Ex-Ante Evaluation (for Japanese ODA Loan)
1. Name of the ProjectCountry: India
Project: Project for Upgradation of Environmental Management for Ship Recycling in
Alang and Sosiya in Gujarat
Loan Agreement: September 15, 2017
Loan Amount: 8,520 million yen
Borrower: The President of India
2. Background and Necessity of the Project(1) Current State and Issues of the Shipping (Shipbreaking) Sector in India
Ship recycling (shipbreaking), which constitutes a part of the shipping industry,
involves dismantling end-of-life vessels and recycle iron and other recyclables
generated in the process. India is the world largest ship recycling country in termsof ship demolitions; it scrapped 12,236,000 tons of vessels from 2014 to 2015,
accounting for 26 percent of the global total (UNCTAD STAT). India, Bangladesh,Pakistan, and China represent 95 percent of global ship scrapping gross tonnage
in 2015 (UNCTAD, Review of Maritime Transport 2016). Some 97 percent of ship
recycling in India is conducted in Alang and Sosiya in the western state of Gujarat.
In these two areas, about 130 recycling yards are lined up on a 9-km coastline.
They are leased to private recyclers by the Gujarat Maritime Board, under whose
jurisdiction ship recycling falls. They use a shipbreaking method called“beaching,” whereby they strand vessels on a shoal before cutting off andscrapping them. As discussed later, the practice of shipbreaking in India has threemajor vulnerabilities although some improvements have been made: (i) serious
occupational accidents such as explosions and fires due to inflammable gases
and falls from higher places; (ii) environmental pollution caused by discharged oils,
chemicals and heavy metals from vessels; (iii) problems on labor health due toharsh labor environment.
The shipbreaking process generates not only iron scraps and other recyclables,
but also general and hazardous wastes, which need to be disposed ofappropriately. Waste generated in Alang and Sosiya is brought to the Treatment,
Storage, Disposal Facility (TSDF) for incineration and disposal. The TSDF,
however, needs improvement on several issues. For one thing, it is incapable oftreating high-concentration oil due to inadequate oil processing equipment. The
landfill capacity has little room for expansion, for another. The facility needs
improvement if ship recycling is to be implemented in an appropriate andsustainable manner.
As ship recycling is a labor-intensive industry, a total of some 10,000 workers areengaged in dismantling work in the two areas, although the number fluctuatesaccording to season as well as conditions in the shipping and iron scraps markets.
These workers are all migrant workers from relatively poor states in eastern India.
They are prone to be in conditions: unstable employment, dangerous working
conditions, and the poor living environment. Their working and living conditions
need to be improved in the context of protecting workers and increasing
productivity.
(2) Development Policies for the Shipping (Shipbreaking) Sector in India and thePriority of the Project
Addressing the issues related to ship recycling requires not only ship recyclingfacilities, but also ship management during the building and operational phases.
This recognition prompted the International Maritime Organization (IMO) to takethe lead in organizing an international debate on how to tackle these issues. As aresult, the Hong Kong International Convention for the Safe and Environmentally
Sound Recycling of Ships (the “Ship Recycling Convention”) was adopted in 2009,
an international framework the Government of Japan and others had put forward.
To help reduce environmental stress and improve occupational safety, the Ship
Recycling Convention stipulates (i) requirements relating to ships, (ii)requirements relating to shipbreaking facilities, and (iii) shipbreaking procedures.
Once the Ship Recycling Convention enters into forcethe parties to theConvention may not use shipbreaking facilities outside of their territories, andshipbreaking countries shall make arrangements to meet the requirements
relating to shipbreaking facilities and follow the shipbreaking procedures asprovided for by the Convention.
In response to the heightened international debate mentioned above, theGovernment of India enacted the Shipbreaking Code in 2013 to tighten related
regulations and made other efforts to reduce environmental stress and improve
occupational safety on its own. Although progress has been made, furtherimprovement would be required to comply with the requirements for in the Ship
Recycling Convention. Although India has not ratified the Convention, in view ofthe expected growth in demand for facilities that conform to the Convention after itenters into force, India expressed its intention to achieve an early conclusion ofthe Convention at the Japan-India Summit Meeting in November 2016. The
Project for Upgradation of Environmental Management for Ship Recycling in
Alang and Sosiya in Gujarat (the “Project”), which is designed to develop facilities
and management that conform to the Convention in anticipation of its ratification,is considered to constitute an important policy of the Government of India.
(3) Japan and JICA’s Policy and Operations in the Shipping (Shipbreaking) Sector
Japan’s Country Assistance Policy for India (March 2016) identifies “supporting
sustainable and inclusive growth” as one of its priority areas and states that Japan
will promote cooperation in tackling environmental issues among other challenges.
JICA Country Analysis Paper for India (March 2012)stresses the need toameliorate water pollution and other environmental degradation, and identifies
addressing environmental and climate change issues as one of the priority areas.
Therefore, the Project is consistent with Japan’s assistance policy and analysis. It
is worth adding that, by July 2017, Japan made a total of three ODA loan
commitments in the shipping sector in India, totaling 12.7 billion yen.
(4) Other Donors’ Activity
No other donors have provided significant assistance to ship recycling in India.
However, amid growing global concerns over about environmental pollution
caused by ship recycling as well as occupational safety and health in such
recycling, the International Labor Organization, IMO, and the United Nations
Environment Programme developed ship recycling guidelines by the early 2000s.
In 2009, the Ship Recycling Convention was adopted as mentioned earlier. With
this in mind, the Project aims to improve related facilities so that they will meet therequirements as stipulated in the Convention.
(5) Necessity of the Project
The Project, which is designed to meet international requirements for ameliorating
environmental stress and occupational safety and health relating to ship recycling,is built on the Indian government’s policies as well as Japan’s and JICA’s

assistance policy and analysis. It is expected to contribute to attaining two SDGs:
Goal 8, which calls for productive employment and decent work for all; and Goal
14, which requires marine conservation for sustainable development. Therefore,
JICA’s support for the implementation of the Project is much needed.
3. Project Description(1) Project Objective
The objective of the Project is to promote more environmentally sound and safer
ship recycling in Alang and Sosiya area in Gujarat State, by upgrading ship
recycling related facilities and introducing preventive measures which comply withinternational conventions, thereby contributing to environmental conservation andsustainable development of the industry in Gujarat State.
(2) Project Site/Target Area:
Alang and Sosiya, Gujarat State(3) Project Components
1) Improving ship recycling yards (impermeable flooring, the introduction of largecranes)2) Improving TSDF (the introduction of an incinerator, waste compactor, etc.)
3) Consulting services (detailed design, bidding assistance, construction
supervision, training regarding the environment and occupational safety,environmental monitoring, etc.)(4) Estimated Project Cost (Loan Amount)
12,404 million yen (loan amount: 8,520 million yen)(5) Schedule
September 2017 - March 2024 (79 months in total)
The Project is considered completed when all the facilities are put into service(scheduled for March 2022).
(6) Project Implementation Structure1) Borrower: The President of India
2) Guarantor: none
3) Executing Agency: Gujarat Maritime Board4) Operation and Maintenance System
Private recyclers will operate the improved yards, while private contractors will
manage final waste disposal sites and equipment. The yards and final waste
disposal sites are traditionally operated by private contractors under thesupervision of the Gujarat Maritime Board, leaving no technical concerns.
When new equipment is introduced under the Project, necessary training will
be provided to ensure proper operation. The improved yards will bemaintained by private recyclers, who will be responsible for day-to-day
maintenance, as well as by the Gujarat Maritime Board, which will take chargeof large-scale repairs. The latter will secure the necessary budget, leaving nofinancial concerns. The financial sustainability of disposal sites andequipment will be secured in an arrangement whereby the Gujarat Maritime
Board will supervise the private contractors so that they set the prices atappropriate levels.
(7) Environmental and Social Consideration/Poverty Reduction/Social Development
1) Environmental and Social Consideration(i) Category: A(ii) Reason for Categorization: The Project is deemed to be cathegorized as
Waste management and disposal sector as defined by the JICA
Guidelines for Environmental and Social Considerations, promulgated inApril 2010.
(iii) Environmental Permit: An environmental impact assessment (EIA) reporton the Project was completed in July 2016. In November 2016, the EIA
report obtained Environmental Clearance (EC) and Coastal Regulation
Zone (CRZ) clearance from the Ministry of Environment, Forest andClimate Change (MOEF&CC) of the Government of India.
(iv) Anti-Pollution Measures: During the construction work, the Project willtake such measures as water sprinkling, wastewater treatment, and theregular maintenance of construction vehicles, so that the air quality, water
quality, noise, and other levels will meet the emission and environmental
standards of India. Measures to be taken after the facilities are put into
service for protecting air quality, water quality, soil, and occupationalsafety will include mounting an exhaust gas treatment device onto theincinerators, regularly cleaning rainwater drains, and putting in place oilspill response kits, and providing occupational safety training.
(v) Natural Environment: The project target area is located in or nearsensitive areas such as national parks. Thus, the adverse effects of theProject are expected to be minimal.
(vi) Social Environment: The Project will not involve land acquisition orresettlement because the associated work for improvement and otherpurposes will be within the existing facilities.
(vii) Other / Monitoring: Construction supervising consultants and building
contractors will monitor the air quality, water quality, noise, waste, etc.,
during the construction work. After the facilities are put into service, theGujarat Maritime Board, the operator of the TSDF, the ship recyclers’association, etc., will monitor the air quality, water quality, soil andoccupational safety, etc.
2) Promotion of Poverty Reduction
The beneficiaries of the Project will include a large number of poor migrant
workers from other states of India; the Project is designed as a“poverty-integrated” project.
3) Promotion of Social Development
Measure for Infectious Diseases Including HIV/AIDS: Because the Project is
expected to involve many workers who will live alone during the construction
work, a high risk of HIV/AIDS infection will be likely. Accordingly, cooperation
with HIV prevention activities for workers is provided for in the bidding
documentation for contractors.
(8) Collaboration with Other Schemes and Donors
None in particular

4. Targeted Outcomes(1) Quantitative Effects
Outcomes (Operation and Effect Indicators)
Indicator

Baseline(Actual value in2020)

Target (2024)[Expected value 2years after projectcompletion]

Percentage of ship recycling yards which
0100*
obtain the statement of compliance (%)
Concentration of PAHs1 in soil of
Maintaining the**intertidal zone (mg/kg) **baseline value
Amount of waste water treated at TSDF**19,800(MT/year)
Number of casualties due tooccupational hazards/accidents per unit**0of man-hours* On the assumption that the Government of India concludes the Ship Recycling
Convention.
** To be confirmed based on the result of a baseline survey after projectcommencement(2) Qualitative Effects
Environmental improvements in the immediate and adjacent seashore, reduced
health risks for workers, sustainable industrial development (ship recycling andrelated industries) in the state(3) Internal Rate of Return
Based on the conditions indicated below, the economic internal rate of return(EIRR) of the Project will be 25.3 percent, and the financial internal rate of return(FIRR) will be 8.5 percent.
[EIRR]
Cost: Project cost (excluding tax), operation and maintenance expenses
Benefit: Additional production of steel, recycled from recycling yards that conformto international conventions
Project Life: 30 years[FIRR]
Cost: Project cost, operation and maintenance expenses
Benefit: Revenues from yard rents, recycling charges, and equipment leaserentals, as well as shared profits from leasing activities
Project Life: 30 years
5. External Factors and Risk Control
1

The shipping and scrap iron markets do not slump.

PAHs are contained in oil. Their concentration serves as an indicator of the level of oil pollution in theintertidalzone.



The Government of India’s policy of working to conclude the Ship Recycling
Convention does not change.

6. Lessons Learned from Past Projects(1) Results of Evaluation of Similar Past Projects
An evaluation report of a similar project for India in the past states that although
this particular project was originally aimed at building cutting-edge shipbreaking
facilities designed to be eco-friendly and ensure workers’ safety, the facilities
actually built were not used as originally intended due in part to a slump indemand for ship recycling at that time. The report warns against making
excessive capital investment.
(2) Lessons for the Project
A demand analysis was conducted to study appropriate levels of investment for
the Project so that facilities will meet the requirements of the Ship Recycling
Convention and at the same time maintain their competitiveness in the market,
even when the demand for ship recycling slows down. For this reason, trends inthe shipping and scrap iron markets were taken into account. Based on thisanalysis, the Project will be appropriately designed so as to avoid excessive
investment that may result in higher recycling fees.
7. Plan for Future Evaluation(1) Indicators to be Used
1) Percentage of ship recycling yards which obtain the statement of compliance(%)2) Concentration of PAHs in soil of intertidal zone (mg/kg)
3) Amount of waste water treated at TSDF (MT/year)
4) Number of casualties due to occupational hazards/accidents per unit ofman-hours5) Economic internal rate of return (EIRR) (%)6) Financial internal rate of return (FIRR) (%)(2) Timing
Two years after project completion