Environmental protection in the coal chemical industry is undermined by winning bids at low prices

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The environmental damage in the coal chemical industry is caused by low-bid winning/Author/Source: Date: 12-09-2016 Clicks: 60 Over the past 10 years, there have been many negative news stories in China’s coal chemical industry that had a significant impact on the environment. Coal chemical projects also frequently appear in various reports issued by environmental protection agencies. Illegal discharge of pollutants, contamination caused by high-concentration saline wastewater, high carbon dioxide emissions, air pollution that directly affects the lives of nearby residents… There are an endless array of environmental problems. In recent interviews, reporters found that when discussing these issues, whether it was manufacturing companies, environmental protection firms, or industry experts, all pointed the finger at winning bids at low prices. 　　Winning the bid at a low price was originally regarded as a fair, just, open, and transparent method of bid evaluation. According to Article 41 of the Law of the People’s Republic of China on Bidding, the bid submitted by the winning bidder must \"meet the substantive requirements specified in the bidding documents, and have the lowest evaluated bid price…\" However, in the bidding process for coal chemical industry environmental protection projects, winning bids at low prices has become an unspoken rule that is criticized as one that \"kills competitors, exhausts the bidder themselves, and harms the project owner.\" 　　So, how did this situation come about? The enormous investments are hard to bear, so manufacturing enterprises try to cut costs wherever possible. According to reporters, the unwritten rule of awarding coal chemical industry environmental protection projects at low prices dates back to the early days of the coal chemical industry. It was only during the 12th Five-Year Plan period that the coal chemical industry made significant progress in engineering applications. At that time, there were no readily applicable treatment technologies for coal chemical wastewater, waste gas, and solid waste. In particular, the treatment of wastewater remains an unanswered question, given its complex composition and the requirement for near-zero emissions. 　　According to the requirements of the Ministry of Environmental Protection, coal chemical projects must achieve zero emissions. To basically achieve this goal, environmental protection investments for the project must account for at least 5%–8% of the total project investment; among these, investments in water treatment make up around 30% of the overall environmental protection spending. The huge investments are unaffordable for many manufacturing enterprises, forcing them to cut costs wherever possible. 　　“When we started working on coal chemical projects, there were no precedents for the application of water treatment technologies aimed at achieving zero emissions; we had no idea that the wastewater generated by coal chemical processes was so difficult to treat. Project investment is already so high; in order to cut costs, we have no choice but to drive down prices for environmental protection technologies and equipment. ”An enterprise leader who wished to remain anonymous said. This was the common mentality among early coal industry owners. 　　Even when they’re well aware that there are good technologies available, bidding companies still opt to forego them. In the EPC general contract bidding for Shenhua Ningmei’s coal chemical zero-emission project, the bid prices submitted by domestic companies were around 300 million yuan, while those submitted by the American company General Electric and the French company Veolia were around 800 million yuan; as a result, the first bidding round was declared unsuccessful. In China’s coal chemical water treatment market, where price competition is fierce, foreign environmental protection companies that opt for a premium pricing strategy can only watch helplessly, despite having full confidence in their own technologies. 　　Under the principle of \"saving wherever possible\" in manufacturing enterprises, the environmental protection sector in coal chemical industry has from the very beginning been trapped in a vicious competition to drive down prices. Worse still, some manufacturing companies are unwilling to cover the costs, and instead force environmental protection firms to advance the funds. 　　For instance, the tender documents for a certain project involving advanced treatment and reuse of wastewater clearly stipulate that Party B shall finance the construction of the project. After the project is completed and passes commissioning, a 72-hour performance test will be conducted for acceptance purposes. Subsequently, a one-year operational evaluation period follows; only if all indicators meet the standards throughout the year will the project payment be disbursed to Party B over three years. This means that ultimately, the winning environmental protection company must bear all the risks and invest nearly 100 million yuan in order to secure the project. 　　“In practice, when manufacturing companies issue tenders, the prices offered are often very low; however, the more construction is carried out, the more money is required. Winning the bid at a low price does not truly achieve the goal of saving money. ”Han Hongjun, a professor at Harbin Institute of Technology, said, “We often say that this approach saves money on exercise and disease prevention. But in reality, after such facilities are built, people end up spending even more money on medical treatment.” ” 　　According to the reporter’s findings, the Datang Keqi coal-to-natural gas project invested nearly 2 billion yuan additional funds in water treatment in later stages. “What was sacrificed in the design process to keep costs low has to be added back in the end. By carrying out continuous modifications in this way to complete environmental protection projects, sometimes the cost of those modifications can even equal the bid price. ”An insider revealed. 　　Even after making substantial additional investments, the Datang Keqi coal-to-natural gas project still has to bear a water treatment cost of up to 7 yuan per ton. Experts analyze that the typical cost for wastewater treatment is around 4 yuan per ton of water. Considering that a coal chemical plant handles tens of thousands of tons of water per day, it is not worthwhile to win bids at low prices by focusing only on the initial investment and ignoring the subsequent operating costs. 　　Yang Chuanwu, deputy general manager of China National Chemical Engineering Group Corporation, commented on the cost-saving practices of manufacturing enterprises as follows: “Currently, emission standards have been tightened. Unlike in the past when treatment was rather rudimentary, to meet these new standards, enterprises must also bear increased costs for treating wastewater in that ‘final mile’ of the process.” However, whether they are state-owned enterprises or private enterprises, they all put immediate profits first. ” 　　After several years of unsuccessful attempts at debugging, the environmental protection companies had no choice but to flee. Under pressure from the bidding companies, these environmental protection firms reluctantly stepped forward. 　　“The environmental protection in the coal chemical industry is ruined by those within the industry itself. ”A senior executive from an environmental protection company said helplessly. “The desire to achieve results quickly is the driving force behind all environmental protection companies, as well as their weakness. To make a breakthrough in an emerging market, price competition is a fast track. ”Many environmental protection companies use immature technologies to pursue this path. Coal chemical industry water treatment involves many technologies, such as membrane filtration and electrodialysis; at present, none of these technologies is fully mature. Zero emissions refer to zero emissions across the entire system; that is, starting from the gasification furnace and all the way to the final treatment of solid waste, this system involves 6 to 7 different specialties. At present, no environmental protection company is able to develop the entire system on its own; many companies need to work together. “At present, there are no particularly mature and effective water treatment technologies for the coal chemical industry; most environmental protection companies simply combine existing technologies. ”Han Hongjun said. 　　“Technical fragmentation and low integration levels are common problems. Poor compatibility among various unit technologies, difficulties in effective integration, and low levels of integration are widespread. ” Xu Yanhua, dean of the School of Environment at Nanjing Tech University, said. 　　In reality, there are coal chemical enterprises that have encountered such a predicament: after the environmental protection company completed the construction work, it tried to commission the facilities for three years without success. Eventually, the company gave up and simply refused to accept the remaining payment, then disappeared. 　　Furthermore, since environmental protection companies that win bids at low prices must rely on limited funds to carry out project construction, it is not surprising that issues such as shoddy work and the use of substandard materials arise in terms of project quality. According to the reporter’s investigation, some environmental protection companies use submersible equipment that does not meet standards; whenever a malfunction occurs, the water has to be completely drained, which causes huge losses to these manufacturing enterprises. 　　A staff member from a coal-to-oil company revealed that there was once a batch of valves purchased at low prices, only to find that they did not meet the requirements for use in coal chemical projects; the company was forced to replace them after realizing this. Using such defective products will pose significant safety risks. 　　According to industry insiders, the low-bid wins for desulfurization projects have also led to serious consequences: the anti-corrosion coating on the anti-corrosion equipment was supposed to be applied in 3 layers, but only 2 layers were used; high-quality imported stainless steel was intended to be used for the steel components, but ordinary domestic materials were used instead; the spray coating layer on the equipment was supposed to have 4 layers, yet only 3 layers were installed in the design... As a result, many desulfurization facilities were unable to operate properly shortly after being put into use. Even desulfurization facilities that are barely operating are prone to problems such as gypsum scaling, severe equipment corrosion, and low efficiency. 　　“Most companies that accept orders at low prices focus only on immediate profits; what seems to be a necessary choice for individuals actually undermines the overall healthy development of the industry. Moreover, such a business model also causes enterprises to lose their ability in product development and process innovation; their path of development thus becomes increasingly narrow, ultimately leading them to realize that it’s a dead end. ”said Jiang Hongfeng, chief consultant at Beijing Tianqi Consulting and Training Group. 　　Experts suggest establishing a credibility evaluation system and regularly publishing blacklists. After a period of chaotic competition, both parties have suffered losses in the field of environmental protection within the coal chemical industry. 　　Because environmental protection is not properly managed, many manufacturing enterprises can only react passively to the problems that arise during production. It is claimed that zero wastewater discharge has been achieved, but the actual treatment processes and the destinations for reusing the water are not clear. Due to the lack of effective monitoring and regulatory measures, it is difficult to determine the actual wastewater treatment efficiency, the rate of recycled water reuse, and the water consumption per unit of product in enterprises. 　　Meanwhile, environmental protection companies “make decisions on a whim when bidding, vow confidently when signing contracts, and then simply walk away when they can’t deliver.” ”There are very few that can truly provide exemplary cases. 　　It is commendable that, amid such chaos, there are still companies that manage to stay ahead – the Tuk project of China Coal Ordos Energy Chemical Co., Ltd. was the first in the country to achieve full reuse of wastewater with zero emissions. For Phase I of the project, the actual investment in the facilities capable of producing 1 million tons of synthetic ammonia and 1.75 million tons of urea per year amounted to 9.32 billion yuan. The company has built a comprehensive treatment system for dealing with wastewater with complex compositions, investing 1.48 billion yuan in this effort, which accounts for 15.8% of the total investment. The project can treat approximately 1,030 tons of wastewater per hour, with 4.702 million tons of wastewater being recycled each year; thus, the wastewater reuse rate reaches 98%. And what seemed to be large upfront investments ultimately yielded returns later on. Thanks to this eco-friendly device, the company can save around 5 million yuan per year in one of its workshops. Industry insiders have summarized that only by being willing to invest in environmental protection can one have the chance to reap greater rewards. One business owner lamented, “When it comes to environmental protection abroad, there are no cheap options at all. Foreign companies believe that environmental protection should come at a high price.” ” 　　Faced with these positive and negative examples, industry professionals have also offered their own views on the environmental protection efforts in the coal chemical industry. 　　“I believe there is nothing wrong with awarding contracts based on the lowest bid in itself; the problem lies in the lack of supporting measures during its implementation. ”Wang Honghai, Chairman of Beijing Zhu Xin Zhu Heng Engineering Design and Consulting Co., Ltd., pointed out that a detailed project definition should be established during the bidding phase. Before bidding, the owner should prepare several design proposals and set certain constraints. Subsequently, a public tender is conducted based on these predetermined conditions, with the lowest bidder being awarded the contract. This ensures that the winning bidder has the capability to complete the project. 　　Zhu Shengfeng, head of the Environmental Protection Department at China National Offshore Oil Corporation, stated that the tender documents and specifications for manufacturing enterprises must be clear and unambiguous. “CNOOC adopts the Build-Own-Operate (BOO) model in the field of environmental protection; during the bidding process, the standards for pollutants to be emitted and the related emission limits are specified, the process design is determined by the bidders, and the bidders bear the costs, allowing the bidder with the lowest bid to win the contract. If it’s impossible to determine the emission standards, then we’ll simply purchase the top 10 processes in the world. ”Zhu Shengfeng also suggested that the Ministry of Environmental Protection should establish a system for evaluating environmental protection technologies, regularly update technical guidelines, and create an academic environment conducive to fair discussions. Industry associations, on their part, should develop systems for assessing corporate integrity, regularly publish lists of companies in breach of regulations, and ensure fair competition. 　　Yang Chuanwu suggested that measures should be taken at the source to ensure proper environmental impact assessments. If a company fails to pass the environmental compliance inspection, it must not be allowed to start operations under any circumstances; this loophole needs to be closed. Otherwise, once a company starts production, it becomes difficult to stop it; even if its emissions do not meet the standards, it has to be allowed to continue operating. Therefore, it is necessary to ensure that companies make the appropriate environmental protection investments during the design and construction phase, so as to meet the new environmental standards; this will make subsequent emission control easier. The approach of building first and then carrying out modifications and upgrades once the standards are not met actually results in a significant increase in the company’s costs. 　　As an industry expert, Han Hongjun advises companies to give greater emphasis to technical factors when conducting bid evaluation. During the bid evaluation process, it is necessary to strike a balance between technology and price; the most advanced technology should be selected at a reasonable price. This is the correct approach to winning bids at low prices – securing contracts through reasonable, low bids while giving due importance to technology. 　　Zhu Tong, President of Liuhe Tianrong Environmental Protection Technology Co., Ltd., recommends using the base bid method for awarding contracts. Under this method, the client engages a third-party consulting firm to conduct a series of evaluations on the project, thereby determining a construction cost that meets both the client’s requirements and current market prices. Finally, the bid that is closest to this base price wins the contract. This bidding method ensures both the quality of construction projects and the profits of environmental protection enterprises. 　　Thankfully, as environmental awareness grows, more and more coal chemical enterprises are also willing to follow sustainable practices and invest heavily in environmental protection. Ma Xinyuan, General Manager of Procurement at Xinjiang Tianye Group, said that every time the tender documents are issued, the requirement that “the lowest bidder is not necessarily awarded the contract” is clearly stated. She said that our core requirements for suppliers are reasonable prices and good service, in order to ensure that the company’s future production and operations can proceed smoothly. 　　It seems that it will be a long and arduous task to restore order to the coal chemical industry’s environmental protection sector, which has been ruined by bids at low prices.