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?