NGOs Testing BHP Billiton and Investors’ Metal

As discussions about the failed Bill C300 are subsiding, BHP Billiton's sustainability report is being mocked and NGOs lodged complaints about the company’s Mozal aluminum smelter with the JSE SRI Index and IFC’s independent recourse mechanism.

BHP Billiton is one of the very profitable giants in the extractive sector The company has also been a long time sustainability reporter. Its latest report met application level A+ (GRI Checked) and was subject to limited assurance by KPMG. The company is also a prominent extractive member of a number of socially responsible stock indices, including FTSE4GOOD, DJSI and the JSE SRI Index.

So being subject to mock reports and embarrassed by NGO complaints about emission bypass at BHP Billiton’s Mozal aluminum smelter in Mozambique lodged with the JSE SRI Index, the independent recourse mechanism of the IFC, an investor in Mozal, and OECD National Contact Points (NCP) is no laughing matter. [BHP Billiton has a 47.1% interest in the joint venture and other partners include Mitsubishi Coporation (25%), Industrial Development Corporation of South Africa Limited (24%), and the Government of Mozambique (3.9%)].

Concerns being raised about Mozal by a number of NGOs and discussed in the local/regional media relate to a four months long bypass (meaning venting of emissions through stack without treatment) to enable repair of two Fume Treatment Centers (FTCs) which are part of Mozal's anode plant. Corrosion was threatening the structural integrity of the FTCs. Mozal's management sought and obtained permission for the bypass to repair the FTC after tabling studies suggesting no viable alternatives and no significant impacts associated with the bypass.

While many different parties may now focus on reviewing emerging air quality assessment data being generated by SGS or scrutinize studies and models that justified the bypass option, a couple of other questions also deserve some attention: were the severe corrosion problems that impacted the structural integrity of the FTCs not detected through BHP Billiton’s elaborate environmental management systems described in its sustainability report, monitoring by government agency’s and/or lenders’ independent engineer?  Or - if detected – were repairs delayed or perhaps too superficial to avoid structural damage that eventually forced the hands of the regulator and the company?

Looking at public information available on IFC’s website, it seems that serious corrosion problems were already identified in late 2001 - almost a decade prior to the need for emergency bypass. This was reported in the (only) IFC web-posted Annual Environmental and Social Performance Monitoring Report (AMR) for Mozal, dated September 2002 (see here).

The section entitled ‘Report on Significant Events and Issues’ provides for interesting reading:

" 2.1.1 Disruption of emissions or effluent treatment

In September 2001, corrosion was noted on the cooling tower of the Fume Treatment Centre of the Bake Furnace. As a result the cooling tower had to be repaired and during that time the FTC was run on by-pass during which time there was no scrubbing of fluoride emissions. A full incident report is provided in Appendix 3. Given that the incident was deemed a level 2 incident1 – using the BHP Billiton, consequence severity ranking – the incident was not reported beyond Mozal."

However, it was reported to the Lenders in MOZAL's 2002 AMR.  Appendix 3 of the AMR provides further details along with a number of instructive pictures. Apparently, Mozal had to replace an eleven meter section of the tower at that time. This required a bypass lasted 62 days and, looking back,  may now be seen as a signal of things to come. 

What do you think should be the response of the JSE SRI Index or that of project lenders like IFC? Do you expect that this issue will impact BHP Billiton’s management systems, assurance processes and 2011 Sustainability Report?

6 Comments to NGOs Testing BHP Billiton and Investors’ Metal

  1. As an assurance provider, I would simply like to make note of the scope and boundaries identification process.
    Ultimately, assurance…particularly if it’s in accordance with ISAE 3000, the protocol the Big 4 accountancy firms would adhere to, or in accordance with AA1000AS (Type II), the protocol the rest of us OUGHT TO adhere to…should be structured around the company’s ‘most material issues’.
    One cannot, reasonably, be expected to cover ALL sustainability indicators and/or assertions within a sustainability report due to the sheer number of indicators (well in excess of 200 in most mining companies), but the ‘selected sustainability indicators’ should be selected based on those things that posed the greatest social and/or environmental risk for the period under review.
    Thus, the only impact I would expect this to have on an assurance process…if it wasn’t already adopted as part of the process, which I would be surprised if it hadn’t based on KPMG’s excellent track record…is to ensure that Risk Committee Minutes are reviewed as part of the assurance process: preferably in the run-up to the assurance process, when selecting indicators for assurance assessment.
    It’s important to note that the Mozal issue raises the potential to discuss one of the hidden pluses of the AA1000AS assurance standard over ISAE 3000.
    AA1000AS requires not just a review of data…including the relevant underlying policies, procedures and data management and reporting systems (as in the case of ISAE 3000)…but a review of the reporting principles: Inclusivity, Materiality and Responsiveness.
    In the Materiality, and to a lesser degree the Responsiveness, review, the assurer is expected to provide an opinion over whether or not the report fairly covers the material issues affecting the company and it’s most important stakeholders.
    If an issue such as the Mozal emissions bypass is raised within internal risk reports, or committee meeting minutes (Board, Risk, SHE, or whatever committee), and if it has been deemed ‘of significance’, then the annual/sustainability report ought to disclose it.
    All signifigicant environmental incidents (Level II or greater) should be defined, and mitigation actions taken should be explained.
    If the report does not mention the incident, then the assurer is obligated to make some form of mention of it…both in their assurance report to the company, and in the assurance statement to be published within the sustainability report.
    If there is a discrepancy of opinion, or if mitigation of the concern occurred following the assurance process, then the assured entity should offer a ‘Response to Assurance’, as Xstrata Alloys did in their 2009 Sustainability Report.
    Ultimately, assurance ought to be part of the dialogue.
    While the assurance management report should offer some form of process opinion that the assured entity could use to should meet their continuous improvement objectives, the assurance statement should help stakeholders gain some comfort over whether or not the report is complete, balanced, accurate, and free from unsupportable assertions.
    One cannot blame an assurance provider for not identifying all social and/or environmental incidents and/or risks, but they certainly could hold them to account if they didn’t bother trying.
    We’re still a long way from assurance providers ALL having the necessary understanding of expectations, but I would argue that the likes of PwC, EY and KPMG are all highly experienced within the South African market…with Deloitte soon to come on strong with their successful poaching of an excellent ex-KPMG resource.
    Of course, doesn’t do a poor job either!

  2. Michael, Many thanks for sharing your insights!

  3. Following site visit, IFC’s CAO office has released an assesment report about Mozambique / Mozal-01/Matola and Maputo case. Status: A CAO dispute resolution process is on-going. Read further details here:

  4. […] complaints related to BHP’s Mozal aluminum smelter in Mozambique, about which I blogged here: NGOs Testing BHP Billiton and Investors’ Metal.] But, in many ways, this may be an interesting project to dissect and review for lessons learned […]

  5. […] the same time last year, this case caught my attention and I posted a blog entitled NGOs Testing BHP Billiton and Investors’ Metal. Looking at public information available on IFC’s website, it seemed that serious corrosion […]

  6. […] BHP MOZAL Smelter Back for OECD MNE Review (a follow-up to NGOs Testing BHP Billiton and Investors’ Metal) […]

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