2007 performance

ACHIEVEMENTS

The AECI Group comprises a broad spectrum of businesses. They range from large chemical operations such as those producing mining chemicals, to the manufacture of explosive initiating systems, to property leasing. Consequently, the issues they face in the SHE arena are very different. It is inevitable, therefore, that some degree of generalisation will occur when commenting on such diverse activities in a single report.

The information disclosed here is based on data received from each business. However, the AECI Group as a whole is under consideration and, therefore, the focus is on issues of Group-wide concern.

Competent management of environmental issues is crucial. The ISO 14001 environmental management standard is the most widely recognised, externally verifiable standard in use internationally. The majority of sites in the Chemserve group now have it entrenched as part of their business processes. AEL has also implemented the standard throughout its South African operations and at most of its international sites.

Treatment plant upgrades at AEL’s Modderfontein operations resulted in a significant reduction in lead levels in the effluent from plants manufacturing initiating systems. The Modderfontein site as a whole received its new permit from the Department of Water Affairs and Forestry, and is achieving compliance levels of more than 94 per cent.

AEL’s carbon credit project is progressing well. The first nitric acid plant is now registered and is generating credits. More details on this are given later in this report.

In 2005, AECI reported that it had reduced significantly the potential risks to communities surrounding its Umbogintwini site by enclosing sulphur dioxide operations and installing a scrubbing system to manage fugitive gas emissions. In 2007, this risk reduction programme was extended to chlorine handling facilities at the two water treatment plants that Heartland Leasing operates at that site. These facilities have been enclosed, with leak detection and scrubbing systems in place.

Heartland Leasing received a Special Commendation at the Mail & Guardian’s annual Greening the Future Awards. This was in recognition of the successful remediation of the Duikersvlei Stream at AECI’s former fertilizer site at Milnerton, Western Cape. The site was sold in 2006 and the remediation project was detailed as a case study in AECI’s 2006 annual report to shareholders.

DISAPPOINTMENTS

Regrettably, the Group recorded two work-related fatalities during the year. A Chemserve employee died inside a vessel while cleaning it and a driver contracted to Chemserve was fatally injured in a motor vehicle incident, while returning from a delivery trip.

It is most disappointing that the Total Recordable Incident Rate (TRIR) for AECI employees rose from 1.06 in 2006 to a rate of 1.13. This is above the maximum tolerable level set at 1.0. TRIR measures the number of injuries and occupational illnesses for every 200 000 hours worked. All work-related injuries and illnesses, requiring more than first aid treatment, are recorded.

It is encouraging to note, however, that the TRIR for contractors working on behalf of AECI companies fell sharply from 2006’s rate of 1.93 to 0.50. As a result, when contractor incidents are included with AECI’s, the combined rate falls to 0.98.

SAFETY AND OCCUPATIONAL HEALTH PERFORMANCE

Safety and occupational health performance is expressed as the TRIR. AECI benchmarks itself against an appropriate grouping of international companies and remains of the opinion that, while zero incidents must be the ultimate target, the interim maximum tolerable level should remain at 1.0 for 2008. Unfortunately the disappointing result of 2007 confirms that the rising trend, since the low achieved in 2003, has not yet been turned around.

The benchmarked TRIR graph presented has been compiled by an independent consultant from the latest information available from the various companies’ websites at the time of writing. Due to minor variations in reporting formats, the rate was recalculated in certain cases to provide results uniform with the USA’s Occupational Safety and Health Administration system of reporting.

TRIR PERFORMANCE BY AECI COMPANY

Excellent results were again achieved by AEL. However, high incident rates at Chemserve and SANS Fibres (SANS) impacted negatively on the Group’s overall TRIR. Chemserve’s incident rate for the year rose to 1.64 from 2006’s already high figure of 1.51. The majority of incidents occurred in the first six months, with the performance thereafter indicating that the worsening trend, linked largely to unsafe acts, appears to have been reversed. SANS’s incident rate also increased to 1.63 from last year’s figure of 1.56. The major problems at SANS appear to be linked to the uncertainties and disruptions in the business in 2007.

Incidents and hours from Dulux’s operations, until 1 October 2007 when ownership transferred to ICI plc, have been included in the calculation for the AECI Group figure.

Although the incidents that occurred in 2007 involved a wide range of mechanisms, several causes stand out:

• the nature of much of the Group’s business involves dealing with potentially hazardous chemicals, including explosive, corrosive and poisonous substances. Whilst automated operations and protective systems can reduce the risk to employees, they cannot eliminate them. Appropriate, proceduralised methods of working should reduce further the number of incidents arising from this cause;
• whilst injuries due to falling may seem unrelated to industry-specific issues, they can be severe. Carelessness remains the main contributory factor for this group of injuries;
• incidents related to moving machinery arise from both static installations such as pumpdrives, and vehicle-related incidents, usually forklifts. Guarding and procedural systems provide the main forms of risk mitigation, and incidents are usually the result of poor working practices;
• increasingly the Group’s operations are being automated, not least because this reduces the inherent operational risk to employees. Nevertheless, incidents arising from manual handling remain a significant issue, particularly in those companies with an aging workforce;
• South Africa’s increasingly congested roads, and poor road conditions elsewhere in Africa, lead to a significant risk to the safety of the Group’s employees and contractors. The majority of the Group’s products are transported by road.

CAUSES OF INJURIES AND OCCUPATIONAL HEALTH INCIDENTS (EMPLOYEES)

There was an increase in the number of occupational illnesses reported in 2007. Three employees had to be removed temporarily from the workplace due to high lead levels in their blood. Two employees were unable to continue with their normal work, due to occupational asthma. Two repetitive strain injuries occurred, linked to previous medical conditions. One case each of noise-induced hearing loss and post-traumatic stress disorder were reported.

OTHER INCIDENTS OF SIGNIFICANCE

• an explosion occurred in the scrubbing system of a Chemserve plant in Brazil. There were no injuries but production was disrupted for three days;
• four production-related incidents occurred at Chemserve manufacturing plants in Umbogintwini, resulting in fumes affecting nearby manufacturing facilities;
• at AEL’s Modderfontein operations, an explosion occurred within the compartment of a lead azide dosing station. This caused significant damage to the machinery, but no injuries;
• at a Chemserve plant in Brazil, a complaint was received from the neighbouring community regarding odours. These were attributable to the first-time production of a chemical for lubricant applications. The process was stopped and is being reviewed in an attempt to eliminate the problem;
• at SANS’s Bellville operations, heating fluid was released to atmosphere after a relief valve lifted. The neighbouring community was inconvenienced by the strong smell that resulted;
• a number of road transport-related incidents occurred whilst products were being moved by contractor companies. In AEL’s operations, eight incidents occurred that involved more than one ton of ammonium nitrate or emulsion being spilled. No significant environmental impacts resulted. A tanker moving product for Chemserve rolled, causing the temporary closure of a highway. Tragically, another vehicle moving material for Chemserve collided with a bus, resulting in the death of the vehicle’s driver.

ENVIRONMENTAL PERFORMANCE

This section deals with current operations. Data do not include waste arisings from remediation activities, nor AEL’s operations outside of Modderfontein.

Hazardous waste arisings from Group operations decreased substantially from 6 221 tons in 2006 to 4 476 tons. Three main factors contributed to this: only nine months of Dulux’s operations, a major contributor in the past, are reflected in 2007’s figures; SANS tightened the controls over its waste disposal area; and AEL closed a capped fuse plant and reduced safety fuse production early in 2007.

Group water usage rose by 12 per cent to 4 767 000 kilolitres. The two main contributors to this were AEL and Chemserve. AEL’s consumption rose to 2 028 000 kilolitres, largely as a result of the need to run older manufacturing plants in parallel with new ones, as the latter were being commissioned. SANS had previously committed to a 15 per cent reduction in water usage but was unable to achieve this. Due to business reasons, the Group deemed it inadvisable to spend the capital required for the planned water saving project.

Group energy consumption rose by 7 per cent, compared with 2006. The majority of this increase occurred at Heartland Leasing (Umbogintwini), as a direct result of site tenants increasing their demand for steam. SANS used 3 per cent less energy during the year, associated with a decrease in production rates. Load-shedding led to SANS using 8 per cent less electricity but this was offset by increased heavy fuel oil usage. AEL’s total energy consumption rose by 2 per cent, again as a result of the need to run old and new plants concurrently. Chemserve’s energy consumption rose by 15 per cent. After the year-end, the Group’s electricity consumption decreased by 24 per cent owing to closures at SANS. Historically, SANS’s operations were the largest users of electricity in the AECI Group.

SUSTAINABILITY

The issue of global warming, with greenhouse gases being a major contributor, has been the subject of increasing attention in recent years. Most of this attention is focused on the burning of fossil fuels for energy, which generates carbon dioxide. Consequently, the potential for global warming is commonly expressed in terms of carbon dioxide equivalence. Emissions other than carbon dioxide, however, can also have a significant impact.

The Kyoto Protocol calls for reductions in greenhouse gas emissions to levels which existed in 1990 in those developed countries which are signatories to the Protocol. These reductions must be achieved by 2012. The signatory countries can buy the equivalent carbon credits arising from reductions in emissions in developing countries, thus offsetting their own emissions against the reductions required. Developing countries are currently excluded from the Protocol’s requirements.

A case relevant to AECI is that of nitrous oxide at Modderfontein – one ton of nitrous oxide is equivalent in its global warming potential to the release of 310 tons of carbon dioxide. Nitrous oxide occurs as a waste product in the production of nitric acid, and AEL operates two nitric acid plants at Modderfontein.

The Clean Development Mechanism (CDM) was instituted to facilitate the reduction of greenhouse gas emissions in developing countries. The CDM operates under the guidance of the United Nations Framework Convention on Climate Change (UNFCCC). AEL is one of the few companies in South Africa that has embarked on a CDM programme.

AEL’s nitrous oxide abatement project for its No. 9 nitric acid plant was registered as a CDM activity at the UNFCCC in November 2007. With the secondary catalyst installed in the No. 9 nitric acid plant, certified emissions reductions (CERs) were generated from the time of registration. At year-end, AEL had generated 15 123 CERs. The measured emission reduction for 2007 was 17 738 tons carbon dioxide equivalent. This needs to be verified by an independent, designated operating entity at the end of the current campaign, expected to continue until February 2008.

The No. 11 nitric acid plant nitrous oxide abatement project is due to be registered as a CDM activity at the UNFCCC in February 2008. At present, the plant already has secondary catalyst installed for the abatement of nitrous oxide. The generation of CERs will commence as soon as the project is registered.

The next step is to arrange for the necessary verification audits once the current production campaigns have been completed. It will then be possible to begin marketing the CERs to potential buyers for the expected carbon credits.

LAND REMEDIATION

Annual reviews of the Group’s environmental liability have been conducted by independent consultants since 1995 and the level of detail increases each year. The scope of the 2007 review was to:

• list the sites owned, used or vacated by AECI businesses;
• establish the extent of potential contamination on these sites;
• estimate remediation work and cost, and split the costs into regulatory and discretionary. Regulatory costs are those that must be incurred to comply with legal requirements; discretionary costs are those that are likely to be incurred to meet the requirements of future land redevelopment plans. Discretionary costs have not been validated and estimates for unknown amounts are not provided for, including those costs likely to be incurred only at the time of plant or site closure;
• establish the timing of work by considering safety and health issues, environmental legislation, and land redevelopment needs;
• estimate potential post-remediation costs. Operation and maintenance may be required until remedial goals are reached and monitoring will be used, where appropriate, to demonstrate to the relevant authorities that remediation has been successful; and
• record findings and document any exclusions from the scope of work which may be relevant.

The guiding principles of AECI’s remediation activities are to protect human health and the environment; to use good science, proven concepts, and best available techniques not entailing excessive cost; and to work with regulatory authorities and share information with interested and affected parties.

A risk-based approach guides the process and human health and environmental risk assessments are undertaken at appropriate stages in individual projects. These assessments influence subsequent activities.

The estimates are a reasonable approach to quantifying the potential future liability that has resulted from past operations. It is assumed that good management and operating practices at current activities will reduce remediation requirements over time.

Liability study findings are used to plan detailed remediation projects and to motivate Group companies to initiate necessary remediation and environmental management activities. At the end of - 2007, the environmental liability for the Group was estimated as R140 million for regulatory remediation. Remediation is scheduled for completion by 2010, except for that to be done only at plant/site closure.

RESPONSIBLE CARE *

The Canadian chemical industry launched the Responsible Care* initiative in 1984. The aim was to raise standards of operation in the industry through, inter alia, the provision of best practice standards. Responsible Care has been adopted worldwide and AECI is a signatory. In South Africa, the Chemical and Allied Industries’ Association is the custodian of the Responsible Care programme.

The following best practice standards are included in the programme:

• health and safety of persons;
• transportation of chemicals;
• storage and distribution of chemicals;
• waste management and pollution control;
• community awareness and emergency response;
• product stewardship; and
• process safety.

Internationally, signatories to Responsible Care are required to submit self-assessment questionnaires against these standards every two years. In South Africa, the initiative has gone beyond this. A verification protocol has been developed to demonstrate, through independent third parties, a company’s compliance with the Responsible Care management practice standards. AEL’s Modderfontein operations have been audited successfully against these standards, as have the following companies in the Chemserve group:

• Akulu Marchon
• Chemical Initiatives
• Duco Speciality Coatings
• Lake International Technologies
• Senmin
• Specialty Minerals SA

CONFORMANCE WITH SHE STANDARDS

At the beginning of every year, each business submits a Letter of Assurance to the Group chief executive. This letter sets out the primary SHE-related risks facing the business, together with the approach taken to manage them. The letter also describes the business’s compliance with the AECI SHE policy and standards, noting any material issues in this regard.

SHE-related risks faced by businesses differ, due to their varied fields of operation. However, certain risks are common to most areas of the Group, and typically do not change significantly year-to-year:

• chemical exposure-related incidents, largely affecting employees and contractors in close contact with raw materials and products;
• process safety-related risks, resulting in fires, explosions or significant releases of hazardous materials. Such incidents may occur on company sites or when goods are in transit;
• the dangers posed to employees and contractors travelling by road; and
• the dangers posed to employees and customers working on sites controlled and managed by customers. Such sites might range from chemical facilities to underground mining operations.

LOOKING TO THE FUTURE

In the 2006 annual report to shareholders, a list of challenges facing AECI was presented. Perhaps it is the nature of the environment in which the Group operates that these challenges remain as relevant in the coming year. Indeed, they may well have been exacerbated by the apparently worsening skills shortage and management difficulties arising from running operations in an energy-scarce country:

• instilling a culture of safe working practices is perhaps the greatest challenge. Until this is in place, too many relatively minor incidents, which carry the potential for significant consequences, will continue to plague the business;
• linked to this, a shortage of skills and competence at supervisory and middle management level is hampering efforts to implement and maintain the necessary disciplines, particularly in operational areas;
• expertise and operational competence in the area of process safety is of particular concern; and
• significant effort in the remediation arena is still required to complete the work being done to rectify environmental legacies. Linked to this is the need to ensure that the mistakes of the past are not repeated, creating fresh legacies that, in turn, will require remediation.