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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.






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MARCH 18 AND JUNE 4, 1998

Printed for the use of the

Committee on Transportation and Infrastructure


BUD SHUSTER, Pennsylvania, Chairman

THOMAS E. PETRI, Wisconsin
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HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
SUE W. KELLY, New York
RAY LaHOOD, Illinois
FRANK RIGGS, California
CHARLES F. BASS, New Hampshire
JACK METCALF, Washington
ROY BLUNT, Missouri
JOSEPH R. PITTS, Pennsylvania
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JOHN R. THUNE, South Dakota
CHARLES W. ''CHIP'' PICKERING, Jr., Mississippi
JON D. FOX, Pennsylvania
J.C. WATTS, Jr., Oklahoma

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
BOB CLEMENT, Tennessee
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
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JAMES E. CLYBURN, South Carolina
BOB FILNER, California
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
BILL PASCRELL, Jr., New Jersey
JAY W. JOHNSON, Wisconsin
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania

Subcommittee on Coast Guard and Maritime Transportation
WAYNE T. GILCHREST, Maryland, Chairman
FRANK A. LoBIONDO, New Jersey, Vice-Chairman
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HOWARD COBLE, North Carolina
BUD SHUSTER, Pennsylvania
(ex officio)

BOB CLEMENT, Tennessee
JAY W. JOHNSON, Wisconsin
ROBERT A. BORSKI, Pennsylvania
(ex officio)



MARCH 18, 1998
Proceedings of:
March 18, 1998
June 4, 1998

    Dunavant, Michael, Environmental and Legislative Affairs Manager, East Coast Division, Simsmetal America

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    Heeter, David G., Assistant Attorney General, North Carolina Department of Justice

    Lewis, E. Grey, Former General Counsel, U.S. Navy

    Miller, Hon. George, a Representative in Congress from California

Rivers, Patricia A., P.E., Assistant Deputy Under Secretary of Defense for Environmental Cleanup, Office of the Deputy Under Secretary of Defense for Environmental Security, U.S. Department Of Defense, accompanied by Joan M. Bondareff, Acting Deputy Maritime Administrator, and Chief Counsel, Maritime Administration, U.S. Department of Transportation, Michael M. Stahl, Deputy Assistant Administrator, Office of Enforcement and Compliance Assurance, U.S. Environmental Protection Agency, Captain James L. Hested, Commanding Officer, U.S. Coast Guard Yard, and Captain Larry L. Hereth, Chief Office of Oil and Hazardous Substance Response, U.S. Coast Guard


    Miller, Hon. George, of California


    Dunavant, Michael

    Heeter, David G

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    Lewis, E. Grey

    Rivers, Patricia A


    Bondareff, Joan M. , Acting Deputy Maritime Administrator and Chief Counsel, Maritime Administration, U.S. Department Of Transportation, responses to questions

    Hested, Captain James L., Commanding Officer, U.S. Coast Guard Yard, and Captain Larry L. Hereth, Chief Office of Oil and Hazardous Substance Response, U.S. Coast Guard, responses to questions

Rivers, Patricia A., P.E., Assistant Deputy Under Secretary Of Defense for Environmental Cleanup, Office of the Deputy Under Secretary Of Defense for Environmental Security, U.S. Department Of Defense, responses to questions

    Stahl, Michael M. , Deputy Assistant Administrator, Office of Enforcement and Compliance Assurance, U.S. Environmental Protection Agency, responses to questions



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    Foti, Frank, President and Chief Executive Officer, Cascade General, statement

    Wiener, Robin K., Executive Director, Institute of Scrap Recycling Industries, statement

JUNE 4, 1998

    Ellis, Kerry R., Managing Member, Patapsco Recycling

    McCabe, Kevin J., Chairman, International Shipbreaking Limited, L.L.C

    Rivers, Patricia A., P.E., Chief, Environmental Restoration, U.S. Army Corps of Engineers, on behalf of the U.S. Department of Defense, accompanied by Joan Bondareff, Acting Deputy Maritime Administrator, and Chief Counsel, Maritime Administration, U.S. Department of Transportation, Roscoe Davis, Program Manager, Ship Sales, Defense Reutilization and Marketing Services, Rear Admiral Steven Morgan, Executive Director, Logistics Management, Defense Logistics Support Command, and Captain John Butler, Program Management Systems, Strategic and Attack Submarine Program, Navy Sea Systems Command Headquarters, U.S. Navy

    Watson, David, President and CEO, Baltimore Marine Industries, Inc


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    Shuster, Hon. Bud, of Pennsylvania


    Ellis, Kerry R

    McCabe, Kevin J

    Rivers, Patricia A

    Watson, David

    Legal and Political Restraints on the Export of Waste Vessels Containing Hazardous Substances: A Critique of the Report of the US Interagency Panel on the Ship Scrapping, Basel Action Network and Greenpeace International, report

    Wiener, Robin K., Executive Director, Institute of Scrap Recycling Industries, statement



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U.S. House of Representatives,

Subcommittee on Coast Guard and Maritime Transportation,

Committee on Transportation and Infrastructure,

Washington, DC.

    The subcommittee met, pursuant to notice, at 2:03 p.m., in Room 2167, Rayburn House Office Building, Hon. Wayne T. Gilchrest (chairman of the subcommittee) presiding.

    Mr. GILCHREST. The Subcommittee on the Coast Guard and Maritime Transportation will come to order. The subcommittee is meeting today to hear testimony on ship scrapping activities of the United States Government. As you know, we will limit opening statements to the Chairman and ranking minority member. If other members have statements they can be included in the record.

    Without much ado, I would like to welcome all of you here this morning, especially those who will give testimony and all of those who have some interest in this issue.

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    The issue came to light over the last several months because of a series of articles in a variety of newspapers and magazines from around the country but, in particular, here in Maryland from the Baltimore Sun.

    As a result of that information it became apparent, at least to me, and some of us that the U.S. ship scrapping program, while necessary, needs improvement both domestically and internationally.

    As a result of the interest of Congress, the Department of Defense and the Maritime Administration have gotten together with a panel of diverse people to look into the issue of how the United States can adequately, efficiently, competently dispose of U.S. Department of Defense vessels and those vessels under the jurisdiction of the Maritime Administration in a timely manner not forgetting the health and safety of those workers.

    It is my intention, I think it is our intention, throughout these hearings to uncover what has gone on in the ship scrapping industry for the last several years, compare that to what was done in previous decades, in particular, the 1970s and see which direction the United States must take in this particular area, in the ship scrapping area. Where do we go from here with ship scrapping? We have to do it.

    Can the United States handle alone that responsibility? Can it be a responsibility shared with the United States and the international community? We need environmental regulations to protect the health and safety of our environment and the workers, but we cannot over-bureaucratize those regulations so that our operations then becomes sluggish and inefficient.
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    So, I think we as a nation are intelligent enough to see how to dispose of our vessels adequately and with aggressive, competent oversight we can accomplish this task.

    So, that in part is why we are having this hearing. I would now like to turn the mike over to my good friend, Mr. Clement.

    Mr. CLEMENT. Thank you, Mr. Chairman for scheduling this hearing on the ship scrapping activities of the Federal agencies. This topic actually goes back to the early 1990s when the former Committee on Merchant Marine and Fisheries, where I was a member once upon a time, considered a bill by then—Congressman, now Senator, Ron Wyden to require the Maritime Administration to scrap its obsolete vessels in the United States.

    Since that time, MARAD has scrapped many of its old World War II era ships but still has over 70 vessels that it needs scrapped. Similarly, the Navy has over 100 obsolete ships that it needs to scrap. The problem is that these ships are filled with dangerous materials that pose a health hazard to those workers scrapping the ship and materials such as PCBs that can pose a threat to the environment.

    There are several questions that must be examined by the committee. First, should government agencies ensure that all of these hazardous materials are handled and disposed of in a safe manner regardless of whether the scrapping occurs in the United States or overseas?

    Second, is it possible for the government to scrap these ships without having to pay for this activity? Currently the Navy and MARAD are charged by law with having to sell these vessels at the highest cost. Does this provide an incentive for these agencies to have these vessels scrapped by companies that have minimal regard for worker safety and the environment?
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    The government has generated this waste material, and I believe that the government should be responsible for ensuring that it is disposed of in a safe manner, just as they must do when the waste material is on land. We cannot tolerate the out-of-sight, out-of-mind philosophy that may allow a scrapper to dispose of these hazardous materials without adequate oversight by the U.S. Government.

    The administration has established an interagency task force to look at these types of questions. And I look forward to receiving its views on how the Federal Government should deal with these issues.

    Thank you.

    Mr. GILCHREST. Thank you, Mr. Clement.

    Mr. Johnson, any opening remarks?

    Mr. JOHNSON. I do not have an opening statement.

    Thank you, Mr. Chairman.

    Mr. GILCHREST. I will now introduce the Honorable George Miller from the State of California. I would like to remind our other witnesses that we will limit your testimony to 5 minutes but that your entire statement will be submitted to the record.

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    And I want to thank Mr. Miller for his interest in this issue and look forward to his testimony.


    Mr. MILLER. Thank you, Mr. Chairman.

    And I will not take much of your time, one, because we are in the middle of a markup next door and, two, because of your record on many of the issues that are brought to the forefront in the ship breaking issue. I am confident that you are going to be asking the right questions and also the statement by Mr. Clement, tells me that this committee is, in fact, asking the right questions.

    This is not an effort to say we should not be ship breaking. The question is how are we going to do it and what kind of resources are going to be put into the problem. And I want to commend you for holding this hearing to explore hopefully some of the solutions to the current situation.

    We all know the story that was broken in the Baltimore Sun about the brutal, dangerous and polluting activity that was and can be associated with ship breaking both here at home and overseas is a story that is unacceptable to us. And clearly, I think, the fact the administration, the Department of Defense, the MARAD administration and others have taken this position to give you time and them time to think of how we had better handle this is important.

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    But we cannot have ship breaking endangering both our environment and the health and safety of the workers who are engaged in it. We cannot go back to a time when people are working around hazardous materials without proper protection, whether it is clothing, respirators, training or technology. That is clearly unacceptable.

    We also know that in an effort to avoid those costs, we cannot ship this problem to put it out-of-sight, out-of-mind and send it to India where the conditions are even worse and, in fact, the environmental hazards posed to the area are substantially worse than they are here.

    So, that is not a situation that remedies the problem. I think clearly this committee and the administration have got to grapple with how we handle this in the best fashion possible. I have worked in this area for some time. I used to be the chairman of the labor subcommittee dealing with ship workers and longshoremen and asbestos and a lot of these materials. And, as I said, I know that we cannot go back to that.

    I was deeply disturbed when last year we learned of the Memorandum of Understanding, the agreement in which basically EPA and MARAD signed off on an arrangement to allow for this. But, in fact, that memorandum turned out to be very, very inadequate in terms of the removal of these dangerous materials before the ships were exported.

    I think, as Mr. Clement pointed out, sometimes the notion that the Government somehow has to make money off of the bidding of these ships may be what drives some very bad practices.

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    I, unfortunately, have five of these ships sitting on the waterfront in one of the cities in my district where Mare Island Naval Base used to be and people offered money to the Government to take these ships and then they were a completely under-capitalized business. They cherry-picked the valuable material off the ship and now I guess they are going to go back to the Navy and they are less valuable than they were before. And any sense that the ship is going to balance out the cost of environmental remediation is highly questionable.

    I think, as you both noted, this was part of the defense buildup of this country and we have got to treat it as we do when we are downsizing other facets of the defense industry.

    And that we may very well, just as we have spent more money than we like to think in environmental remediation of military facilities before we turn them over to communities and for reuse and for economic development, we may very well have to provide for the upfront environmental remediation of these ships before they can, in fact, be scrapped properly.

    I hope that that is one of the proposals that you will look at. Because I think otherwise we continue to not really deal in the real world. I have had an opportunity to talk to people who have successfully scrapped one or two ships and I do not think you are going to do it by believing that the Government is going to make a profit off of the transaction. These are loss leaders. There is going to be a public expense in the breaking of these ships and we should recognize that.

    Again, let me say I am delighted to work with this committee and provide any help that I can. But your opening statements tell me, and I think the position of the administration and the agencies suggest, that we will have an opportunity to look at this in the future and where do we go from today, as you suggested?
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    And that is very encouraging. We clearly owe our domestic workers and environment that much and I think we owe foreign workers and the world's environment that much. Because the answers that you will decide upon really will condition the kind of harm that we can limit from this activity and recognize that it is important, that it needs to be done and you are right, we should not over-bureaucratize it.

    We should get on about this job. But I think if we recognize some of the physical realities and the economics of this business, perhaps we can cobble together a solution that makes sense.

    Again, I appreciate very much the time you have extended to me.

    Mr. GILCHREST. Congressman Miller, thank you very much for your testimony and we look forward to your participation in this most worthy endeavor.

    Now, I do not have any questions.

    Mr. Bateman, any questions?

    Mr. BATEMAN. No questions, Mr. Chairman.

    Mr. GILCHREST. Thank you, Mr. Miller.

    I think what we will do since there is a vote on, we will run and vote and be right back so the subcommittee stands in recess.
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    Mr. GILCHREST. The subcommittee will come to order.

    I thank everyone for their patience. Now, I would like to introduce the second panel. Mr. David Heeter, Assistant Attorney General, North Carolina Department of Justice; E. Grey Lewis, former General Counsel, U.S. Navy; and Michael Dunavant, Environmental and Legislative Affairs Manager, East Coast Division, Simsmetal America.

    Thank you all for coming, gentlemen. We appreciate your attention to this issue and I would like to start with Mr. Heeter, from North Carolina.


    Mr. HEETER. Thank you, Mr. Chairman.

    Mr. GILCHREST. Is the Pfiesteria getting better down there?

    Mr. HEETER. A little bit so far. Yes, Mr. Chairman, members of the subcommittee, I am David Heeter and I am an Assistant Attorney General with the State of North Carolina. And I am here because of my involvement in closing a ship scrapping operation in Wilmington, North Carolina, because of serious environmental problems.
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    This operation was run on a daily basis by a Wilmington Resources, Incorporated and then a Sigma Recycling Limited Liability Corporation. The president of both companies was a Richard Jaross. Some 14 other legal entities were involved in the operation to scrap some 20 Navy ships, and one Maritime Administration ship.

    Initially there were some minor problems. This changed in early 1996 when the State received an anonymous complaint about the operation. We then conducted a surprise inspection and documented some very serious violations of several of the State's environmental laws.

    These included the State's version of NESHAP, the States Coastal Area Management Act, the States Solid and Hazardous Waste Management Acts, and the States Oil and Air Pollution Control Acts.

    We also discovered some very serious violations of the conditions that had been attached to the umbrella permit which authorized the operation. After receiving unsatisfactory responses to the notices of violations, which it served on the scrappers. The State began restricting the scrappers' activities at the site by revoking their permits.

    It also instituted a lawsuit to require them to remediate the violations they had committed. In addition, the U.S. Coast Guard and OSHA assessed substantial civil penalties for violations of environmental and worker safety laws.

    When it became obvious that the scrappers were unwilling to make physical and operational improvements needed to comply with the State's laws and permits, then the State began pressuring the Navy and DRMS to revoke the scrapper's contracts. Eventually this was done and 14 unscrapped ships were towed to other ports.
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    Although the defendants have entered into a consent judgment, the violations have still not been remediated. A corrective action plan has not been approved due to disagreement over how to dispose of some three acres of soil that is contaminated with asbestos and petroleum products. Protracted litigation between the State and the defendants is a very real possibility.

    Furthermore, the State will almost surely turn to the Navy and DRMS for some or all of the costs of remediating the violations if the defendants fail to do so. So, this saga began some 3 1/2 years ago and the end is still not in sight.

    Now, some changes are clearly needed in the way that governmental ships are scrapped. I am not going to address the fundamental question of whether the scrapping should be done by the United States, by contractors, et cetera, in any real detail. There are certainly other people in this room with more experience and interest in that issue.

    However, no matter how the work is done I do firmly believe that the United States must remain responsible for complying with and correcting the violations of all the applicable Federal, State and local environmental and other laws. And certainly based on our experience in North Carolina we feel that is the bottom line.

    Now, I want to make some suggestions for improving the scrapping process regardless of the arrangement which is followed. In all likelihood, these might have avoided some of the problems in North Carolina. If they had not avoided the problems then they certainly would have become obvious sooner.
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    The first one is as complete as possible of a manifest is needed to be prepared of the hazardous substances and pollutants aboard these ships. The government needs to do this before people bid on salvage rights or work so they know what risks they are taking. Such a manifest would also help the regulatory agencies attach appropriate conditions to their permits and know what harmful constituents they should be sampling for.

    That was the real problem in North Carolina. We had some vague idea of what might be on board these ships but that was all. And the initial month or so of our investigation was well, pretty chaotic until we eventually learned what kind of violations we were dealing with.

    We could have addressed those violations much sooner had there been an acceptable manifest. There was one but it was just so general and incomplete that it was virtually worthless.

    The second thing is that the scrappers should be required to prepare a scrapping plan for handling and disposing of pollutants. The scrappers in North Carolina had a flow chart which supposedly showed what they were going to do but again it was incomplete and, on top of that, they just ignored it once they got their permits. They are now preparing an after-the-fact plan but it is under the consent judgment that they have entered into.

    Three, a pre-scrapping conference should be required between the scrappers and the regulatory agencies before the operation begins. This would certainly help to avoid problems and misunderstandings. I do not know if it would have helped that much in North Carolina, just simply because of the attitude of the scrappers that we were dealing with. But I think normally that would be of considerable benefit.
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    Four, require the scrapper to post a bond or provide proof of financial responsibility. A very real problem in North Carolina is that the scrappers have no significant assets within the State's jurisdiction other than the contaminated land.

    If the scrappers do not pay for this cleanup then the State is going to have little recourse other than to turn to the Navy and DRMS for part or all the costs of the cleanup and those costs may be very significant.

    Five, I think some oversight needs to be imposed on those who qualify to bid for ship scrapping rights and work. The articles by Gary Cohen and Will England in the Baltimore Sun amply illustrate the need to be more careful about awarding contracts and to enforce the available disbarment and suspension and other procedures against people who have already been awarded contracts.

    And then, finally, greater cooperation and communication is needed between the Federal and State agencies involved in these operations. DRMS did uncover some violations early in their inspections, but their inspection reports were not sent to the State. Perhaps we would have discovered some of the problems earlier if they had.

    In the same vein I have to admit the State was not sending its inspection reports to DRMS. So, DRMS did not know what we were discovering. Eventually we began communicating with each other and working together. But there was an initial period of several months where there was just little or no communication and that hurt us badly.

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    So, those are the suggestions I would make. I thank you for the opportunity to appear here today and the State of North Carolina and I are certainly willing to help you in any way we can to address the problems before you.

    Mr. GILCHREST. Mr. Heeter, thank you for your testimony.

    Mr. Lewis?

    Mr. LEWIS. Thank you, Mr. Chairman.

    I am delighted to be here today to share with you some observations, concerns and hopefully possible solutions. After having listened to Mr. Heeter, you mentioned that I was formerly the General Counsel for the United States Navy, I also was an Assistant United States Attorney here in D.C., a prosecutor. And I am not sure which is more helpful in today's environment.

    But I have been reviewing this subject matter for several years, first, as the result of a TDA grant in which I reviewed ship scrapping in Russia as a possible defense conversion project, and have many memories of touring yards with Congressman Curt Weldon.

    Secondly, I was part of a project with MARAD to evaluate its ship scrapping and have reviewed all of the applicable Federal and State laws and international treaties. We have reviewed the technology, ship scrapping methodologies, hazardous waste management issues, and the cost and pricing aspects of the salvageable metals.

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    Let me just give you some quick observations. Obviously, everyone knows there is no U.S. ship scrapping industry today in the United States. This is caused by several reasons, foreign competition certainly has undercut it. Most all the ship scrapping for the past several years has been sent to India, Pakistan and China.

    We also concluded, from reviewing all of the rules pertaining to ship recycling, that the complexity and morass of the environmental and safety requirements were so burdensome that it basically overwhelmed a ship scrapper, resulting in no ability to make any profit.

    And if you review the ship scrapping process, you can see how it becomes heavily regulated by a multitude of acts and statutes. First, the ships have a lot of pollution in them, as well as hazardous materials, that are subject to a lot of different laws.

    Second, the ship scrapping process, itself, cutting open the vessels, causes pollutants to be released into the air, causes noise, you bring in OSHA as well as the Clean Air Act and Clean Water Act. Secondly, where do these ships, where are they scrapped? They are scrapped generally on navigable waters and marshlands, again, bringing in a whole new set of rules, regulations.

    You bring in the United States Corps of Engineers, requiring additional licenses and permits. Regarding a State regulation, some States like California, we found had very aggressive Coastal Zone Planning requirements.

    And then the fourth area the requirements for the transportation, storage and disposal of hazardous waste materials. Again, a massive set of State and Federal regulations. And then, as an example, on top of all this sits TSCA, the Toxic Substances Control Act which regulates the PCBs and causes considerable additional expense. In addition, all of these statutes subject the ship scrapper to potential liability as well as very serious civil and criminal penalties.
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    And, so, what we found was no ability to make a profit. It was very difficult to obtain a profit if you were going to recycle in a compliant, environmentally compliant manner, and thus there was no investment in any equipment. No investment in any proper recycling equipment that was needed. There was no investment in any research and development. There was nothing with regard to the methodology of scrapping.

    And, so, what you have is that you are left with the Richard Jarosses and the Kerry Ellises of this world. I spoke to Mr. Kerry Ellis when I was doing my research and as you know he recently received 2 1/2 years in prison for violating the environmental laws. He told me, I was curious as to what scrapping plans he had.

    He said, ''Oh, I have got a plan, I have got this plan, I have worked hard on this plan. It is all in the plan. It is going to legally allow me to do it.''

    And, obviously, his plan was not too well thoughtout as you know because he received 2 1/2 years in prison just the other day.

    And now where are we? We have taken a look at where we are from a national point of view. And the ships are rusting away. The reserve fleet, we have taken a look at some of those ships. They are dangerous to walk on, they are rusting. You could easily fall through. The Navy, the berthing, I think it was about $3.5 million in Philadelphia just to berth the ships.

    The backlog is building faster than they can recycle it. And with regard to exporting, our observation was that that was not a long-term solution. That public opinion was changing and with the Basel Convention prohibitions and articles in the Baltimore Sun, so that exporting was not a long-term solution we did not feel.
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    Now, what are the possible solutions? If I could just run through them quickly, some of the concerns I have had and potential solutions.

    One was that the Congressional scheme—and I say that with all due respects, but it does not encourage a domestic ship scrapping, recycling industry. It appears to me that it forces the exporting, which as I said, is not a long-term solution, because the Congressional scheme envisions funding of a number of programs. And the Congressional scheme envisions that the ships are assets to be sold to fund particular programs.

    And let me just, if I can, just quickly read this. This is a letter that then-Senator Cohen wrote to MARAD in June 1996 when he was very concerned because of the lack of funding. But I will not read it, there is a very important paragraph in here which states.

    ''I have been monitoring the ship scrapping problem because of its importance to the State Maritime Academies, as well as the National Maritime Grants Program.

    This program will be funded from the sale of the obsolete reserve fleet vessels and administered by the Maritime Administration. MARAD is also required by public law to dispose of all of its unassigned, reserved vessels in a manner that maximizes the returns to the United States.''

    And I just feel that that congressional scheme is a funding mechanism and what I think needs to be done is that these ships should be looked at as problems and not just valuable assets to be sold, as they are today.
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    And there is no better example than the Puget Sound Naval Ship Yard, where the United States Navy does look at nuclear submarines as problems, not valuable assets to fund some legislation. The nuclear submarines run about $30 million, I believe, to scrap.

    Of course, you are talking there about taking out and burying the reactor. But out of every nuclear submarine, I know it varies whether you are talking about a boomer or an attack submarine, but the Navy spends, I believe, around $10 million just to take care of all of the PCBs, the environmental, the OSHA regulations, State and local. And they receive about $1-to-$2 million back on the sale of the scrap.

    But my point being that the Navy has long recognized that submarines are not an asset, they are a liability in that they have to act in an environmentally and socially responsible way, which they have.

    So, the first problem I had with the congressional scheme was he pressure to export because we all know that the exporting companies have out bid any American ship scrapping company for years. Almost all of MARAD ships went abroad.

    Now, the second problem I have and would encourage this committee to look at is the government contracting process. The government contracts mostly on an IFB, information for bids. And this is fine for export. High man takes it, boom, off it goes. It is no longer a problem. It is out of this country.

    But the problem is that it puts all of the risk of legal and environmental compliance on the buyer. These contracts are as-is and where-is. And the government takes no risk and no responsibility.
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    They try to contract-away all of the responsibility and you end up again with the Richard Jarosses because you are putting a tremendous amount of liability on a company if they know anything about the environmental rules they will not bid.

    And what I would recommend and it ties a little into what Mr. Heeter was talking about, I would give some consideration before you go out, to use an RFP, request for proposal. And there you have the ability to negotiate. There you have the ability to see exactly what the buyer is going to do with regard to his system of hazard waste disposal, for example.

    You can see what his plan is, what his proposal is. And you can discuss with him his financial responsibility. I really have problems with this IFB where the government just absolutely has no risk, no liability, you take it. I think that is another big cause of the problem.

    And the government must accept some liability and risk if this is going to succeed. It has got to have a mind change because if you take a look at the situation now I think we have seen that the government is not solving its salvage problem. And what I am urging today is that the government become a part of the solution and act as it does with nuclear submarines.

    Here is an interesting point I would like to make. That is the government could sell clean, it is an option. And by that you could have varying degrees of cleanliness. Okay?

    And by doing that, the government can take some of the responsibility off the ship scrapper. It can take some of the liability off the ship scrapper. And it can say, look, before we sell this ship, we will at least survey all PCBs, okay? We will survey it and we will tell you where they are.
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    Or they could supply the PCBs clean. They could take asbestos out of it and they could clean the bilges, the oil tanks. If you were going to reef it, you would not need to worry about the asbestos or having it gas free for entry in hot work.

    By accepting some of the responsibility I think the government would be not only helping in the area of environmental compliance, but I also think they would get a higher price. You see they would get a higher price for these ships.

    And, second, I think that there is a possibility that they may be able to do this out of operating funds. I have not taken that hard of a look at it but I thought that they might be able do to some of the, you know, ''Sell Clean'' aspects out of operating funds.

    And also you would be helping the yard make a better profit, I mean, obviously. And you could also, if you sold completely clean—and what I am talking about is a certification by the Federal Government that this meets the EPA standards and the State standards. If you had that certification, obviously, you would get a better price but you would also allow the yards, I think, to make a profit here.

    And also you could sell the ship as an asset. If you go back and sell it as an asset and if you wanted to export it, you could do that, too, because it would be in complete compliance. Now, that is the 100 percent clean. But as I say, there are varying degrees and I throw that out for consideration.

    We found that to sustain a viable domestic ship scrapping industry you should not contract a for just one ship at a time. Scrappers need to be able to get a return on their investment of the cutting equipment, et cetera.
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    And so I would strongly recommend that the MARAD contracts be in the neighborhood of four to six ships per contract. The scrappers would know that they would, hopefully, be getting a return on their investment, and you could set it up, too, so that there would be a steady flow of these ships that the scrapper could count on. It is extremely haphazard now and, as I say, most ships have all gone abroad.

    I have thought, possibly, about loans. The Government might provide the ability to obtain loans for environmentally compliant ship recycling equipment. I think that would be helpful. Another area is research and development. I found that were was a lot of possibilities out there.

    Because there is no profit, there is no investment, and nobody really does anything in the area. But the Government could pay for some research and development and, again, I think by creating pilot programs and, again, I think you would get a higher price. You would enhance the ship recycling productivity by the research and development and get a higher price for the sale of the ship.

    I found methodology—again, ship scrapping methodology—I do not think there has been much time or effort spent here at all. It looked to me as if there was a lot of great ground to go over by computers. Obviously, the best methodology for any shipyard would be for once the piece of steel is cut off the hull that it never touches the ground and moves right into the market. That is the ideal, but I really think that there would be a lot of gain by looking at improving the methodology of ship scrapping.

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    Hazardous waste management technologies. Again, we found a lot of possibilities out there that could be helped by research and development. I am just a little bit over my time, but there is metal cutting, there is electric arc torches, there is underwater cutting, there is metal cutting saws, there are shears. Shears have excellent possibilities. Oxygen fuel, you have got the Russian technology, the fire jet torches. You have got laser cutting.

    Now, I have found in some of the laser cutting that it would bind the asbestos. As you know, one of the big problems with ship scrapping is that when they cut open the ship, all of the pollutants go into the air. Then you have got all of the problems with the workers that are working on it under the OSHA regulations.

    But we found that some of the torches like laser would hold in the asbestos, and some of these torches were really very beneficial from an environmental point of view, which brings me to my last area, and that is I have always been interested in technology-based standards.

    I think that, especially in this area, if you based—because the rules and regulations are so burdensome that if you try technology-based standards; that is, if you did, you would allow them to use a torch that was environmentally compliant, as long as they used that torch, then they would be relieved of a lot of the other burdens of the regulations.

    We have found overlapping regulations. We found you have to be reporting to different units within the same Agency of EPA. So what I am saying is, though, that it would save a lot of money for the ship scrapper if he was able to at least use technology-based standards.
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    I could go on. I had better stop. I thank you very much.

    Mr. GILCHREST. Thank you, Mr. Lewis. I think we will get into some of those things during the question and answer period. We appreciate your testimony.

    Mr. LEWIS. Thank you.

    Mr. GILCHREST. Maybe we are going to have a Congressional appointee to the panel by the Department of Defense and have you nominated to be on that panel.

    Mr. LEWIS. It is a subject that I enjoy. After the Cold War, I wanted to see that both of the Navies—the Russian Navy and the United States navy—downsized in an environmentally proper manner.

    Mr. GILCHREST. Thank you very much.

    Mr. Dunavant?

    Mr. DUNAVANT. Yes, Mr. Chairman and members of the subcommittee. We really thank you for this opportunity today.

    As you mentioned earlier, I am the environmental and legislative affairs manager for Simsmetal America. But one of the reasons I am here today is because I was also the compliance officer, safety director, and operations manager for some dismantling teams.
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    Just recently, we dismantled three former United States Navy vessels on the James River without dry dock. All three were scrapped in the State of Virginia and completed.

    Simsmetal America is very interested in doing ship breaking again. We know we can do it safely, environmentally sound, and by following all rules and regulations from both State and Federal agencies because we have done it before.

    We are also aware that there are a number of other responsible companies in the United States that can properly dismantle these vessels, but we are businesses. We need to turn a profit. We did it right, we did it correctly, and we lost money.

    We believe, as a result of our experiences, to dismantle a complete vessel in the United States today, including proper remediation and appropriate safety measures will result in a loss. As the cost of remediation, including preparation of recyclable materials will always exceed the saleable value.

    We feel like the screening of these companies who want to buy these ships should be better. If we do a better job in this screening, a lot of these problems can be taken care of. There needs to be stronger mandatory requirements for these companies seeking these ships, as well. I am prepared to answer questions on that today.

    We are glad to hear that the Government is recognizing these hazardous waste materials, such as asbestos, PCB cable and fuel because there are just miles, and miles, and miles of cable on these ships and tons of asbestos, and the fuel that the Government is saying is not there, is there.
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    We believe that with the Government working in partnership with responsible dismantlers these vessels could be remediated here properly, with a reasonable resulting cost to the Government. We believe that a partnership can be established where the Government can participate in the process and the revenue, as it properly should.

    To summarize on this partnership between responsible dismantlers and the Government, we suggest the following: A total ship breaking training program, a pilot, if you will, as Mr. Lewis alluded to, covering technical knowledge, environmental concerns, safety, training, compliance issues, hazardous waste disposal, cost and reimbursement, creation of jobs.

    We suggest a trial situation for a few ships, a solid learning teaching seminar using the ships as part of the actual training, building technical manuals, OSHA compliance understanding, remediation techniques, proper permits, cost of disposal, et cetera, partnering with the Government agencies as on-site associates, working alongside our ship breaking teams.

    It would also help the Government to see firsthand the problems and the shortfalls of the remediation process, reviewing the process constantly and making it better and more efficient for both the Government and the dismantlers, and the entire time under a full Governmental audit, making it efficient for everyone, including taxpayers.

    Let us negotiate a plan. We could be the volunteer training company using all of our experiences and resources; smaller vessels at our East Coast location in Richmond, Virginia, and larger vessels on the West Coast, in return for a reimbursement of our costs, plus a responsible return.
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    In our California Divisions we have also been communicating with Congressman Miller, who spoke here earlier today. It is our firm belief that the Government working in partnership with qualified regional dismantlers can safely, efficiently, and responsibly recycle these vessels, and we look forward to any opportunity of discussing our proposals in detail.

    Mr. Heeter mentioned the ship scrapping operation in North Carolina. I visited the one in Wilmington, North Carolina. I think that is the one he is alluding to. He is absolutely right. There were tremendous problems, but at that particular ship scrapping operation, the people that were performing those duties absolutely did not know what they were doing. They had not read 1915 CFR. They did not seek OSHA's help.

    DRMS did go in there and try to help them, but at first and I will admit that DRMS had no idea what they were doing when they first started this. Under the new leadership they have now, the inspections have gotten much better.

    Mr. Lewis alluded to the asbestos, and cutting with torches, and the laser torches controlling the asbestos. That is absolutely against the law, as you all know. No torch should be cutting any asbestos. All that remediation process should be taken care of. It is clearly stated in all rules and regulations set forth by this Government. We know how to do it properly.

    We feel like we can help, and we are working in partnership with responsible dismantlers and the Government and doing it correctly.
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    Thank you very much.

    Mr. GILCHREST. Thank you, Mr. Dunavant.

    You three gentlemen have certainly presented us with some intriguing testimony about this particular problem and also raised some very fascinating possibilities for dealing with the problem.

    Mr. Heeter, you mentioned that there are three—and I just focus in on this one relatively minor problem, but I am curious about it—the three acres of soil that have been contaminated in Wilmington.

    What is the status of that now?

    Mr. HEETER. The status is it is still there. We have had a serious disagreement over how to dispose of that soil.

    Mr. GILCHREST. That was a serious disagreement of how to dispose of it and that is with EPA?

    Mr. HEETER. No, that is between the salvagers and the State of North Carolina, the—

    Mr. GILCHREST. The disagreement is about how to pay for it?
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    Mr. HEETER. Well, its cost is the bottom line. We would like to see it taken to an approved facility—the soil just picked up and hauled away. That is, obviously, very expensive. The salvagers are saying they cannot afford to do that. What they want to do is plant vegetation over the area, basically, farm is the term that is used, and hold the asbestos and petroleum products in place that way.

    The State feels that that is not a good long-term solution, and that is the point we are stuck on at this point in time.

    Mr. GILCHREST. Is the State receiving any assistance from the Navy, DOD, EPA in this particular problem?

    Mr. HEETER. Not on this particular issue. If anybody has been communicating with those agencies, it certainly has not been me. I am not aware of any communications on that particular issue.

    Mr. GILCHREST. Has the State of North Carolina considered taking criminal actions against the various owners and operators of the former Wilmington Scrapping Facility?

    Mr. HEETER. I defer that question to the U.S. attorney. We have not because violations of most of our environmental laws are misdemeanors. They are not felonies under our State laws and probably just not worth the effort to prosecute for misdemeanors in this situation. We would rather have the site cleaned up.
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    Mr. GILCHREST. So the three-acre contaminated soil would be a misdemeanor?

    Mr. HEETER. Our General Assembly has not been very supportive of criminal prosecutions for environmental law violations.

    Mr. GILCHREST. Under the present situation that you have experienced over the last few years, could you give us some general assessment of the Department of Defense cooperative attitude or their willingness to cooperate with you over this period of time with investigating the scrapping operation?

    Mr. HEETER. Initially, we were dealing with DRMS and, quite frankly, we were not getting what I would call a cooperative response from them.

    Mr. GILCHREST. When you were dealing with DRMS, did they eventually cooperate?

    Mr. HEETER. Eventually, but that came more after we began serving notices of violation on the Navy itself and communicating with the Navy's counsel. I think we had more cooperation with the Navy than we did with DRMS. Eventually, DRMS certainly came around.

    Mr. GILCHREST. DRMS, basically, initiated the contract for the ship scrapping?
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    Mr. HEETER. Yes, sir.

    Mr. GILCHREST. How long a period of time was it that DRMS knew about some of the violations, before you were aware of them?

    Mr. HEETER. I cannot remember exact dates. DRMS had noted some—well, the operation sort of started in 1994. It got underway in 1995. I believe at a time or two in 1995 DRMS noted some mishandling of lead ballast, and PCB cables, and some things like that. They certainly did in 1996.

    We, actually, had two anonymous complaints; one in early 1996 and one in later 1996.

    Mr. GILCHREST. Let me ask you a question about the anonymous complaints. What would have happened if no one anonymously complained? What would have happened do you think?

    Mr. HEETER. It certainly would have taken longer before we began to realize the scope of the violations at the site. I do not think there is any question about that. I would hope we would have eventually realized what was happening out there, but certainly the anonymous complaint gave us a heads-up.

    Mr. GILCHREST. You made several recommendations for improving the ship scrapping basic operation. I suppose these suggestions will make their way to the panel that Ms. Rivers is chairing, if they have not done so already.
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    Under the regime that you were operating under, was there any communication at all between the Federal agencies and the State agencies during this ship scrapping operation?

    Mr. HEETER. Not initially. Those communications were opened up after we began to realize the kinds of problems we were dealing with, and we did have communications with EPA as well as the Navy and DRMS at that point.

    Mr. GILCHREST. Is there any ship scrapping going on right now in North Carolina?

    Mr. HEETER. Not to my knowledge.

    Mr. GILCHREST. This will be the last question, at least for now.

    During the ship scrapping operations in North Carolina before they were stopped, were any workers injured or did any workers experience problems with their health because of violations?

    Mr. HEETER. One worker was killed by an explosion—no, one worker was killed when a piece of pipe flew out of a pipe cutter and hit him in the head and two other workers were seriously injured by a gas explosion in the hull of one of the ships.

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    Mr. GILCHREST. Could those accidents be connected to not using proper safety procedures?

    Mr. HEETER. I really do not have much expertise in that area of worker safety laws. I would anticipate—well, I do not know if I can answer your question. I know OSHA did assess something like $110-15,000 in penalties against these firms before all was said and done. So there were definitely documented violations.

    I do not know if they could have been—probably the one with the gas explosion surely could have been avoided. I do not know about the piece of pipe that flew out of the machine, except, if I recall correctly, it did not have the property safety device on it.

    Mr. GILCHREST. I am going to yield now to Mr. Johnson. I have some further questions for this panel, but I will yield to you, and then maybe we can go—without taking too long—we can go back and forth.

    Mr. JOHNSON. Sure. Thank you, Mr. Chairman. I was thinking of similar kind of questions.

    So you are not doing any scrapping now in North Carolina?

    Mr. HEETER. There is no scrapping of Naval or MARAD ships. There is some scrapping of shrimp boats, smaller kind of ships, still going on.

    Mr. JOHNSON. Do you have any follow-up or any ideas that you would make recommendations either in your Department or anywhere in North Carolina that dealt with this problem that you had there because it was a multi-agency investigation? Did they come up with any recommendations about if they were to begin scrapping again, how they might do it better?
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    Mr. HEETER. Well, certainly, if an operation opened up in North Carolina, we would certainly make an effort to find out more about the background of the operators. We had some rumors in this case that Mr. Jaross had a trail of violations behind him, but we were not able to come up with enough hard information to deny the permits that were needed. Certainly would do that.

    Certainly, knowing more about the ship scrapping industry now than we did then, I think we could attach much better conditions to the permits that the State would issue. We would certainly require a preapplication conference to try to learn more about how the business would be operated and try to inform the applicants about our laws and make sure there was no misunderstanding.

    There are certainly a lot of things with hindsight that we would do differently. Also, I think we would try to very clearly establish a contact person in the Federal Government that we felt comfortable dealing with. So if problems did start to arise, we had ready communication with them.

    Mr. JOHNSON. Thank you. Mr. Lewis, International Ship Breaking, Limited, of Brownsville, Texas, sent a letter to the Interagency Ship Scrapping Review Panel.

    In the letter they said that scrapping ships in the U.S. is financially viable if the Government agencies would negotiate long-term contracts with qualified industry participants, and that is part of what you were suggesting—I do not know if the financially viable part is the question—and if the Government would deliver the ships to be scrapped to the scrap yard.
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    Do you agree with this economic analysis? Is it financially viable, those two conditions?

    Mr. LEWIS. Well, in other words, what you are saying is that, if you had a consistent flow of feed stock, obviously, needed for a return on investment for anybody to put money into the proper equipment, that certainly would help. Towing is a major charge, we found, for the ship scrapper.

    Mr. JOHNSON. I understand it to be like $300,000, some ships to them there?

    Mr. LEWIS. Yes. Look what Richard Jaross cost the United States. I was told $1.2 million to tow those ships back up to Philadelphia. That is what the Government spent.

    So, yes, the towing is and, also, you begin getting involved in all of the environmental rules. The tower has got to show that he has got a program, and licenses, and everything else.

    So, yes, but does that alone, do those two things alone make it viable? I think you would have to look at a lot more. You would have to look at the ability to comply with the environmental rules and regulations.

    The Baltimore Sun gave some indication that that might be questionable.
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    Mr. JOHNSON. Thank you. Mr. Dunavant, your view of this is it possible to make a profit on, say, scrapping a large ship, one over 10,000 tons, but then difficult to make it on a smaller ship, like a mine sweeper? Should we have different disposal systems or policies maybe based on the vessel size?

    Mr. DUNAVANT. I do not think so. I think it just depends on where you are going to scrap the vessel itself. The remediation costs are killing everyone in this industry. Not only do you have to do it safely, you have to have a company or train people on board to do it properly. You have to have the people that are properly trained to watch then do it properly and then you have to remove the waste and get a landfill that will take it and do it properly.

    To do it right the costs just outweigh what a recycler like us would get from that saleable scrap. We did the Bonhum Richard in California, a United States aircraft carrier, and we lost $2 million. It was like a training program for us to see, if we did everything right, absolutely by the book, what it would cost, and we lost tremendously, and that was the real reason that Simsmetal got out of it.

    Mr. JOHNSON. Does that experience give you any hope that there can be profit in this or profit minus some towing, as I suggested, or some elements?

    Mr. DUNAVANT. The towing we felt should be an agreement made with the Government as part of the contract. If DRMS is going to still do the contracting, then that would be part of the contract negotiation to help waive some of that cost.
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    At our Richmond facility, we are very close. We are a 20-hour tow from the James River Ghost Fleet, where there is quite a number of ships on the East Coast. So the expense is not so bad because of the distance. We are close, and we are in a good situation.

    But to take something from either East Coast or West Coast to Brownsville, Texas, for instance, would cost a tremendous amount. We feel like it can be done. You can turn a profit, but we just feel like, if we work together on this, the Government and these responsible dismantlers can work together, come up with a plan, it can be done. It can be done safely in the United States.

    Mr. JOHNSON. Thank you, Mr. Dunavant.

    Mr. DUNAVANT. Thank you.

    Mr. JOHNSON. Mr. Chairman.

    Mr. GILCHREST. Thank you, Mr. Johnson.

    Mr. Lewis, you made a statement earlier about assets versus problems. Basically, I suppose we look at these ships as an asset. Now, would you say that the Congress, the Navy, the Department of Defense, MARAD, everybody right now is looking at these ships as an asset based on legislation or statute?

    Mr. LEWIS. Unquestionably. Unquestionably. The legislation forces, just as I read Senator Cohen's letter—
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    Mr. GILCHREST. What I would like to do is submit Senator Cohen's letter in its entirety for the record, if you do not mind.

    Mr. LEWIS. Would be glad to.

    Mr. GILCHREST. Would you say then, at the very least, in order for us to start a process to change the policy for ship scrapping to make it so that we ensure the protection of the environment, ensure the protection of the health and safety of workers, and ensure that we do this in a timely and efficient fashion so we do not have a whole bunch of ships sinking out there somewhere, that we then have to change—Congress has to make the first step to change the statute to show that this is a problem, and we need to develop a policy to deal with the problem of ship scrapping?

    Mr. LEWIS. I agree with you 100 percent. As I said, the Congressional scheme, I believe, forces the Government to obtain the most money to fund these legislative projects.

    Mr. GILCHREST. Do you see DOD doing this without a change of statute?

    Mr. LEWIS. That is a good question.

    Mr. GILCHREST. We are looking at MARAD as well.

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    Mr. LEWIS. Yes. MARAD it would be very difficult because MARAD's statutory direction is to obtain the most funds, and that is, obviously, why they were exported all of the time. There was no real United States competition. But I would think that, if they were looked upon as a problem with the United States assuming some of the responsibility and liability, as I say, they do not do that now at all. They contract away all of their responsibility, liability, and the entire problem and obtain the most money for the ship.

    Yes, I think that you might have to make some amendments in the legislation for MARAD.

    Mr. GILCHREST. What would you say is the major difference between ship scrapping in the 1970s and ship scrapping in the 1990s?

    Mr. LEWIS. TSCA came about in 1976. I do not know, the environmental laws have been probably increased tremendously and the burdensome—

    You see, you not only have the Federal laws, but you have got all of the State laws, too.

    Mr. GILCHREST. Mr. Lewis, I think we would all agree that we do not want to eliminate the environmental laws. Once we recognize the function of estuaries where some of these ships are being scrapped, we do not want to damage that natural process, and we do not want to damage any natural process in any way.

    So, while the concept of these environmental laws are solid and the justification for them is there, would you say the chief problem, especially the difference between scrapping in the early Seventies and the scrapping in the Nineties in the United States is that we have such an overlapping, fragmented stream of paperwork regarding these environmental safeguards that it so overburdens the process that no legitimate enterprise wants to start ship scrapping.
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    Mr. LEWIS. Yes, yes, yes, yes. The driving factor was the overpowering environmental laws, safety regulations.

    Mr. GILCHREST. So do you see the change of that fragmented stream of paperwork being changed or rectified, while still protecting the environment, health and safety of workers, through the Congress or through the regulatory agencies sitting down together and communicating where each jurisdiction overlaps and how to improve that?

    Mr. LEWIS. I see a combination. I see Congress holding a hammer over the head of EPA, hopefully, to get them to at least be concerned with the problem because there are a lot of ways in each EPA, MARAD, and the Navy can sit down and take into account the specific problems of ship scrapping and attempt to deal with that, so that they might not be so burdensome, they might not be so overlapping, and you would not have to report to three divisions within an agency.

    Yes, I see some benefit of that, Mr. Chairman, definitely. It is one of my strong recommendations.

    And then, also, where possible, the technology-based standards. I think that might be helpful, too.

    Mr. GILCHREST. You made a comment, and I am not sure if I understood it, and Mr. Dunavant made a follow-up comment, indicating that right now it is illegal to use a torch when you are taking apart pipes that have asbestos.
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    Mr. LEWIS. I am not sure. I was talking about advanced technology.

    Mr. DUNAVANT. He was talking about a test. I am just talking about that presently it is illegal to cut asbestos with a torch.

    Mr. LEWIS. Laser.

    Mr. GILCHREST. So you are saying there is some advanced way to this with a laser or some type of torch?

    Mr. LEWIS. Yes. What I am saying is we found that there were a lot of potential advanced technologies and because there is no profit, there is no investment in such technologies and no R&D work.

    Mr. GILCHREST. Does anybody else use advanced technology in ship scrapping in the world?

    Mr. LEWIS. Not that I know of. I know that Russia has some very good ideas and technology, but it has not been proven yet. I know that the United States has some.

    I thought, as a way to save money, on a pilot program you could have some of these companies come in and pay the expense of setting up their machines. It might be helpful for them. If it proves out, they could be used.
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    Mr. GILCHREST. Would this marry up with Mr. Dunavant's pilot program to hold a seminar to teach people through the educational process using one ship scrapping operation as an example to teach people how to do it, to use potential advanced technological methods to improve ship scrapping?

    Mr. LEWIS. That is a possibility. I think that is probably more of a company problem.

    Mr. GILCHREST. Mr. Lewis, would you say that the Defense Department ever adequately scrapped vessels during your tenure or after? Was our operation of ship scrapping ever done with competent oversight and aggressive inspections?

    Mr. LEWIS. Well, when I was general counsel, it was during the time of the ''Hunt for Red October.'' The last thing we were concerned with was scrapping. Our concern was getting that ship to the fleet as fast as possible. Senator John Warner was the Secretary and Bill Mittendorf were the Secretaries.

    The scrapping aspects were probably way, way back as far as priorities were concerned.

    Mr. GILCHREST. So you think this has always been an industry that has been out of sight, out of mind?

    Mr. LEWIS. I do not know the answer to that. I do not know the answer.
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    Mr. GILCHREST. Who was the author, again, of ''Red October''? He lives in my district, and I cannot remember his name.


    Mr. GILCHREST. Maybe we could ''Hunt for Red—'' Clancy. That is right. I called him up one time, and he did not talk to me for very long. I do not know why. I guess he thought I was going to ask for money.


    Mr. GILCHREST. I did not.


    Mr. GILCHREST. Thank you, Mr. Lewis.

    Mr. LEWIS. But I do think, though, if I could just interrupt a second, sir, that there are a lot of possibilities to enhance the productivity of ship scrapping, and to make it profitable, to make it a viable industry. None of this has ever been tried and, legally, technically, methodology—there are wonderful ways, I think, that that can enhance the productivity.

    Mr. GILCHREST. Do you think the changes made in the ship scrapping program since 1996 are a major improvement in the whole program?
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    Mr. LEWIS. The changes made?

    Mr. GILCHREST. Since 1996 in the ship scrapping program.

    Mr. LEWIS. In what sense?

    Mr. GILCHREST. It is my understanding that there have been some changes since 1996 in the ship scrapping program in the United States. Is that your understanding?

    Mr. LEWIS. The only changes that I know are Kerry Ellis and Richard Jaross.

    Mr. GILCHREST. New contracting procedures?

    Mr. LEWIS. Well, MARAD has not been very successful in scrapping their vessels for some time. They have been slowed considerably with regard to export.

    Mr. GILCHREST. How long would you say it would take to change this program into a world-class operation? How long would it take people to sit down in a room to figure this out—a month, 2 months, 3 months, a year? Could people do it in 60 days?

    Mr. LEWIS. No. No, I do not think so. I think, though, that could be very, very helpful in giving them momentum to develop the pilot programs and, at the same time, be scrapping while you had a pilot program. There are a multitude of ships up in Philadelphia right now with some piers and, as I say, they spend $3.5 million I believe already just berthing these ships up there.
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    Mr. GILCHREST. Do you have any suggestions for getting rid of the most dangerous vessels right now? There are about 20 vessels that are in pretty bad shape. Any suggestions on what should be done with them?

    Mr. LEWIS. Well, the Government has always two options, as I said. They, themselves, can decide to sell safe or they can contract out to a contractor that would——

    Mr. GILCHREST. So the Government can do that right now, regardless of regulations?

    Mr. LEWIS. Yes.

    Mr. GILCHREST. Regardless of the fact——

    Mr. LEWIS. Well, I think so. If you could use some operating funds.

    Mr. GILCHREST. Regardless of the fact that they are looked at as assets and especially with MARAD they are——

    Mr. LEWIS. You might have to do some amendments to that because it is so firm, the fact that they must fund this legislation. What MARAD will probably say, and I have understood that they are having problems in implementing that legislation just because they have not been able to sell these ships and fund those programs. That has been a big problem for MARAD.
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    Mr. GILCHREST. This will be the last question, Mr. Lewis. I appreciate the time. We may have to do this again. I am not sure.

    Mr. LEWIS. I am at your call, Mr. Chairman.

    Mr. GILCHREST. That is what my children say.


    Mr. GILCHREST. My son just told me today he was going to get married, so that is why I am in such a good mood today. I did not think that was ever going to happen.


    Mr. GILCHREST. It is good.

    Mr. LEWIS. I have four children, and my oldest daughter is married.

    Mr. GILCHREST. Oh, really. My son told me to keep it a secret, so it should not leave this room.

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    Mr. GILCHREST. But he does not read the Baltimore Sun very often, so I do not think that will be a problem.

    Has it ever been brought to your attention throughout your career of workers being injured or having health problems because of health and safety violations?

    Mr. LEWIS. Sure. Sure. But, you see, what needs to be changed is—I specialize in Government contracts. This is not unusual. When an agency has a problem with Congress, with the public, a lot of times they like to contract out that problem and get rid of it, and that is what the Navy did. I think that is what MARAD did.

    As I say, they do not accept any responsibility. They accept no risk, no liability. It is all on the contractor. But as we see, they can no longer do that. They are on notice that they cannot do it. It has got to be changed because you are going to be right back in the same situation, except worse.

    The next time you get a Jaross or a Kerry Ellis, and I say this with all due respect to the Navy, which I love very dearly, is that you are getting close to the Navy being a co-conspirator. They know exactly what is going to happen. They know that there is no profit in there. They know on an IFB that when they bid they are unrealistic prices. These people do not know what it costs to be compliant. They do not even have the right equipment. Half of them probably do not know even know what OSHA is.

    Mr. GILCHREST. What would you say is the Navy's responsibility for the three acres of contaminated soil in Wilmington, North Carolina?
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    Mr. LEWIS. I think they should do everything possible to assist in that cleanup. I really do.

    Mr. GILCHREST. What would you say is the Navy's responsibility—and I say this with all due respect to the Navy as well and the complexity of this issue—to the widows or orphans of those people who died in ship scrapping operations where there were health and safety violations?

    Mr. LEWIS. Well, if the Navy was not on notice before, it is on notice right now from this day forward.

    Mr. GILCHREST. Thank you, Mr. Lewis.

    Mr. LEWIS. Thank you.

    Mr. GILCHREST. Mr. Dunavant, you mentioned something interesting about a pilot program.

    Mr. DUNAVANT. Yes, sir.

    Mr. GILCHREST. Do you have a written proposal or a basic idea on how that pilot program could be set up, could be run, and the cost of it?

    Mr. DUNAVANT. Yes, sir, we do. I do not have that today, but the two executive vice presidents for Simsmetal and myself have been working on this for the last 2 months, and we do have one.
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    Mr. GILCHREST. We would really like a copy of that.

    Mr. DUNAVANT. Okay.

    Mr. GILCHREST. If you are not making a profit, Mr. Dunavant, how much longer can you stay in business?

    Mr. DUNAVANT. We are already out of the ship breaking operation. We have a state-of-the-art slip in Richmond, Virginia, that all we are doing now is loading and unloading barges on it. We got out of it because of the cost factors. When we heard of this coming back up again, we decided to see what we could do, put in our two-cents worth and work with you in any way that we can because we would like to do it again.

    Mr. GILCHREST. How long could you wait before you got back into the business? Let us say 3 years passed, a year passed, would that be too long before you could get back into the business?

    Mr. DUNAVANT. It would be longer than we would like. We have both our facilities ready to go on both coasts, and we have all of the management team and most of the dismantling team employed in other divisions now with us. We would have to employ a great number of people. We could do it whenever you were ready. That would not be a problem because we have the existing facilities already set up, and we are just using them for other things.

    Mr. GILCHREST. Would a clean sale, as Mr. Lewis mentioned, and bringing to your port the transportation costs be two major things that would help you to start-up again?
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    Mr. DUNAVANT. That would help tremendously, yes, sir.

    Mr. GILCHREST. Have you been aware of anyone who has been affected, their health or even their lives, in the ship scrapping business, because of violations?

    Mr. DUNAVANT. Yes, sir. Everybody in the business, I guess it is like an information highway for ship breaking, ship scrapping itself, we knew a lot about the North Carolina problems and, also, before we tackled the U.S. aircraft carrier on the West Coast, there was one death and two serious injuries by another company.

    We were actually asked by—I have to be careful how I say this—by people in that area to take care of that project. Simsmetal decided to take over the project and finish that carrier, and we did it with no fires, no deaths, no injuries, no violations. We did it very well.

    Mr. GILCHREST. What would you say is the difference between your operation and the ones that have been described in Wilmington and Baltimore?

    Mr. DUNAVANT. The training. What we did, through our research, that not many people have done—a lot of people look at OSHA, DRMS, the Navy, Coast Guard, EPA, DEQ as the enemy. We did it the complete opposite. We asked them to come see us. We went and visited them.

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    We asked them for tapes, training manuals. People in the public hearing said that they did not get diagrams and blueprints of the ships. We went to the Navy and asked them, and they helped us. We got them for every ship that we scrapped. We had a blueprint and a diagram.

    We went after the knowledge and then trained our own.

    At our Richmond, Virginia, site, which I run, we have a video training library, where we actually film everything that we do. Anybody new that we hire each week they would go over these films to see it done because a lot of the people in this industry do not speak English, and I do not speak Spanish or Cambodian or Khmer.

    So what we do is, through pictures and interpreters, train these people in their own language and through video to make sure that they understand.

    Mr. GILCHREST. What is the reason, that the only type of worker being recruited for this type of activity are either Hispanic or Asian. Why would you say that is; the low pay wage, the difficulty of the work?

    Mr. DUNAVANT. The work is extremely difficult. It is extremely dangerous. It is extremely dirty. I would say it was a combination of everything that you just said—the wages, getting the people to do it.

    Mr. GILCHREST. What is the average wage of a ship scrapper laborer?
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    Mr. DUNAVANT. It differs from place to place, but at our facility in Richmond it would be anywhere from $6 or $7, which we found out to be high, which was extremely high. In other operations, it was lower than that.

    A burner would get anywhere from $10 to $12 with us. Whereas, at some other programs it might be $6 to $8 an hour.

    Mr. GILCHREST. What was the last ship you scrapped?

    Mr. DUNAVANT. We scrapped the USS Sierra in Richmond, Virginia.

    Mr. GILCHREST. What was that?

    Mr. DUNAVANT. That was—what was that?—it was a destroyer tender, sir.

    Mr. GILCHREST. How many workers did you have?

    Mr. DUNAVANT. We had 20.

    Mr. GILCHREST. 20 scrapping?

    Mr. DUNAVANT. We did not start out with 20. When we first started that operation, we had probably 80 at two different locations. We did structural steel in Chesapeake, Virginia, and then moved the ship to Richmond where we had about 50 people.
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    We went through two operation managers, and I was hired as the last operation manager to finish those three ships. I thought we had way too many people. I thought it was too dangerous. We felt like with fewer people properly trained we could do it better. We did the last three ships with just ten burners and just with oxygen and propane torches.

    Mr. GILCHREST. Well, thank you. Gentlemen, I appreciate your testimony.

    Mr. Johnson, any more questions?

    Mr. JOHNSON. No more.

    Mr. GILCHREST. This is an intriguing, ongoing problem. I will say, once again, that I think we, as people, are intelligent enough to figure this out and move forward with something that we can all be proud of.

    Thank you very much.

    Now, I would like to introduce our next and last panel. I am sure many people will be disappointed to hear that this is the last panel.

    Ms. Patricia Rivers, Assistant Deputy Under Secretary of Defense for Cleanup, U.S. Department of Defense; accompanied by Ms. Joan Bondareff, Acting Deputy Maritime Administrator and Chief Counsel, Maritime Administration; Captain James Hested, Commanding Officer, U.S. Coast Guard Yard; Captain Larry Hereth, Chief, Office of Oil and Hazardous Substance Response, U.S. Coast Guard; and Mr. Michael M. Stahl, Deputy Assistant Administrator for the Office of Enforcement, U.S. Environmental Protection Agency.
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    Thank you very much for coming this afternoon. Ms. Rivers, it is good to see you, again, and we look forward to your testimony. Also, the rest of the people on the panel here this afternoon, when the question and answer period starts, please feel free to give us your statements, your opinions, what you think.

    Ms. Rivers, welcome. You may begin.


    Ms. RIVERS. Thank you, Mr. Chairman.

    I am pleased to come before you today to speak about the Interagency Ship Scrapping Panel. Thank you for entering my written testimony into the record.

    First, a brief history. In late 1997, members of Congress and spokespersons from environmental groups expressed concern over the Department of Navy's ship scrapping program. The media described environmental, health and safety violations that occurred in the United States and highlighted poor environmental, safety, and health conditions that exist overseas.
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    On December 19, 1997, the Secretary of the Navy, John H. Dalton, temporarily suspended any efforts exploring options to dispose of Navy ships overseas.

    On December 24, 1997, the Under secretary of Defense for Acquisition and Technology established an Interagency Ship Scrapping Panel. Let me describe the panel.

    The purpose of our panel is to review the Department of Navy and the United States Maritime Administration programs to scrap vessels. Scrapping vessels presents many challenges due to the complexity of the ships and the environmental and safety issues associated with scrapping them.

    The panel members are senior officials and flag officers representing a number of departments, and two of my colleagues, Ms. Bondareff and Mr. Stahl, are with us today. Represented are the Department of State, the Department of Navy, the Defense Logistics Agency, the Department of Justice, the Occupational Safety, and Health Administration, as I said, the United States Maritime Administration by Ms. Bondareff, the United States Coast Guard, and the Environmental Protection Agency by Mr. Stahl.

    In addition, we have consulted with a number of other agencies, including the United States Department of Commerce, the National Oceanographic and Atmospheric Administration, and the United States Trade Representative.

    Our goal is to ensure that vessels are scrapped in a manner that is environmentally sound, safe, and economically feasible.
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    As you can see, all of the panel members are Government officials. In light of that fact, the panel has sought input from a broad cross-section of the public through several approaches, and I would like to describe those quickly.

    First, we established a Web page, where information about the panel, its membership, and its charter have been posted. Additionally, the Web page has an area where comments can be posted by anyone who wishes to express their views. Any comments submitted by mail or faxed to my office have also been posted.

    The panel also reached out by holding a public meeting in Washington, D.C., on March 5th of this year. Comments were offered to the panel verbally and in writing by members of Congress, representatives of environmental groups, consultants, industry, and labor representatives, professional associations, and concerned citizens.

    All written comments were also posted on the Web site. As you can imagine, a broad spectrum of views have been expressed for the panel's consideration.

    The concept of disposing of obsolete vessels by scrapping them may seem simple enough, but there are a number of factors that complicate the process. I would like to describe the requirements that the Navy and the Maritime Administration have for scrapping and the challenges associated with the program.

    In the 1970s and 1980s, the Navy scrapped hundreds of ships, relying on private contractors to perform the work. Navy ship scrapping ended in the 1980s because of the Naval build-up and resumed in 1991 as part of military downsizing, which has resulted in greater numbers of ships entering the inactive fleet than the number of ships that have been scrapped.
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    Currently, the Navy and the Maritime Administration have over 180 vessels awaiting scrapping. These ships are stored at several locations in the United States. These old ships continue to deteriorate in storage and create a berthing problem.

    The Navy and the Maritime Administration anticipate that they will spend approximately $58 million between Fiscal Years 1999 and 2003 for vessel storage and upkeep.

    Some of the Maritime Administration ships are in such poor condition that they may require dry docking for repairs so they can be safely stored until they are scrapped. Estimates for the cost of repairing the war ships run as high as $800,000 per ship.

    The objective of scrapping Government vessels has been to accomplish the disposal of ships with minimal risk and cost to the Government and in a manner that is in compliance with all applicable Federal, State, and local laws and regulations.

    The objectives of the Maritime Administration are further dictated by the National Maritime Heritage Act of 1994, which directed the Maritime Administration to dispose of all unassigned obsolete ships by September 30, 2001 in a manner that maximizes the return to the Government.

    Let me point out that for the past 15 to 20 years, offers generating the maximum return to the Government have been for scrapping ships in foreign countries where the prices paid for ships to be scrapped are higher than the prices offered for scrapping in the United States.
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    The Navy has scrapped war ships domestically based on demilitarization concerns for the hulls of those ships. The Maritime Administration, however, has explicit statutory authority to sell obsolete ships for scrapping in domestic and foreign markets.

    Most of the processes of ship scrapping can be extremely hazardous if not performed without the appropriate industrial processes, worker safety, and environmental controls.

    Ship scrapping in the 1990s is more difficult and controversial than in previous years, due to environmental standards and the discovery of many hazardous materials. Let me note that between 1990 and 1997 only 30 Navy and Maritime Administration vessels were scrapped domestically.

    Because ships built in the past contain polychlorinated biphenyls, exporting such ships for scrapping requires Environmental Protection Agency action under the Toxic Substances Control Act.

    In 1997, both the Navy and the Maritime Administration entered into interim export agreements with the Environmental Protection Agency.

    In January 1998, both the Navy and the Maritime Administration confirmed that they would not export any vessels under those export agreements until the Interagency Ship Scrapping Panel issues its report. Also, they will confer with the Environmental Protection Agency and other interested agencies to discuss the report's implications, if any, for the responsible conduct of vessel disposal under those agreements before resuming efforts to export ships.
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    Let me put the United States Government ship scrapping needs in a global light. The world's merchant fleets are aging so quickly that within 10 years there will be an estimated 68 million light displacement tons of tankers, bulk carriers, and other commercial ships available for scrapping.

    The combined light displacement tons of Navy and Maritime Administration surplus ships awaiting scrapping is approximately one million tons.

    It appears that the supply or the absence of U.S. Government ships available for foreign scrapping will have little, if any, effect on the methods and conditions used to scrap ships in those markets.

    Let me describe our past ship scrapping practices. Prior to January 1996, the Defense Logistics Agency issued a one-step invitation for bid process for the sale of scrapping rights for Navy vessels. That sales process had some inherent weaknesses. The one-step process did not require the submission of a technical plan prior to the award of the contract, although one was obtained following the award.

    Another weakness included no independent review of the company's financial background. Also, there was only minimal contract oversight and on-site contract progress reviews.

    Some domestic contractors failed to perform in compliance with environmental laws and worker safety requirements. As I mentioned earlier, only 30 ships have been scrapped domestically since 1990. However, the Navy had to take custody of another 20 ships from defaulted contracts.
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    The Defense Logistics Agency halted ship sales in January of 1996 in response to environmental violations at the scrapping site in Wilmington, North Carolina, and developed a two-step sealed bidding procedure to improve source selection of scrapping contractors.

    Under the new process, technical proposals addressing how the scrapping is to be done and the environmental, safety, and health practices that will be employed are required to be submitted by the perspective bidders.

    These technical proposals are reviewed by a team of Defense Logistics Agency and Navy environmental, safety, legal, and program personnel, and the bidder's financial capability is evaluated by the Defense Contract Management Command.

    The second step in the two-step process is a price competition among only those bidders who have been selected in the first step as being qualified. Additionally, the Navy chartered a dedicated program manager to manage the inactive fleet and ship disposals, and the Defense Logistics Agency established a dedicated ship sales program office.

    The Defense Logistics Agency has procured additional technical support to supplement their in-house staff to conduct on-site environmental, health, safety, and contract progress assessments.

    The United States Maritime Administration also has made similar improvements in their evaluation and oversight processes.
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    In addition to the significant changes made to the contracting process and overall program management improvements established by the Defense Logistics Agency and the Navy, the Navy was given new authority to allow negotiated sales based on best value to the Government rather than awarding contracts based on high bid.

    The Navy and the Defense Logistics Agency are currently considering how best to use this new authority. Further, the Defense Logistics Agency has initiated a practice of meeting with environmental and safety regulators prior to contract start and periodically during contract execution.

    Additionally, the Defense Logistics Agency is holding workshops to obtain industry feedback on the new contracting process and to consider additional improvements.

    I will, also, point out that the Department of the Navy, the Defense Logistics Agency, and the United States Maritime Administration have established an Interagency Work Group different than the Interagency Panel to share information about ship scrapping among those agencies.

    I have shared a lot of information about the ship scrapping process and about the creation of the panel. We have been meeting regularly since the first week in February and have been supported by informal work groups staffed by subject matter experts from the member agencies.

    Those work groups have gathered information for the panel's consideration in the areas of environmental and safety impacts of ship scrapping, the ship scrapping process, itself, and industrial base information, contracting and cost issues, and international law and policy.
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    We are considering both domestic and international scrapping of United States Government vessels as we conduct our review.

    As you are aware, the panel efforts are not yet complete. I am happy to tell you, however, that we are proceeding on schedule and plan to release our report on March 31, 1998.

    We will be happy to brief you, Mr. Chairman, and other interested members or staff on the panel's report after it is completed.

    Additionally, we plan to post the report on the Web so that interested members of the public may read the panel's report. I am happy to try and answer any questions you may have.

    Mr. GILCHREST. Thank you, Ms. Rivers. Now when the report is done on the 31st of March, what happens? Is there a comment period for a certain length of time? How long after that will the changes, if any, be implemented? What happens after the 31st?

    Ms. RIVERS. There will be multiple processes that will happen. First of all, the Under Secretary of Defense for Acquisition and Technology, Dr. Gansler, has committed to providing the panel report to Congress, of course, and briefing members and staff, as I just stated.

    The recommendations that the panel may make, since we have not concluded our work, could be things that enhance efforts that are already underway and so could already be in process.
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    Additionally, we may recommend further changes or pursuing new options. Those will be reviewed by the Agency officials and could be put into place simply by a policy change or, perhaps, by continuing specific work groups that would follow-up on the report's recommendations.

    There are a variety of options.

    Mr. GILCHREST. Do you think, in order to achieve the goal of safely scrapping American vessels, U.S. vessels, Navy vessels, reserve fleet, that we can solve some of the problems that arose in Baltimore, Chesapeake, Virginia, Richmond, Virginia, Wilmington, North Carolina, Brownsville, Texas, San Francisco, Terminal Island, California, Rhode Island, and the list goes on?

    Can those changes being recommended by the panel to solve many of the problems without a change in statute?

    Ms. RIVERS. At this point, Mr. Chairman, since we have not concluded our work, I cannot make a direct statement about whether or not legislative change might be required. But I believe, as you have stated, that the United States has the ingenuity to make this happen.

    Mr. GILCHREST. Can you do, without statute, what was recommended by Mr. Lewis? These are not assets, they are problems, and we have to deal with them as problems.
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    Ms. RIVERS. There is a difference in the requirements established for the U.S. Maritime Administration and the Department of Navy in that the Maritime Administration has been directed to maximize the return to the Government, but there is not an express statutory requirement to the Department of Navy to do the same.

    Mr. GILCHREST. So DOD is under no obligation to maximize profits.

    Ms. RIVERS. No statutory obligation to do so. Certainly, what the panel is looking at is how best to balance the need to ensure environmentally sound and safe practices with considering residual value of these vessels.

    Mr. GILCHREST. Do you think it is possible to scrap all of the vessels that need to be scrapped? Can we get that done by 2001?

    Ms. RIVERS. That is one of the elements that the panel is exploring, and that is one of the reasons that we are considering both domestic and international elements in our assessments.

    Mr. GILCHREST. You said 68 million tons worldwide of ships will have to be scrapped. What was that time frame, again?

    Ms. RIVERS. It is estimated that within the next 10 years there will be 68 million light displacement tons of tankers, bulk carriers, and other commercial ships available for scrapping.
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    Mr. GILCHREST. What is it for the U.S.?

    Ms. RIVERS. The Navy and Maritime Administration surplus ships are about one million tons.

    Mr. GILCHREST. So how many ships is that in the next 10 years?

    Ms. RIVERS. That would probably be about 200.

    Mr. GILCHREST. Is that 200 above the about 185 that we have already?

    Ms. RIVERS. No, sir. That includes the ones that we already have.

    Mr. GILCHREST. So we have about 185 Navy and MARAD ships right now, and then you add 15 more ships. So in the next 10 years we are going to have a maximum, starting right now, of 200 vessels that need to be scrapped?

    Ms. RIVERS. Sir, I would be happy to work with Navy and MARAD to give you a specific estimate of how many vessels they think might also be required to be scrapped beyond the 185 that we currently have in the next 10 years for the record.

    Mr. GILCHREST. Mr. Dunavant made some statements about how, basically, if you follow the law and, apparently, his outfit did, you cannot make a profit scrapping a ship under the present regime.
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    Mr. Lewis said one of the reasons for that is the fragmented stream of interagency requirements—Federal and State—that piles on bureaucracy, causes delays, and adds cost.

    Is one of your goals on the panel to review environmental statutes and regulations not to bypass their compliance, but make it easier and more efficient to comply with them, so that somebody like Mr. Dunavant's company can make a profit?

    Ms. RIVERS. We certainly are looking at the environmental and safety impacts of ship scrapping, and we are also looking at how to balance the equation of doing scrapping in a safe and sound manner and consider the value of the scrapping material of the vessels in determining how to balance those two items and what the resulting equation will provide.

    Mr. GILCHREST. Has the panel concluded that a firm can actually make a profit in the United States by scrapping a shid?

    Ms. RIVERS. Sir, we are still in the middle of our work, and I would be happy to try and answer that question—

    Mr. GILCHREST. I look forward to that March 31st report.

    Mr. Johnson, any questions?

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    Mr. JOHNSON. Thank you, Mr. Chairman. It looks like you have got a whale of a ship scrapping problem. You are going to have that huge report you anticipate will be all done by the 31st?

    Ms. RIVERS. Yes, sir.

    Mr. JOHNSON. And you will answer probably the question about the financial feasibility of scrapping ships?

    Ms. RIVERS. That is one of the elements that we are wrestling with.

    Mr. JOHNSON. Do you think the Government, from what you have learned thus far, should be responsible to ensure that all the hazardous materials are handled and disposed of in a safe manner when these ships are scrapped? Should that be the Governments' responsibility?

    Ms. RIVERS. In my official position as the assistant deputy under secretary of Defense for Cleanup, I will answer that question and say that our philosophy inside Environmental Security in DOD is that we can conduct business in a way that ensures that we protect the environment and workers and get the job done at the same time.

    Mr. JOHNSON. Right now is it EPA policy or your policy or the general policy in ship scrapping to only right now remove those hazardous materials if, say, it is being shipped somewhere else, that are readily accessible?
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    Ms. RIVERS. Sir, I can provide a detailed description of the efforts that the Navy takes to remove hazardous materials from the ships before they go into storage and also before they are disposed for scrapping, for the record.

    Mr. JOHNSON. We have also seen and read some testimony about some of the ship scrapping done at foreign shipyards. Your report will address that as well?

    Ms. RIVERS. Certainly, we are looking at both domestic and international scrapping issues.

    Mr. JOHNSON. And it will address that issue of dealing with the environmental and labor issues and everything that ship scrappers face in other countries and that we, ultimately, participate in by shipping them?

    Ms. RIVERS. Yes, sir.

    Mr. JOHNSON. We have heard some testimony here today that—have been told that it would be more affordable for the people who do the work in this country if they had a steady stream of vessels in the facility, and I wondered if the Navy or MARAD is prepared to sell multiple vessels to these companies, if they could take the delivery of ships over a long period of time, if that is something that you are considering and will address in this report?

    Ms. Bondareff, you might also want to talk about that, either of you.
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    Ms. RIVERS. The Defense Logistics Agency is considering multiple ships in lots for bid. The idea would be that the scrapper could take a few vessels at one time, scrap those vessels. If his performance is satisfactory, then he would be assured follow-on vessels.

    So, for example, the Defense Logistics Agency has considered a group of six vessels at one time. The scrapper would take two and be able to work on those two and then be assured follow-on two more vessels and a follow-on of two more.

    Mr. JOHNSON. Ms. Bondareff?

    Ms. BONDAREFF. Congressman. MARAD does, indeed, sell its vessels in lots. We have been offering them for sale in lots of 12 to 15 ships, but our experience in the last round of sales was that we only found one responsible bidder qualified to handle two of the ships.

    So, while we are offering them in lots, we are restricted, in terms of how we are awarding the sale of ships, to whether they are meeting U.S. environmental and worker safety requirements. We are, however, reviewing our requirements for the removal of vessels from the fleet by the purchaser in order to provide more flexibility for responsible purchasers who buy multiple vessels.

    Mr. JOHNSON. I wonder if you might have any comments on what we have talked about in terms of the financial feasibility. Is it profitable in the 1990s going into the Year 2000 to be able to scrap ships environmentally safely and profitably for companies in this country right now?
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    Ms. BONDAREFF. Our experience has been, with our last round of sales, that we were able to find one company who could buy two ships from us. We sold the two ships for a total of $240,000. I believe that the company thinks that it can make a profit with that amount of money.

    Mr. JOHNSON. I notice some testimony we had from the association the Institute of Scrap Recycling Industries, and they noted the number in their industry has gone down, I think, from 30 to about a half-a-dozen members and point out in their testimony their concern about the profitability. Should that profit motive, the profitability, be discussed in the final report that we are going to get on March 31st?

    Ms. RIVERS. We have received information from that Institute as part of the public outreach effort that the panel has initiated. As I said earlier, we are looking at both the cost to scrap ships in an environmentally sound and safe way and the value of the metal and other items that can be recovered from the ship as assets. So we are looking at the cost equation.

    Mr. JOHNSON. None of you have any conclusion now about whether it is still financially feasible to do this profitably for private companies yet?

    Ms. RIVERS. Not yet, sir.

    Mr. JOHNSON. Is it hard finding companies that will want to bid on these? Is it harder?
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    Ms. RIVERS. I know, for example, Congressman, that the Defense Logistics Agency has held industry meetings on the East Coast and West Coast and have had a number of industry representatives express interest. Whether or not particular bidders would be successful in navigating the two-step process is certainly something that we hope will help us to evaluate the question of profitability of this business.

    Mr. JOHNSON. That is all I have for now, Mr. Gilchrest.

    Mr. GILCHREST. Thank you, Mr. Johnson.

    Just a couple more questions. We ought to be out of here well before 7 o'clock, so you can all rest easy.


    Mr. GILCHREST. Plus I want to go home and call my son and see what he is doing.


    Mr. GILCHREST. They said they wanted to elope. I hope they do not.

    Ms. Bondareff, how many MARAD ships need to be scrapped right now?
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    Ms. BONDAREFF. We have 70 ships that we have identified that we maintain in our Defense reserve fleets around the country that are eligible for scrapping. But of those 70, 13 are probably in the most dire straights, and we really would like to scrap them as soon as possible.

    Mr. GILCHREST. How many MARAD ships have been scrapped since 1990?

    Ms. BONDAREFF. We have scrapped 83 ships since 1990. However, we have scrapped only 2 ships in the last 3 years, both domestically.

    Mr. GILCHREST. Where were they scrapped?

    Ms. BONDAREFF. In Brownsville, Texas.

    Mr. GILCHREST. When you make a contract to scrap a ship, what is your obligation after the contract is signed as far as oversight or follow-up?

    Ms. BONDAREFF. As a legal matter, we sell title to the ships and maintain oversight responsibility under the contract until the ship is completely disposed of.

    Mr. GILCHREST. What does that oversight mean to you?

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    Ms. BONDAREFF. That means making sure that the contractor is complying with all U.S. environmental and safety laws as well as the contract conditions. We are not a regulatory agency, but we work closely with OSHA and EPA to coordinate our respective responsibilities; on the one hand, for us to do contract compliance and for them to do regulatory monitoring and compliance.

    Mr. GILCHREST. So you have somebody here in Washington that does that?

    Ms. BONDAREFF. We, actually, do that out of some of our field offices.

    Mr. GILCHREST. How do they do that?

    Ms. BONDAREFF. Well, we have assigned individuals, who know something about the ship scrapping business, to actually go to those yards routinely and conduct on-site inspections.

    Mr. GILCHREST. Have you ever seen any violations or caught anybody in any violations?

    Ms. BONDAREFF. So far at the Brownsville facility we have not found any violations, other than, perhaps, paper reporting type violations.

    Mr. GILCHREST. How often do they visit the site during the scrapping of a ship?
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    Ms. BONDAREFF. We have regularly scheduled quarterly visits that are supplemented by unannounced inspections, as needed.

    Mr. GILCHREST. Has MARAD contracted with any ship scrapping operation other than Brownsville?

    Ms. BONDAREFF. Not in the past 3 years. We had, previously to that, been selling our ships for sale overseas because that is where the market is. But since we have suspended overseas scrapping, we have only identified this Brownsville facility.

    Mr. GILCHREST. When did you suspend overseas scrapping?

    Ms. BONDAREFF. About 3 months ago.

    Mr. GILCHREST. Oh, 3 months ago.

    During the time—you have been there for 3 years—there have not been any overseas scrapping of MARAD ships in those 3 years?

    Ms. BONDAREFF. That is correct.

    Mr. GILCHREST. What were the names of those three ships?

    Ms. BONDAREFF. They were the Madison Jordan Manchester, the General Simon B. Buckner, and the General Maurice Rose.
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    Mr. GILCHREST. So the suspension of overseas scrapping by MARAD will remain intact until the panel is complete?

    Ms. BONDAREFF. That is correct.

    Mr. GILCHREST. And makes recommendations?

    Ms. BONDAREFF. That is correct.

    Mr. GILCHREST. Do you know if the Brownsville operation made a profit on those three ships?

    Ms. BONDAREFF. Since they have not completed the scrapping, I am not in a position to say whether they have or have not. I know that they did give us positive bids, which meant that they expected, I assume, to make a profit, but I do not know for a fact that they did.

    Mr. GILCHREST. Do you have some feeling about a change in the law regarding MARAD's requirement to make a profit?

    Ms. BONDAREFF. As Ms. Rivers said, whether there needs to be any changes in U.S. domestic law is an issue still before the panel. At MARAD we are doing our best to try to implement all of our competing legislative mandates.

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    Mr. GILCHREST. Do you think that a firm can scrap a ship in the U.S., do it safely, and make a profit?

    Ms. BONDAREFF. Do I, personally?

    Mr. GILCHREST. Yes. That is the only answer I want, ma'am.

    Ms. BONDAREFF. Personally, I think it is possible if we provide adequate information to the company, so it know where the materials are and what the ground rules are for scrapping.

    Mr. GILCHREST. Thank you.

    Ms. Rivers, Mr. Heeter from North Carolina mentioned three acres of contaminated soil that he is not quite sure what is going to happen to. The negotiations are ongoing and not getting anywhere.

    If they ask the Navy for financial assistance with the disposal of these contaminated soil, what do you think the response of the Navy will be or should be?

    Ms. RIVERS. Mr. Chairman, I am not familiar with the details and had not been aware of the three acres of contaminated soil prior to hearing Mr. Heeter refer to that. But I can assure you that if the State of North Carolina asks the Navy to work with them concerning the site, that the Navy would participate with North Carolina in determining the Navy role or responsibility, if any, and if they can provide any technical assistance or advice to North Carolina as well.
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    Mr. GILCHREST. Thank you.

    Captain Hested, in the last, 1, 2, 3 years, while the Coral Sea in Baltimore was being scrapped, did the Coast Guard ever notice any problems with water contamination from that scrapping operation?

    Captain HESTED. Mr. Chairman, if I may, I will turn this over to my colleague who is prepared to answer that question.

    Mr. GILCHREST. Thank you.

    Captain HERETH. Mr. Chairman, the activities in Baltimore, the Coast Guard facility up there, do respond to some incidents, but not water pollution incidents.

    Mr. GILCHREST. What were the incidents?

    Captain HERETH. A couple of fires on board. They had a patrol boat swing by and stand by in case there were any dewatering operations, concern about the discharge into the waterway.

    Mr. GILCHREST. Was there any discharge?

    Captain HERETH. No, sir, none materialized.

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    Mr. GILCHREST. So it is your understanding that there was never any violation of any—

    Captain HERETH. Clean Water Act.

    Mr. GILCHREST. —Clean Water Act.

    Captain HERETH. No, sir.

    Mr. GILCHREST. During that operation.

    Captain HERETH. No, sir.

    Mr. GILCHREST. Ms. Rivers, as a result of what has happened with Mr. Ellis' operation in Baltimore, with that whole unfortunate situation and the fact that Mr. Ellis, Sr., is now going to spend 2.5 years or so in jail, and the operation is now being run by his son, has DOD changed its oversight capabilities with that operation? Was the oversight function, as performed in the past, adequate?

    Ms. RIVERS. Our oversight requirements were stepped up significantly beginning back in December 1996. Right now we are conducting daily oversight at the Coral Sea facility.

    Also, we have regularly scheduled environmental and safety inspections and progress reviews. We have unscheduled compliance inspections, and we do have contacts with the cognizant regulatory agencies. For example, the last time that DOD staff met with Maryland Department of Environmental Protection personnel was December 15, 1997. At that time, there were no compliance problems identified by the State regulators.
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    Mr. GILCHREST. Now, it was my understanding in the original contract that Mr. Ellis could scrap the Coral Sea in 15 months, and he has been doing it now for quite a few years. Do you think Mr. Ellis is going to make a profit on this?

    I guess these are unanswerable questions.

    Ms. RIVERS. I am sorry, sir. I am not even familiar with the specific details of the contract.

    Mr. GILCHREST. You say you have daily inspections of the operation in Baltimore?

    Ms. RIVERS. There is currently daily oversight of compliance with the contract terms.

    Mr. GILCHREST. Who is doing that?

    Ms. RIVERS. That is done by a private consulting firm under contract to Defense Logistics Agency, to DRMS.

    Mr. GILCHREST. Do they visit the site every day or every few days?

    Ms. RIVERS. My understanding is that they are at the facility on a daily basis.
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    Mr. GILCHREST. I see. Do you think it would be possible for myself and maybe some other members to go visit the operation with Defense Logistics Agency?

    Ms. RIVERS. I am certain that could be arranged.

    Mr. GILCHREST. I would really like to do that.

    Mr. Heeter made a comment about DRMS in his testimony. It was not very flattering of Defense Reutilization Marketing Service. Whereas, they knew of a few violations and they did not pass it along.

    Why would DRMS be reluctant to pass that along? The kind of violations that they saw, and that the State apparently saw later were pretty blatant and obvious.

    Ms. RIVERS. I would be speculating if I tried to answer that question, Mr. Chairman. But I appreciated Mr. Heeter pointing out that when the State visited the site they did not share the results of their inspections with DRMS or with the Navy.

    And so, as you indicated earlier—

    Mr. GILCHREST. Could it have been that they did not trust what the Navy would do with it because the Navy had not done anything with it before?

    Ms. RIVERS. I cannot imagine that that would be so, sir. I believe that providing information back and forth is one of the ways that we can leverage Government resources, both at the State and Federal level, to get the most efficient oversight.
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    I believe that, as you asked earlier, Mr. Heeter's points that he made during his testimony several of them rang through as items that the panel is also considering and suggestions that have been made to the panel for our consideration and improving the process.

    Mr. GILCHREST. I appreciate the answer. I think, to some extent, especially in my own experience, and I do not want to go back and kick a dead dog, but I think every once in a while it is possible that if the State realizes that some Federal agency also sees a problem, and then they do not do anything with it, and the State is pushing to do something with it, they are not going to go to the agency that knows about it and is not doing anything about it.

    I think some of that may have happened down there in North Carolina.

    That is in the past, and I would really hope that the panel, when they go through this process, although I have in the back of my mind Mr. Lewis saying it would be virtually impossible to complete this task in 60 days, I think you might make a good start at it.

    There really needs to be some structure in place or increased communication between the Federal agencies and the State agencies on a regular basis.

    Ms. RIVERS. Yes, Mr. Chairman. As I noted, one piece of that is the fact that the Defense Logistics Agency, prior to contract awards under this new two-step process is meeting with the State regulatory agencies and contacting the Federal regulatory agencies to examine the bidders' prior experience and performance under environmental and safety requirements.
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    Mr. GILCHREST. Thank you.

    Do you know how many ship scrapping operations there are right now in the United States that have or potentially could have U.S. Navy vessels or MARAD vessels to be scrapped?

    Ms. RIVERS. I can provide you the list of locations where Navy vessels are being scrapped. In Baltimore, of course, the ex-Coral Sea; in Charleston, South Carolina, a former destroyer is being scrapped; in San Francisco, a former oiler and troop transport ship; in Brownsville, Texas, a former repair tender; and in Valejo, California, there is the conversion of five former destroyers and frigates to electrical power generation barges underway.

    Mr. GILCHREST. You have regular oversight in Baltimore. Is there similar oversight from DOD or DLA or DRMS or anotherrgroup at these other locations?

    Ms. RIVERS. I appreciate the fact that I have not tried to distinguish very clearly between DRMS and DLA, Mr. Chairman. DRMS is the field agency under the Defense Logistics Agency that executes the ship scrapping contracts.

    Yes, there are regular inspections and progress reviews underway. They are scheduled at least quarterly. If those inspections reveal any need to step up the level of oversight, the DRMS has the ability to go to daily inspections, if necessary, but that is not currently necessary at those other locations.
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    They also conduct unscheduled inspections. Not all of these are scheduled visits and so, at times, they go and visit the yards on an unscheduled basis. Additionally, they have regular contact with the regulators about performance at these sites.

    Mr. GILCHREST. Ms. Rivers and Ms. Bondareff—is it Ms. Bondareff?

    Ms. BONDAREFF. Yes. That is correct.

    Mr. GILCHREST. Do you think there is enough ship scrapping capability in the United States right now to deal with the vessels that need to be scrapped?

    Ms. RIVERS. Certainly, that is one of the issues being addressed by the panel, Mr. Chairman. As we have said, there are a number of facets to that issue, including capacity, capability to perform, and interest on the part of the industry based on whether or not this is an economically viable prospect.

    Ms. BONDAREFF. I am going to agree with Ms. Rivers. It is one of the key questions that we are looking at in the panel discussion; what is the adequacy and capability of the U.S. ship scrapping industry as opposed to the U.S. ship building industry.

    Personally, I have some reservations that it may be inadequate to handle all of our ships in the time that we need to scrap them.

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    Mr. GILCHREST. Who would move this date up past 2001?

    Ms. BONDAREFF. Originally, the National Maritime Heritage Act set the date of September 30, 1999. In recognition that MARAD would probably be unable to comply with that deadline, Congress in the Defense Authorization Bill for FY 1998 extended the deadline by 2 years.

    Mr. GILCHREST. Do you want to put anybody on notice that it might not be done by 2001?

    Ms. BONDAREFF. Again, it is a question of using domestic capacity, and if there is inadequate domestic capacity, whether we have to turn to international ship breaking facilities.

    Mr. GILCHREST. Does anybody have an estimated cost for scrapping 185 vessels?

    Ms. RIVERS. No, sir. At this point in time, we do not have an estimated cost. Part of that is based on the fact that, traditionally, this has been a sales program rather than a procurement program, and so there would be funds returning to DRMS and to the Treasury from these actions rather than expenses that have to go out.

    But, as I noted in my testimony, cost to store these vessels and berth them prior to scrapping them is estimated at about $58 million between 1999 and 2003.

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    Mr. GILCHREST. Is that without dry docking them?

    Ms. RIVERS. Yes, sir. That is my understanding.

    Mr. GILCHREST. Captain Hereth—did I say that right?

    Captain HERETH. Yes, sir.

    Mr. GILCHREST. Could you describe, briefly, for us the Coast Guard ship scrapping operation. Do you scrap a lot of your own vessels?

    Captain HERETH. I will ask my colleague to answer.

    Mr. GILCHREST. Captain Hested?

    Captain HESTED. Mr. Chairman—

    Mr. GILCHREST. And just to add one more part to that question. Do you think it is possible to just replicate what you do on a bigger scale?

    Captain HESTED. Let me answer your first question first.

    What the Coast Guard does is try to minimize the cost to the Government. What we look to do first is to transfer excess cutters for continued use. This avoids, one, transit cost, and it also avoids long-term storage costs.
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    Mr. GILCHREST. Where do you transfer the excess cutters?

    Captain HESTED. We go to GSA, and we go to States, and then we go to, under the Foreign Assistance Act as an excess Defense article.

    Mr. GILCHREST. Do you ever run into any problems with asbestos or PCBs as long as the vessel is operational and it can be transferred out domestically or internationally?

    Captain HESTED. Mr. Chairman, currently, we are working with EPA on a Memorandum of Understanding on transferring these ships to domestic sources.

    Mr. GILCHREST. I am not sure if I understand. Suppose Costa Rica wants a Coast Guard cutter, 41-footer, and it is excess to the U.S. Coast Guard, is that possible to sell or give that Coast Guard cutter to Costa Rica?

    Captain HESTED. Yes, sir, it is. If we are unable to transfer a cutter for continued use, what we do is we start, and we look to remediate the cutters, clean them up, and recently we have provided two cutters to the State of Maryland—for the Department of Natural Resources—to be used as a reef. They were small cutters and were not marketable for scrapping.

    But after they remediated, they could be turned over to the disposal agency. For us, it is the General Services Administration. If it is greater than 1,500 tons, it goes to MARAD.
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    Mr. GILCHREST. But the Coast Guard Yard has a ship scrapping operation.

    Captain HESTED. Mr. Chairman, what we have done is we have remediated several cutters. What we have done is we have taken off the hazardous materials, cleaned them up such that they could be sunk as reefs in compliance with the current environmental laws and regulations.

    Mr. GILCHREST. Do you have any ships that are scrapped?

    Captain HESTED. Mr. Chairman, no, we have not scrapped any ships. However, we have remediated them, made them clean for further scrapping.

    Mr. GILCHREST. Has the U.S. Coast Guard ever scrapped ship in this century?

    Captain HESTED. Mr. Chairman, that is a long time.


    Captain HESTED. Have we actually ever cut up a ship—

    Mr. GILCHREST. For scrap.

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    Captain HESTED. I do not believe so. I do not believe we have. What we do is we turn it over to another Government agency. In this case, it is GSA.

    Mr. GILCHREST. Then it becomes Ms. Bondareff's problem.

    Captain HESTED. If it is large enough, if it is an icebreaker, it becomes a problem of MARAD, yes, sir.

    Mr. GILCHREST. I see. I thought you were going to be the solution to this whole problem.


    Mr. GILCHREST. So the Coast Guard just cleans them up at the Coast Guard Yard, refurbishes them, might take out some PCBs, asbestos, things like that?

    Captain HESTED. Yes, sir. The ships that were sunk as reefs, they were cleaned in compliance with EPA standards so that they could be sunk.

    Mr. GILCHREST. Is there any similar program that the Navy has right now, Ms. Rivers? I know we are looking at a 1,000-foot/2,000-foot aircraft carrier or however big they are compared to, I guess, one of the bigger ships in the Coast Guard is 300 feet. But is there a similar program right now to go in and remediate the most hazardous materials and then off it goes?

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    Ms. RIVERS. And then? I am sorry. I did not hear the end of your—

    Mr. GILCHREST. Off it goes. Then it goes to a shipyard or a scrapper.

    Ms. RIVERS. Mr. Chairman, my understanding is that the Navy has, at times, worked with organizations in order to have ships, former Naval vessels, used as reefs, but I would have to describe for the record what steps have to be taken in order to comply with environmental requirements so that they could be disposed in that manner.

    Mr. GILCHREST. Would you say—maybe anybody on the panel—that using the Base Closing Commission Guidelines under BRAC or closing U.S. bases is at least a framework to be considered on a smaller scale for vessels that need to be scrapped, that were once U.S. vessels, that were built at a cost to the U.S. Government, sailed and defended the country at a cost to the U.S. Government and the U.S. taxpayers, and now the final stage of its service life these vessels should be considered in a similar way to bases we are closing in this country; that it is going to be a cost if we are going to do it right?

    Ms. RIVERS. I think, Mr. Chairman, that those elements are already part of our efforts in considering our sales program, in that the invitation, the two-step bid process, anticipates that there will be a cost incurred to address environment and safety requirements, but that there also then would be a subsequent value of the materials generated by the scrapping, similar to the BRAC process, where there are problems that need to be addressed, but there are also facilities and land that are assets for further development.
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    Mr. GILCHREST. Thank you.

    Captain Hested, is there any recommendation the Coast Guard has to improve this whole process? Is the Coast Guard on this panel with the DOD?

    Captain HESTED. Mr. Chairman, yes, the Coast Guard is part of the Interagency Panel.

    Mr. GILCHREST. Any recommendations you want to give us today that you have given the panel in this process?

    Captain HESTED. Like Ms. Rivers said, the panel is still meeting and still in discussion.

    Mr. GILCHREST. We look forward to your support in, what is it, 2 weeks, less than 2 weeks.

    Is there a sense of the urgency on the panel, understanding the nature of the problem, its importance to the health and safety of those workers, especially those who have died in the United States in the process of breaking ships and those workers who, in many instances, were probably not American citizens, probably could not speak English, were caught in this maze of ship scrapping from Baltimore to Brownsville to California? Is that ever raised for a discussion by the panel?

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    Ms. RIVERS. Sir, my feeling is that there is a sense of urgency reflected by the panel members, that there is concern about ensuring that this process does result in ship scrapping efforts that can be done in a safe manner and in an environmentally sound fashion, and there is a commitment to figuring out the best way to get this done.

    Mr. GILCHREST. Ms. Rivers, Mr. Lewis read a letter from Senator Cohen, now Secretary of Defense. Had you seen that letter prior to this hearing?

    Ms. RIVERS. Sir, I was familiar with the contents, but I had not seen the letter itself.

    Mr. GILCHREST. Has the Secretary addressed the panel at all on this issue, either spoken or sent a personal message to the panel?

    Ms. RIVERS. Mr. Chairman, not directly to the panel. I am not aware of whether or not Secretary Cohen may have spoken with the Under Secretary of Defense for Acquisition and Technology.

    Mr. GILCHREST. Thank you.

    Mr. Johnson, any more questions?

    Mr. JOHNSON. No, sir.

    Mr. GILCHREST. I am looking for other members to come in. I do not want this hearing to end.
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    Ms. Rivers, Ms. Bondareff, Mr. Stahl, Captain Hereth, Captain Hested, thank you very much for your time, your patience, and your testimony. We look forward to continuing our work with you.

    We would like all of you to realize that you have all of the support from this end of this great Nation's capital. You have all the support that you need from Congress, and we look forward to working with you in the next couple of weeks and in the months to come.

    Thank you all very much.

    Ms. RIVERS. Thank you, Mr. Chairman.

    Mr. GILCHREST. The hearing is adjourned.

    [Whereupon, at 4:50 p.m., the committee was adjourned subject to the call of the Chair.]

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