Paulo Fernandes March 8 2023 Vessel recycling bill aims to boost Brazil's recycling sector Kincaid | Mendes Vianna Advogados | Shipping & Transport - Brazil Paulo Fernandes Shipping & Transport IntroductionShip recycling billStatus of billIntroductionBrazil is among the 10 largest oil and gas producers in the world. In 2021, it was responsible for 3% of the world's oil production, producing an average of 2.9 million barrels per day. To facilitate this high volume of production, there are 183 oil platforms in Brazilian jurisdictional waters. Of these, 109 are out of operation.There are several reasons why so many units are to be decommissioned, including:the maturity of production fields;the term of concession contracts ending;operations discontinuing due to the crisis in the sector and the drop in oil prices; andthe difficulties of placing platforms in lay-up. It costs operators a lot of money to keep units out of operation in Brazilian jurisdictional waters.According to the Petrobras Divestment Plan (which covers over 300 fields and more than 8,000 kilometres of pipelines), most units are already approaching the end of their useful lives, in view of the obsolescence of the installations and equipment associated with the production units. Hence, Petrobras alone expects to decommission 26 platforms in the next five years, representing a total investment of $9.8 billion.In this context, Brazil presents itself as a promising market for decommissioning. It is the third largest market in the world in terms of expected investments for decommissioning activities in the coming years, behind only the North Sea and the Gulf of Mexico. According to the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP), this will involve approximately 51.5 billion reais (about $10 billion) over the next four years, a volume that continues to grow.In the short term, there are prospects for significant movement among the players in the market. The regulatory bodies (ie, the ANP, the Brazilian Institute of Environment and Renewable Natural Resources and the Brazilian Navy) have already approved 78 installation decommissioning programmes (PDIs). Such approvals trigger the holding of auctions and bids for contracting service providers to execute the approved PDIs. ANP expects investments of around 10 billion reais in 2023 alone.While this concentration of decommissioning activity alone would be enough to boost the Brazilian naval recycling sector, various other factors put Brazil on the recycling map:The Brazilian fleet is approaching its expected lifespan, which may be further reduced due to changing technological requirements.Sustainable recycling has gained attention due to the increasing prevalence of environmental, social and governance principles.Brazil's infrastructure comprises large shipyards that are currently experiencing a slump in construction orders.Brazil has advanced environmental laws, as well as labour protection regulation.Brazil has been facing increasing problems with a large fleet of abandoned vessels that lack due final disposal.In order to tackle the above issues and seize the opportunities presented by a global recycling market, a ship recycling bill has been proposed to create a sustainable competitive domestic recycling market.Ship recycling billBill No. 1,584/2021 provides for the recycling of vessels and aims to lay down the framework for safe and environmentally safe recycling. Although Brazil has not signed the 2009 Hong Kong International Convention for the safe and environmentally sound recycling of ships, the bill largely adopts its guidelines.If approved, the bill will apply to ship recycling yards and all vessels in Brazilian jurisdictional waters, with the exception of those whose total length is less than eight meters, not including fixed mechanical propulsion systems. Brazilian Navy vessels will also be exempt from this law.Considering that the bill defines "vessel" as any construction, including floating platforms and fixed platforms (when towed), subject to registration with the maritime authority, that is capable of moving in water (whether via its own means or not) and transporting people or cargo, its guidelines should apply to most units to be decommissioned, as well as cargo vessels.The main aspects of the bill are set out below.Preparing vessel for recyclingThe bill establishes that in order to prepare a vessel to be sent for recycling, the person responsible for it must:provide the vessel recycling yard operator with all the information regarding the vessel necessary for the preparation of the recycling plan; andnotify the agent of the relevant maritime authority in writing of their intention to recycle the vessel in a certain recycling shipyard and provide all relevant information relating to the vessel, including an inventory of any hazardous materials.The person in charge of the vessel must also ensure that:the vessel intended for recycling is recycled exclusively in national recycling yards;the vessel has been operated in the period prior to its entry into the vessel recycling yard, in order to minimise the amount of cargo residues, remaining fuel oil and residues resulting from operation; andthe maritime authority agent, or a specialised entity authorised thereby, has issued a certificate to certify that the vessel is ready to be recycled. Such certificates must be issued after receipt of the approved vessel recycling plan and before the vessel is recycled.Vessel ownershipThe entity considered responsible for the vessel is:the individual or legal entity that is the registered owner of the vessel;any organisation or person who assumes responsibility for the operation of the vessel in place of its owner;the company that is registered as an operator or that operates a vessel owned by the government of a third country; orthe person, company or companies that hold the property of the vessel for a limited period, until its sale or delivery to a vessel recycling yard.Minimum safety requirementsThe bill establishes that vessels must be submitted to be inspected by the agents of the maritime authority before returning to operation if they:have a gross tonnage that is greater than or equal to 100;are anchored or berthed in a port; andfail to meet the minimum safety requirements to operate.Recycling planPrior to the start of the recycling process, a vessel recycling plan must be drawn up to address specific considerations for the vessel that are not covered by the shipyard's vessel recycling plan or that require special procedures.The recycling plan must be accompanied by inspections carried out by the maritime authority or by a specialised entity authorised by the maritime authority.Moreover, the bill establishes that vessels must have an inventory of any hazardous materials on board. Such an inventory must list:the substances present in the vessel's structure or equipment;their location; andtheir approximate quantity.Vessels flying the flag of a third country, when calling at a Brazilian port or anchorage, must have an inventory of hazardous materials on board.Ship recycling yard requirementsThe ship recycling yard must meet several requirements established in the bill, in addition to observing the relevant guidelines of:the International Maritime Organization;the International Labor Organization;the Basel Convention on the Control of Transboundary Movements of Waste Hazardous Materials and their Deposit; andthe Stockholm Convention on Persistent Organic Pollutants.The vessel recycling yard must have an environmental licence approved by the competent body of the National Environmental System (SISNAMA) for a maximum period of five years. Specific provision is included to expedite the issuance of recycling authorisations to yards that are already authorised to carry out construction and repairs. SISNAMA will establish and update the list of authorised ship recycling yards.Credit incentivesThe bill establishes that the state may introduce incentives relating to the object of the law. It should be noted that in promoting or granting credit incentives, official credit institutions can establish different criteria for access by beneficiaries to credits from the National Financial System for productive investments.Status of billThe bill, if approved, will come into force one year after its publication. The bill is subject to conclusive appreciation by the standing committees, proceeding under the ordinary regime. The bill has already been approved by the Committee on the Environment and Sustainable Development and the Committee on Foreign Relations and National Defence, and has recently been forwarded to the Committee on Transportation. If approved by the Committee on Transportation, the bill will be sent to the Constitution and Justice Commission for final consideration.For further information on this topic please contact Juliana Pizzolato Furtado Senna or Paulo Fernandes at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email ([email protected] or [email protected]). The Kincaid | Mendes Vianna Advogados website can be accessed at www.kincaid.com.br.