military sales, something that was addressed a little earlier.
Page 47 PREV PAGE TOP OF DOC Segment 2 Of 2 Cascade General employs just under 1,000 people, does about 100 million in sales a year; 5 years ago we were down to 120 people and doing considerably less in sales.
Cascade General has spent the last 4 years evaluating the technical and economic issues surrounding the dismantling of surplus government ships. We are interested in performing the work, as it is a natural extension of our core business. We have the expertise and the facilities to do the work, and it will help support our work force during lean times, which are pretty common in commercial ship repair.
As we know here, the Maritime Administration is faced with a large and growing backlog of surplus vessels that need some disposition to, and their ability to dispose of them is limited by a combination of regulatory, economic, and political factors. The first one that has been mentioned is the National Maritime Heritage Act that requires the Secretary to dispose of obsolete vessels in a manner that maximizes return to the United States; and that kind of requires MARAD to hold a competitive process, and that strategy depends on someone being able to pay for that ship.
Until recently and for years, in fact, between 1970 and 1994, 508 of the 994 vessels that MARAD sold went overseas for dismantling. During this period, ship dismantling was almost exclusively performed in industrialized nations. It shifted to developing nations where labor was cheap, environmental and safety regulations were either lax or nonexistent and the demand was high for scrap steel.
Enormous dismantling operations sprung up in many of these developing countries during this time, not just with MARAD ships, with ships from all over the world. The resulting global competition, increasing domestic labor, and compliance costs all but eliminated private enterprise's ability to dismantle ships here in the United States.
As I am sure you have some information already, the environmental and safety practices and other domesticin many international dismantling operations are substandard, and they result in a lot of pollution, injuries, and even deaths. The conditions were disclosed in a report by the Baltimore Sun in 1997. Soon thereafter, a lot of things started to happen, including MARAD halting foreign sales in 1998.
Page 48 PREV PAGE TOP OF DOC Segment 2 Of 2 It would seem, in some sense, that with the lack of ability to take it abroad, you would see a burgeoning domestic capacity develop. There are some reasons why that hasn't happened.
First is, dismantling costs are difficult to quantify until you are into the project. Older vessels are full of hazardous materials integrated into their construction. As to the PCBs and making reefs, a barge that does not have PCB-laden cables as part of its structure is something that can be easily sunk and used for a reef. A ship that has PCB-laden cables which go through bulkheads, by the time you remove and remediate the PCBs from a situation like that, you have disturbed the structural integrity of the ship. That may beI can't speak for all the MARAD ships, but that may be why someone may come back and say it is still going to cost us a million or $2 million to remediate this ship to make it a reef. So I am not a total expert in the area, but that one is pretty clear.
There is a suggestion out there that MARAD should reopen sales to foreign dismantlers. I think there are some reasons why that is not the greatest long-term solution. The most obvious one that comes to me is, if there are 40 ships in a serious condition, the chances of something happening to one of those ships in tow is very high. And if you are going to tow it a long distance, why would you do that? You sink it in international waters because it doesn't stand up to integrity during a tow, and I supposeis that okay? It doesn't seem like it should be okay to me, but I want to tell you we would be ready, willing, and able to process any and all of those ships starting any day people are ready to find a way to give us a chance to do that. I may speak a little bit more later about our capacity to be able to do this.
There are a large number of commercial vessels out there, also available for scrap and most of them doalmost all of them are going to the developing countries.
I want to address now the capacity of the United States to be able to do something like this. I would like, if I can, to submit for the record a white paper that we prepared that proposes a way to scrap the entire MARAD inventory in onein actually three locations connected in the Washington-Oregon area within 5 years on the West Coast. We can do it. By the way, we don't need to ask the government to dredge anything. We don't need to ask the government to make additional capital expenditures for us to be able to do this. We need only that there is a vehicle to do this and a different law and structure and some money to do it.
Page 49 PREV PAGE TOP OF DOC Segment 2 Of 2 I have it here, and I have copies available if you want to see it. It is pretty simple. It is only about eight pages to read.
Mr. GILCHREST. You'd like to submit that for the record, sir?
Mr. FOTI. I would, please.
Mr. GILCHREST. Without objection so ordered.
Mr. FOTI. There is a way to do this in actually three locations. One is near the mouth of the Columbia River at the Pacific Ocean, in Astoria, called Tongue Point, which by the way, was an old lay-up facility; at the end of World War II hundreds of ships were there. This facility is available for this purpose, doesn't need to be dredged for the way we would plan to do it. We would actually do most of the topside remediation in the Tongue Point facility. We would then gang five ships at a time, barge them an additional 60 miles, 70 miles, up the river to our shipyard where we would dismantle the pieces on a dry-dock out of the water and also complete the remediation of the PCB-laden cables, which can't be done at Tongue Point because of structural integrity issues.
They would then go 2 miles down the river to a steel-scrapping facility with really large sheers that can dismantle and sell these off for scrap.
It can be done. It can be done in a mass. We could literally take 20 to 25 of these ships now, and in 30 days be doing this. SoI will show you a plan.
There is no issue of capacity. I am just addressing the West Coast becausewell, we live out there. It is what I know. In 5 years, Suisun Bay would be empty of ships that needed to be disposed of in one location with one company.
Obviously, the first step to be able to do this is to change the Maritime Heritage Act to allow MARAD to pay for the dismantling of vessels. It can't be done in this country in a way that it has environmental integrity and is safe to workers; even after the value of scrap comes out of it, there is a net cost to doing this. Our company and maybe others that are interested in doing this are not so much interested in being scrap speculators. We are interested in providing steady work for our work force and providing good and safe working conditions for them to do things. So it is something to think about for an option.
Page 50 PREV PAGE TOP OF DOC Segment 2 Of 2 So two things need to happen at least. One is that the law needs to change to allow MARAD to pay, and second, somehow the money has to be available for them to do it.
I am going to also offer up a cost estimate for you and take a risk and put that in the record. It is in our white paper. We believe that MARAD ships of this type can be reduced to a net cost of about a million-six a ship if they are done in bulk. If you do one at a time, it is going to cost you 3-million-and-change a ship.
The question, how far does $10 million go, by the time you set up a program, maybe it is two ships. If you want to reduce that cost, it can be done if they are done in a mass form; and we believe we have a good plan to do that.
I want to close with kind of a home issue. It is a biased issue. Two weeks ago I employed about 900 people at the Portland Shipyard, had a cruise ship that we just completed building, and also a cruise ship and a tanker that we just completed refurbishment on. By the end of this week I will be down to 200 workers in the Portland Shipyard. That is the nature of our business; it is feast or famine.
We could be scrapping these ships now and keeping workers continuously employed, which keeps them trained and keeps them safe. I hope that there is a way that we can together find a way to bring a solution that keeps some of the jobs here and also is true to the MARAD mission, which has to do with promoting U.S. shipyards; and I don't think exporting these is really a good way to promote that. Thank you for your time.
Mr. GILCHREST. Thank you very much, Mr. Foti.
Mr. ROMANCHUK. I want to thank you for this opportunity to appear before you today to address the subject of disposal of obsolete MARAD vessels. My name is Daniel H. Romanchuk, Senior Vice President and Chief Operating Officer of Baltimore Marine Industries, Inc. With me are David Cassidy, BMI's new President and Chief Executive Officer; Stephen F. Sullivan, BMI's Vice President of Human Resources; and Robert M. Bates, Senior Vice President of KBB and BMI's Government Affairs Representative.
Page 51 PREV PAGE TOP OF DOC Segment 2 Of 2 We at BMI are the successor to Bethlehem Steel Corporation as the owner and operator of the shipyard at Sparrows Point, Maryland, just outside Baltimore. Bethlehem had operated the yard since 1914, and we took it over October 3, 1997, with a force of 25 employees.
In the 2-1/2 years since then, we have repaired and overhauled 79 oceangoing vessels, built four double-hulled tank barges and completed the manufacturing of the first two phases of the Navy's Joint Modular Lightering System Program. In 1999, our second full year of operation, we averaged over 750 employees.
We have been privileged to appear before this subcommittee on one previous occasion, on June 4, 1998, when David Watson, then our President and Chief Executive Officer, testified with respect to ship-scrapping activities of the United States Government. Much of his presentation was devoted to the reasons why he was confident that ship repair yards in the United States could dispose of the Navy and MARAD ships in a cost-effective, environmentally safe, and worker friendly manner.
As you know, in part as a result of the efforts of this subcommittee, the Navy instituted in 1999 a pilot ship disposal program to determine the feasibility of having its ships scrapped in the United States in accordance with the applicable safety and health and environmental protection laws. BMI was fortunate to be one of four firms to be awarded contracts under the ship disposal program. Pursuant to our contract, the ex-PATTERSON, a frigate, was towed to our shipyard in November 1999 to be scrapped.
I have an advantage today over Mr. Watson in his 1998 presentation because I do not need to persuade anyone that we would be able to dismantle a ship successfully. We have now proven that we can do so. By all measures, BMI scrapping of the ex-PATTERSON has been an unqualified success. It has satisfied not only the Navy, our customer, but also the EPA, the Maryland Department of the Environment, and OSHA, with whom BMI and its local union entered into an unprecedented partnership within the ship disposal program. While we were the first of the contractors to complete the scrapping of a vessel, there is no reason to believe that the other contractors will not ultimately prove themselves capable.
Page 52 PREV PAGE TOP OF DOC Segment 2 Of 2 It is significant in our present context to note that the typical ship in the Navy's ship disposal program, a combatant like the ex-PATTERSON, presents a more formidable ship-breaking challenge in terms of safety and health, environmental protection, and cost than do the auxiliaries to be found in MARAD's fleet. There are several consequences of that distinction.
First, a yard that has successfully dismantled a Navy combatant has more than demonstrated its capability of dismantling a MARAD vessel. Second, those contractors who bid unsuccessfully on the Navy's ship disposal program can reasonably be expected to consider themselves capable of dismantling a MARAD vessel. Finally, a yard that was reluctant to go first in attempting to dismantle a Navy combatant and, therefore, did not bid the ship disposal program can reasonably be expected, now that others have done the pioneering, to be prepared to pursue the dismantling of the less complex MARAD vessels.
We are, therefore, convinced that more than ample capacity exists within U.S. shipyards to meet the ship-scrapping needs, both emergency and longer term of both the Navy and MARAD. BMI alone is capable without significant capital investment of dismantling 10 ships per year and storing seven more. BMI alone is therefore capable, without significant capital investment, of abating over 40 percent of MARAD's short-term hazards.
It is inconceivable that the rest of the industry is not equipped and prepared to solve the rest of the problem. The capacity of the shipyards, represented by the Shipbuilders Council alone, exceeds what MARAD needs to solve its obsolete vessel problem. Each step that BMI has taken with regard to ship-breaking, we have taken jointly with our employees union, the International Association of Machinists and its local Lodge S-33.
The principal reason for the union's interest in the issue can be summed up in one word, jobs. The shipyard industry in the United States has been decimated over the course of a generation to the point where many observers question our ability to meet the challenge that a significant mobilization would present. Government ship-breaking provides an opportunity to preserve precious jobs in that industry, in the longer term, thousands of such good, family-sustaining, tax-paying jobs, yet we find ourselves arguing seriously over whether those jobs should, instead, be shipped overseas.
Page 53 PREV PAGE TOP OF DOC Segment 2 Of 2 It is useful, in closing, to remind ourselves that the Navy's pilot program is a step away from the devastating picture described to us by the Baltimore Sun; I quote,
''Alang, India, this is where the world dumps its ships. Worn out and ready to be torn apart, ships lie stranded along 6 miles of beach, smashed, cut, rusting, smoking. This is the end of the line.
''Thirty-five thousand men have come to this once deserted stretch on the Arabian Sea to labor for ship-breakers, lured by wages of $1.50 a day, protected only by their scarves and sandals, wading through muddy sand saturated with oil, dust, sludge and human excrement. They suffer broken ankles, severed fingers, smashed skulls, malaria, fevers, dysentery and tuberculosis. Some were burned and some were drowned.
''nobody keeps track of how many die here from accidents and disease. Some say a worker dies every day,'' end of quote.
That nightmarish account not only earned a 1997 Pulitzer Prize for its authors, but also helped to shame us into doing the right thing via the Navy's pilot program.
Mr. Chairman, it is not necessary for us to step backward by contributing to those horrifying conditions. We can professionally and safely dispose of both the Navy's and MARAD's obsolete vessels as soon as they need to be disposed of. We can preserve the environment, worker safety and health, and good American jobs while doing so.
In closing, can a government whose citizenry is so concerned as to how Nike makes its footwear be the same government who knowingly exports ships filled with lead, asbestos, and PCBs to destroy another country's environment and be worked by unprotected employees who years later will suffer the effects of our export?
I hope you will not let this occur.
Thank you very much.
Mr. GILCHREST. Thank you, Mr. Romanchuk.
Page 54 PREV PAGE TOP OF DOC Segment 2 Of 2 Have either of youMr. Foti, Mr. Romanchukever bid on a MARAD ship to scrap?
Mr. ROMANCHUK. No, sir.
Mr. FOTI. Yes, but we put in what is called a negative bid. We put in a bid that said, you need to pay us; we can't pay you.
Of course, the bid was rejected because that is the way the rules work; but, yeah, we did.
Mr. GILCHREST. Mr. Romanchuk, how much did it cost to scrap the vessel ex-PATTERSON and did you get to keep the scrap to sell?
Mr. ROMANCHUK. Approximately $4 million to scrap the vessel; and, no, sir, we did not keep the scrap.
Mr. GILCHREST. Who gets the scrap? The Navy?
Mr. ROMANCHUK. The Navy got the scrap, yes.
Mr. GILCHREST. Do you know the value of the scrap?
Mr. ROMANCHUK. I would say approximately 350.
Mr. GILCHREST. $350,000?
Mr. ROMANCHUK. Yes, sir.
Mr. GILCHREST. So it cost the Navy a little more than 3.5 million to scrap the vessel?
Mr. ROMANCHUK. Yes, sir.
Mr. GILCHREST. Mr. Foti, and Mr. Romanchuk also, if you had a series of ships to scrap, do you see, Mr. Romanchukanother ship, for example, similar to the Patterson? Is there any way to cut the cost? Would it cost the same on another ship, now that you have the infrastructure? Do you see the value of that?
Mr. ROMANCHUK. I would see the cost going down, sir.
Page 55 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. You got the contract in the Navy pilot project to scrap a number of vessels in Baltimore.
How did you arrive at the fee that the Navy is going to pay you to scrap that ship? Was it a negotiating process? How was that bid performed?
Mr. ROMANCHUK. In the pilot program, the percent fee wasas part of theit was fixed as far as the percentage, as far as a maximum and a minimum fee, so there was a range and depended upon what the cost was relative to the target cost.
Mr. GILCHREST. So your facility was selected by the Navy, and then there was a negotiation as to the range of cost to scrap that vessel.
Mr. ROMANCHUK. What they said, sir.
Mr. GILCHREST. I guess I am asking in the pilot project, did the Navy go out and ask for a number of facilities around the country to bid on this job that they were going to be paid to do, or did they just select a few places and say, ''Do you want to be a part of this pilot project? If you do, you are''?
Mr. ROMANCHUK. It was a bid process.
Mr. GILCHREST. Mr. Foti, were you part of this bid process?
Mr. FOTI. Yes, we were an unsuccessful bidder.
Mr. GILCHREST. Why? Too high?
Mr. FOTI. Yes, I guess we were too high. We were the third of two on the West Coast. Actually a West Coast ship was taken and towed through the Canal to Brownsville, Texas, and one West Coast ship was done on the West Coast, one was done in the Gulf.
Mr. GILCHREST. Do you have the capacityyou talked about you can scrapthere are three facilities on the West Coast where you can scrap all of the MARAD and Navy ships?
Mr. FOTI. All the MARAD ships in 5 years. All the MARAD ships that are.
Page 56 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. At your facility or three facilities?
Mr. FOTI. In our facility, using two separate pieces. We would dowe would do it in three locations under one company. There is a facility in Tongue Point.
Mr. GILCHREST. The James River has a number of ships.
Mr. FOTI. Just the West Coast. We would be happy toI am hearing the stories of the ships that need work immediately. We need work immediately. We would be happy to work on them, but I don't think it is very practical to tow things from the James River. It is just as impractical to tow abroad as it is to tow it from the James River to Portland.
Mr. GILCHREST. Probably closer to go to Liberia.
Mr. FOTI. There are 38 ships on the MARAD site on the West Coast that are awaiting disposal, as I understand.
Mr. GILCHREST. Can you scrap those 38 ships in 5 years?
Mr. FOTI. Yes.
Mr. GILCHREST. Let's just say hypothetically that you got the contract to scrap those 30-something ships. Could they all be moved to your facility? How would you do that?
Mr. FOTI. We could actuallythe facility at Tongue Point can actually hold 20 to 25 ships, depending on size and a couple of other issues. So what we would do is we would take a large number of the ships to Tongue Point. We would work on them, five at a time, and we would have fiveyou would have 20 parked there. You would start on five; you would do the topside remediation on those five, meaning all the work you can do without disturbing hull integrity.
You would then take those five in a group, tie them together, barge them to our facility in Portland where you would do the dry-dockside dismantling work. Then the pieces of the ship go to a shipto a metal house that takes the big blocks, sheers the blocks and makes them ready for mini-mills.
Page 57 PREV PAGE TOP OF DOC Segment 2 Of 2 So what would happen is, you would have 15 in process at a given time. You would have being remediated topside in one location, five being worked at our yard for the actual blocked dismantling, and then five being worked at Schnitzer Steel, which is 2 miles away, for sheering.
Mr. GILCHREST. How many ships are in the James River? 40? Mr. Romanchuk, how many of those shipshaving been in this pilot program for a while, are you in a position to be as optimistic as Mr. Foti, as far as your facility is concerned, to, let's say, scrap the ships in the James River?
Mr. ROMANCHUK. Yes, sir, I am. Just as enthusiastic.
Mr. GILCHREST. How many of the ships in the James River could you store up there at your site?
Mr. ROMANCHUK. At least seven at one time, sir.
Mr. GILCHREST. How many?
Mr. ROMANCHUK. At least seven.
Mr. GILCHREST. So you could take the worst ships in the James River .
Mr. ROMANCHUK. Yes, sir. So within one year's period time, we could scrap ten ships and have seven still parked there. So that would be 17.
Mr. GILCHREST. Neither one of youmay not want to answer this question, because some other bidder that might be listening may bid a hundred dollars lower, but do you have an estimate, Mr. Foti, of the number of ships in California that need to be scrapped, what the cost of that would be?
And, Mr. Romanchuk, have you pulled together any estimates as to the 40 ships in the James River, what it would cost the government to scrap those ships?
Mr. FOTI. We actuallyas part of my submission for the record, we actually put it on paper. We have already answered the question in a public forum, and the answer was, we believe we can get it down to a million-six a ship. We believe it will take timeso a million-six a ship.
Page 58 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. How many ships are there?
Mr. FOTI. You are looking at 38 ships. I am still looking at the West Coast. You are looking at a total of 100, and going to 152 according to the IG's report. So you have got 152.
Say you are going to average 2.3 a ship because you are going to start at 3 million a ship, and you are going to work your way down. I haven't done the math quickly, but I will do it for you.
Mr. GILCHREST. Would the ships in California, which is what, 38 ships.
Mr. FOTI. Yes, today.
Mr. GILCHREST. You are looking at probably between $80 and $100 million.
Mr. FOTI. Yes.
Mr. GILCHREST. to scrap those ships, Mr. Romanchuk?
Mr. ROMANCHUK. We haven't looked at it in great depth, but our rule of thumb is that the net cost would be in the approximate neighborhood of $2, $2.5 million a ship; and maybe if we looked at it in greater depth, we might even get down to 1.6. I am not really quite sure.
But we will accept the challenge from the West Coast.
Mr. FOTI. We pay higher wages out there. They should be able to do it.
Mr. GILCHREST. That is our free market economy.
Mr. BAIRD. Thank you very much, Mr. Chairman. I appreciate very much the testimony of the gentlemen.
Page 59 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. Bates, would you mind just sharing very briefly your anecdotal observation of seeing ships dismantled overseas?
Mr. BATES. My name is Robert Bates. I am a consultant for BMI, and I have been more attuned to scrapping than I ever wanted to be. It started about 10 years ago. I was over on a trip to Karachi, Pakistan, on some work with the Pakistani navy. An 18,000-ton British freighter had gone down in the harbor 2 days before that. I was sitting in the office of the shipyard commander and the shipyard commander said, Do you want to take a look at this?
They were starting to haul the ship out of the bay, and they were taking anythingthey used cattle, they used vehicles, they used handholds, and they were hauling this ship out onto the beach. The beachonce it got onto the beach, as they were taking it onto the beach, they were cutting pieces apart from that particular hulk, and they were dropping down and there must have been 4- to 500 workers there.
As the ship was hauled up on the beach, oil startedcrude oil started to leak out of the ship and the shipyard commander immediately ordered a boom to be placed around the shipyard, because the oil that was leakingrunning out of the harbor, was going into his shipyard.
As these pieces were falling, it was amazing to me. We were not more than a mile away, and you can see these things falling into this group of people. When they got the hull up onto shore, everything, they were told, they could carry, the workers got to keep. The rest of the hull was hauled out there by a ship-scrapping group, and a lot of the material was on sale at the harbor the next day.
The amazing part, the shipyard commander had said to me, gee, that is really good because they only killed five workers on this project, and usually it is about eight.
So that is a real-life experience that I saw, and I really couldn't believe this because it only took a day and a half, but it was every conceivable thing you could think of that was hauling this ship out of the water. That is amazing.
Page 60 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. BAIRD. Thank you for sharing that with us.
Mr. Foti, I am familiar with the facility you operate and the region. Let me just understand, if I can be clear, part of the reason you believe you can realize these economies of scale is that in that area you have berthing facilities. You have dry-dock facilities. You have nearby, well-established steel recycling industries; and if I am not mistaken, actually, up river, you have some of the state-of-the-art toxic disposal sites as well. Is that accurate?
Mr. FOTI. That is accurate. That capacity, I believe there are a few different places in the Gulf that can speak to the same set of geographic conveniences; and I believe also in the Baltimore Harbor area.
Mr. BAIRD. In other words, if we were to have a similar facility East, South, and West, and if the law were to allow and funding were to provide, we could have relatively rapid decommissioning and scrapping of these boats in an environmentally responsible and affordable way, especially if we had the three different coastal.
Mr. FOTI. Yes, you could. It would be wise, I believe, to do it that way because there is a bunch of infrastructure that already exists. Places like ours were builtwe are in fresh water, so our facility is really well maintained. It is easier to maintain than those that are in saltwater. That infrastructure is real expensive, and it is hard to duplicate.
The rules are, the contract can be written in such a way to ensure that you are doing work, whether it is our facility or another, at a facility that has the integrity and the systems already in place to pull it off effectively.
Mr. BAIRD. Let me address the cost issue briefly.
Earlier, the chairman, I think, summarized anestimated roughly an $80 million cost. Is that to clean up thedecommission the ships on the West Coast; is that the figure?
Page 61 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. FOTI. Yes. What I did was, I took a $2.3 million average and multiplied it by 38 and got 87.5.
Mr. BAIRD. The reason I ask that is, we have experienced on this committee, actually with Superfund sites, what happens when we create a spill for intentional or accidental reasons, and then have to clean it up; and I am certainly familiar with Superfund sites, the costs of which exceed $80 million. So the point I am making here is, the cost of cleaning up afterwards, which is government money versus before, seems to me to be in favor of the ''before'' for a number of reasons.
Mr. FOTI. The New Carissa, which was a ship that many of you may recall ran aground on the Oregon coast, the Coast Guard is now, I believe, suing or claiming against the company that left the stern section only, some $20 million just for the disposal of the stern section once it is beached. So, it is a whole lot more expensive to clean up once it is a disaster.
Mr. BAIRD. The other issue I would raise is, I think when we look at the economic benefits, there are economic benefits to the regions where these are scrapped. I find it troublesome that the existing law is just talking about, let's save money without talking about the benefits of spending the money that we do spend at home. The jobs I would see are not only with the direct dismantling, but with the steel recycling industry, et cetera; so there will be a ripple effect throughout the economy.
Could you briefly describe from experience, either of the gentlemen, your experience with how some of that ripple effect manifests itself?
Mr. Romanchuk, what is your experience? Is it just your shipyard, or are there ancillary industries and work forces ?
Mr. ROMANCHUK. It is not just our shipyard. Of course we sell the scrap to a steel plant that is right adjacent to the property, so they get a benefit from it. All the other scrap goes to various places. The aluminum goes to one place, nonferrous metals go to another place, and those people have some economic benefit from it.
Page 62 PREV PAGE TOP OF DOC Segment 2 Of 2 Certain pieces of equipment from the ship are bought by other parties, who get to buy it at a much, much reduced rate, so therefore there is an economic benefit to them. And, of course, to all the employees who work in all these particular locations, there is the usual trickle-down economic effect.
Mr. BAIRD. Let me ask a parallel question to that then.
Mr. Foti talked aboutand I am sure you have experienced it as wellthe ups and downs in the shipbuilding industry. By providing this base level of work in the decommissioning, I assume you get a skilled work force that is well trained, that can then be applied to the ship construction industry as well, because they have got some experience with the tools and the technology in the area.
Mr. ROMANCHUK. It is an excellent question and very, very appropriate for today. We have had a very successful shipyard. We were fully employed for 17 consecutive months, and anybody who is in ship repair can appreciate that when you go 17 months and you don't have a layoff, you are doing very, very well. We did that until mid-February.
And then the market for us justit was like a trapdoor; there was nothing there. We went from 750 to about 250 in employees. The only project we had going was ship-scrapping, and it held a base of about 150 in our yard, and it held that base for about approximately 2 months, and it is good it did because last week we were very, very fortunate to be awarded five ships in 1 week, which will now take us out until September; and at least we are starting with a base of 150 and building up from there.
So, yes, it provides a base. It provides employees to maintain their skills; and it was very, very good for us and very, very fortunate for us.
Mr. BAIRD. Let me just briefly summarize. I summarized earlier with the previous panel.
It sounds like we clearly have an existing problem, but the good news is we have an economically viable way to affordably decommission and scrap these ships in a way that is environmentally responsible; that we know how to manage the environmental materials, and we can dispose of them properly, that will create sustainable jobs in a variety of industries within our regions throughout the country and, in so doing, will provide a trained and ready work force that not only can help serve this function, but can help with other ship construction capacities that are good for other aspects of our economy and, frankly, for our national security as well.
Page 63 PREV PAGE TOP OF DOC Segment 2 Of 2 Is that a fair appraisal?
Mr. FOTI. Couldn't have said it better.
Mr. ROMANCHUK. Yes, sir.
Mr. BAIRD. Thank you very much, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Baird.
Mr. DEFAZIO. Thank you, Mr. Chairman. Mr. Chairman, I had to step out for an appointment. I understand the panel has addressed cost issues, but I would just like to come back to it, because I think it is key to, given Mr. Bates's assertion of billions and the assertion, I think it was in the IG's report, of $500 million. I would just like to get on the record firmly, and I realize other people have asked this question, but I was out of the room.
What do you think at a mass production rate, the cost of responsible ship-breakingenvironmentally responsible, meeting all laws, rules, regulations here in the United States of Americawould be? And if each person can give me an estimate, just per unit, looking at the total number of units, that would be helpful.
Mr. FOTI. MARAD shipsto summarize this again, MARAD ships, you are going to start at 3 million and you are going to work your way down to 1.6, as you have got mass production; using a 2.2-to-2.3-million-per-ship estimate was, I think, a number that both we and Baltimore agreed on as we answered earlier questions. So that is a good number.
That generates less than half a billion, but by the time you add ships to the inventory, you are going to start approaching that number. But for the 100 or so ships now, we are talking about $300 million, not a billion.
Mr. DEFAZIO. Do any of you have any perspective on the question I asked earlier aboutand you did go into some length about the solid PCBs, as opposed to the liquid PCBs, but it doesn't sound like it would be practicable to remove both the solid and the liquid PCBs and ship these things overseas.
Page 64 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. ROMANCHUK. I would say not. What we heard this morning was the removal of PCBs and what everybody is really talking about is PCBs in the form of fuels or the grease. What we discovered is, we had PCBs in the paint on the ship; it was in the electrical cable. So to believe that you could remove all the PCBs isyou would almost have to dismantle the ship to do that, sir.
Mr. DEFAZIO. So if you were meeting a mandate in removing them, it is not practicable to consider, even if you could find an overseas, environmentally responsible shipyard to deal with the rest of the problems?
Mr. FOTI. You could saveif you wanted to break it in partsand our white paper addressed this a little bit, we did break it apart, and we said, okay, the cost of mooring, berthage, is this; the cost of the environmentally remediation is this; the cost of the block dismantlingyou could do all but the solid PCBs, which are in the cables, which are everywhere in the ship.
Dan brings up paint, which is another issue, but primary cables is where the solid PCBs come from. You could save some money by breaking the work in half, but you are not going to getbecause of structural integrity issues, you are not going to get the solid PCBs out of there without disturbing the ship and needing to finish the job.
Mr. DEFAZIO. Thank you.
Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. DeFazio.
Mr. TAYLOR. Gentlemen, you gave us the cost of totally dismantling the ship.
How much do you think, given the same vessel, would it cost to get it environmentally compliant, so that you could make an artificial reef out of it? And I would imagine there is also a great deal of work involved in doing that.
Page 65 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. ROMANCHUK. I really don't know what it takes to make an artificial.
Mr. TAYLOR. May I back up, sir. I am curious as to your mention of the PCBs in paint. Where would that be? In an antifouling paint, in rust preventive paints?
Mr. ROMANCHUK. No, sir. Where we found it was actually in the interior of the ship. It was paint that was used on the surface of insulation, of hull insulation.
Mr. TAYLOR. Again, for my curiosity, is this in trace amounts? Is this in substantial amounts?
Mr. ROMANCHUK. This was in substantial amounts.
Mr. TAYLOR. So when you encounter that, do you hire specialists to remove it, or do you work just on your own?
Mr. ROMANCHUK. No, we brought in a specialist.
Mr. TAYLOR. That is something you have to contract out from your shipyard?
Mr. ROMANCHUK. Yes.
Mr. TAYLOR. Please continue.
Mr. ROMANCHUK. But toI don't know exactly what it takes to make an artificial reef, but in our particular case, we have a lot of paint that is chipping off; it is chipping off the steel, or it chipped off the insulation. And after we finish a process, we are required to vacuum the area, collect those paint chips, put it in a plastic bag, and remove it as a hazardous waste in order to protect the environment.
Mr. TAYLOR. Just for my curiosity, it then goes on to a place like Elmore, Alabama, or what becomes of it then?
Page 66 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. ROMANCHUK. In this particular instance, it went to a place in Model City, New York, was the land site, an approved hazardous material land site.
But what I wonder aboutand I don't know the answer, but what I wonder about is, if I have to vacuum paint chips to protect the water there of the Chesapeake Bay, I wonder what occurs when you sink one of these things and you have these paint chips also floating around in the water. I don't know what the answer is, but if you had tolet's use the ex-PATTERSON as a very good example.
If we were going to use that as a reef and somebody said, how much would it cost to remove all of the hazardous material on this vessel so we know absolutely, for sure, there is no problem when we sink it, in the case of the ex-PATTERSON, it represented about $1.5 million to remove the PCBs, the lead, the asbestos, mercury, those types of materials.
So how much would it cost for a MARAD ship to be put in the same condition? Well, if we use just the same percentage, and let's say, for round numbers, we use a $2 million dismantling cost, it would be about three-quarters of a million dollars, just doing the arithmetic.
Mr. TAYLOR. I guess it is fair to say, there really isn't any cost savings. But on the flip side, if it is your goal to find continuous employment for your employees, which I would thinkand I commend you for that, quite frankly. It is somethingwe have shipyards back home, and it is something I really hope you guys do, as well.
Is there not a great deal of work associated with getting a vessel environmentally compliant before it is disposed of, whether it is scrapped, sunk, used as a target for the Navy, whatevereither way, there's a lot of work for your employees and Mr. Foti's employees.
Mr. ROMANCHUK. Yes, sir.
Page 67 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. TAYLOR. I guess that is what I was trying to get to.
Mr. FOTI. It roughly cuts it in half, but half of.
Mr. TAYLOR. The amount of work?
Mr. FOTI. Yes. Half a loaf of bread is better than no loaf of bread at all. One-sixteenth of a loaf of bread, and you eventually die of malnutrition.
Mr. TAYLOR. I understand. Half a loaf is pretty good.
I am curious, what is the priceI take it there is a yellow sheet on scrap steel, as there is for paper or any other commodity? It is a commodity?
Mr. FOTI. Yes.
Mr. TAYLOR. I take it the price is low at this time?
Mr. ROMANCHUK. Yes.
Mr. TAYLOR. Is that a short-term trend? Or has that been a long-term trend?
Mr. ROMANCHUK. I don't know if it is a long- or short-term trend. I can tell you right now, for scrap steel we are getting aboutsomewhere in the neighborhood of maybe $65, $70 a ton, maybe $60 net. Aluminum may range anywhere from 30 to 80 cents a pound.
When we were doing the scrapping, it is my understanding that steel scrap prices were, at this time, pretty high; as we continued the scrapping, they may have dropped from roughly $65 to $60 a ton, so I don't know what the trend is for scrap steel. But it does fluctuate.
Mr. TAYLOR. Mr. Chairman, that is it. Thank you.
Mr. GILCHREST. I was going to say I have another appointment at 1:30. I was going to give you one more question.
Mr. Taylor, thank you very much.
Page 68 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. Bates, Mr. Sullivan, Mr. Cassidy, Mr. Romanchuk, Mr. Foti, the committee appreciates your testimony, the distance you traveled to get here. We hope you will have a safe journey home. Your testimony has been very valuable this morning for the committee, so that we can formulate a policy probably through legislation to deal as effectively, efficiently, and in a timely manner with all these ships.
Gentlemen, thank you very much. The hearing is adjourned.
[Whereupon, at 1:30 p.m., the subcommittee was adjourned.]