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Remediation Portfolios: Finding Answers to the Right Questions

09 August 2010

How do you bring final closure to a contamination issue to protect a site’s value and ensure it can be used productively in the future? And how do you approach contamination issues as part of an acquisition deal? As the global economy shows signs of a tentative recovery, both questions are highly relevant to anyone with responsibility for remediation portfolios.

Three key challenges currently stand out for those grappling with the contamination issue: 

  • How do I take open remediation issues to some form of regulatory end point?
  • How do I prepare for “next use” scenarios after facilities have closed?
  • How do I deal with the liabilities that my company takes on through an acquisition?

Finding the regulatory end point

Taking a contaminated site through the investigation and remediation cycle to the satisfaction of regulators is no easy matter but doing so removes the liabilities from the client’s balance sheet, freeing up management resources to address other matters.

The challenge is to identify the right approach along with any remediation technologies needed to help to steer a project to a successful conclusion. Instead of simply containing contamination through approaches such as pump and treat, there is the option of applying in situ technologies, including chemical oxidation and biological and thermal treatment. Technologies such as these are only a part of the solution, since any sound remediation strategy also needs to consider both the site setting and the precedent of what has happened at similar sites. 

On many occasions, sites are stalled in the regulatory process for years, with no real progress being made. When asked to help in these situations, ERM will carry out high-level reviews to examine the data from the site in the context of the client’s business goals.  A combination of business objectives, site-specific risk assessment and robust regulatory negotiation are often essential elements to develop and deliver the site closure strategy.

At a Superfund site in Pennsylvania, ERM successfully negotiated with EPA and with the state agency on behalf of a client to replace a pump and treat system with a suite of in-situ technologies, with the objective of achieving cleanup goals in a much shorter period of time. The work is being done at a legacy site overlying a drinking water aquifer – both factors encouraging our client to seek a fast and permanent resolution of its liability.

In Belgium, ERM undertook a challenging cleanup of a lake with contaminated sediments which had attracted the attention of an active NGO. The most cost effective solution was to install an effective cap over the sediments, eliminating impact to an adjacent wetland. As part of the engagement process the project extended the wetland and thus created additional habitats. 

For a US-based multinational, ERM took over a portfolio of sites which had been subject to a long-term pump and treat program.  A fresh look at each of these sites demonstrated the relevance of certain new remedial technologies and site-specific risk assessment, bringing about regulatory closure and the suspension of pump and treat programs. This led to a very substantial savings over the long-term alternative.

Preparing for end-of-use scenarios
 
Planning for the closure and redevelopment of major industrial facilities involves many skills, including land use planning, as well as decommissioning and remediation. The key to a successful outcome is the development of a Master Plan that considers various end use scenarios which combine real estate value and liability management.  ERM provides guidance to clients as they work through this process and can also team with property management companies and developers to implement the Master Plans themselves.

 In Portugal, for example, we were asked to take over a site where remediation had previously proved both costly and ineffective. In this instance, the client needed to complete the works to discharge a contractual liability still in place against the sale of a former site. ERM was able to deliver a three-stage program which comprised:

  • Developing an alternative remedial plan and taking this to the regulator and securing the appropriate permit.
  • Ensuring the contractor  responsible for the actual work understood exactly what was required and was committed to the outcome.
  • Acting as tan intermediary between the contractor and the client to ensure the client only had one party to deal with.

In this instance, ERM became an effective advocate for the client in front of a regulator who had previously been dictating terms. With the remediation complete the client was able to discharge its liability and the new owner initiate development; a win-win for all parties.

Mine closure planning is another area where the issue of contaminated land can be a dominate one. At a site in the State of Bahia, Brazil, for example, we have supported the closure of a mine located in a very sensitive environment, surrounded by Atlantic rain forest.  Many interests, some conflicting, needed to be addressed in crafting a successful strategy. For example, there was the requirement to balance the issue of restoring the entire area to forest against the need for job creation.  With both local ERM experts and members of the firm’s global technical team working on the project, ERM was able to engage stakeholders to develop a technically feasible plan acceptable to all parties. In this case, as is common in many jurisdictions, public prosecutors were involved and failure could have led to extreme consequences – financial, criminal and reputational. 

Liabilities arising from an acquisition

Estimating the financial liability of a portfolio of contaminated sites can directly affect a company’s financial statements and its balance sheet. Yet this activity can be a very uncertain component of the transaction process, both in the development of remedial cost estimates and the interpretation of accounting rules that underpin the estimates.  A wide degree of latitude is open to companies in reporting soil and groundwater reserves, which can create conflicts during the acquisition process.

Differences in accounting policies between two merging entities can also lead to very substantial adjustments to the balance sheet at the time of merger. Inevitably, speed is of the essence during the transaction and there may be a need both to evaluate a large number of contaminated sites before making a rapid appraisal of the financial implications of their management and remediation.

In summary, the questions asked at the beginning of this article are posing fundamental challenges for ERM clients in the area of contaminated land. Whatever stage of the business cycle, ERM works to provide clients with practical, risk-based solutions which are acceptable and bring closure for all interested parties.


 

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