China Hongqiao’s aluminium smelter capacity at risk after environmental regulators impose penalty

China Hongqiao, which usurped state-backed Aluminium Corporation of China and Russian oligarch Oleg Deripaska-controlled Rusal in the space of two years to become the world’s largest aluminium smelter last year, has run afoul of Chinese environmental regulations on over half of its capacity.

Shandong province-based Hongqiao, 81 per cent-owned by tycoon Zhang Shiping, has been ordered by the environmental protection watchdog of Zhouping county of Binzhou city, where its facilities are located, to cease production at production lines with combined annual capacity of 3.61 million tonnes.

The reason given for the penalty was “failure to obtain environmental protection approvals before building and operating the facilities”.

The firm was also ordered to stop construction of a 1.32 million tonne-a-year smelting plant, the watchdog said, citing Hongqiao’s failure to seek new environmental impact assessment approval before making major changes to a downstream processing plant.

It was separately told to cease construction of a power plant with 4,800 mega-watts of generating capacity, shut down a 1,320 MW power-and-heat co-generation plant and an alumina refinery, due to failures to obtain environmental approvals.

Alumina is the raw material of aluminium, and is refined from the mineral bauxite.

These actions are according to 11 penalty announcements posted by the bureau on the county government’s website between May 27 and September 23, which said the company is also liable to unspecified fines.

The company expanded its smelting capacity by 29.8 per cent to 5.89 million tonnes in the 12 months to June 30, and chief executive Zhang Bo told reporters in August that it plans to further expand it to 6.5 million tonnes by the end of the year.

Heidi Brock, president of United States-based industry body the Aluminum Association, told an industry event in Nanning on Wednesday that five US smelters have shuttered or curtailed output since early last year amid low aluminium prices and global overcapacity led by China, resulting in job losses.

She called on the Chinese aluminium industry “to ensure the inclusion of aluminum sector issues in implementation plans for the global climate agreement reached in Paris last fall”, as some of the association’s members have already voluntarily committed to carbon reduction.

Asked why Hongqiao has not made an announcement about the bureau’s orders, company spokesperson Christine Wong, who is head of corporate finance, said it did not see the need to do so.

“We know that all of these issues are a result of a tightening environmental protection requirements from the government, which we can and will meet,” she told the Post in an interview, adding that the firm has neither paid fines nor ceased production at the facilities in question.

“There is no need to make an announcement ... if we have to pay any fine or stop production, we will certainly make an announcement.”

To support her stance, Wong pointed to an edict issued by the provincial government in August last year on the rectification of projects that have failed to comply with environment regulations.

The No. 170 edict issued by the provincial government said that some 7,019 projects had been built without proper environmental approvals as of end February last year, and the government has classified them into three categories.

Some 1,312 projects are “to be phased out” by the end of this year, since their pollution problems are too severe to be “cured”.

Another 3,665 projects are considered “rectifiable” since they are in line with government industry policies but fell short of environmental requirements.

Some 2,042 others are in the “to be improved” category, which means while they fulfil both industry policy and current environment requirements, they need to reduce their emission levels further to meet future potential standards tightening. They must obtain approvals on remedial work done.

Those ordered to curtail production were allowed to rectify their problems by the end of last year, while those subjected to production stoppage orders must complete the rectification by the end of June this year.

Those that were under construction must stop work and obtain proper approvals by the end of this year.

Wong said all of the company’s facilities that are considered to have flouted rules belong to the “to be improved” group, although she could not provide documents to support the assertion.

Hongqiao has already finished all the rectification work and is waiting for relevant authorities to inspect its facilities before the year-end deadline, she added.

The company has spent 1 billion to 1.5 billion yuan annually in the last few years on facilities upgrades to meet environmental standards, Wong said, adding that many of its peers have run into environmental approval problems as well since Beijing has been tightening standards every 18 to 24 months.

Asked why the county-level environment bureau has issued the penalty orders if Hongqiao is allowed to rectify its short-comings by the end of the year under the “to be improved” category of the provincial government edict, Wong said the wording of the offence in the penalty orders are “a bit severe” compared to the reality.

An official at the Zhouping environment bureau confirmed that queries by the Post sent by fax on October 14, asking about the apparent contradiction of comments from Wong and the bureau’s penalty orders, had been forwarded to senior officials. No response has been received since.

An official at the provincial environment bureau said enquiries on individual cases should be directed to the local bureau.

It is not the first time that Hongqiao has run into environmental compliance problems. In 2014, it was ordered by the Binzhou municipal government to rectify excessive emission problems at 14 of its power generating units and cited for failure to obtain environmental assessment impact approvals at 10 of its smelting facilities. It has rectified the problems.

According to a statement posted on the website of the Ministry of Environmental Protection in May this year, some 96 per cent of the firms in the “to be phased out” category under the Shandong edict had completed rectification by the end of April, compared to 35 per cent of the “rectifiable” ones and 47 per cent of the “to be improved” group.