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Case Study: Wheelabrator Technologies Inc

Partnering a Client successfully in a first and significant investment in China by adopting a business focused approach to guiding them through the maze of China’s environmental, health, safety and social regulations and advising them of effective ways of meeting their own strictly enforced environmental corporate governance.

Background 

In early 2009, ERM’s office in Shanghai was approached by Wheelabrator Technologies Inc. (WTI), a member of the Waste Management, Inc. Group and one of the world’s most experienced municipal waste-to-energy facility operators, through their investment advisor Macquarie Capital. 

WTI was looking for a locally based company to assist in undertaking environmental, health, safety and social (EHSS) due diligence on the operations of Shanghai Environment Group (SEG), responsible for amongst other things, Shanghai’s municipal waste transportation, treatment and disposal.  SEG is part of Shanghai’s Municipal Works Group, Shanghai Chengtou. 

SEG was seeking bids from international waste companies to invest in 40% of its shareholding and partner it in pursuing China’s rapidly developing municipal waste management market.

In August 2009, following Shanghai Chengtou’s selection of Waste Management as the preferred bidder and successful due diligence during the bid preparation, Shanghai Chengtou announced that it had accepted Waste Management’s offer and the investment contract was signed with deal closure following in March 2010. The 40% stake in SEG was valued at a reported 970 million Chinese Yuan (~US$142 million).

Following initial investigations from a wide range of advisors, it quickly became apparent that understanding and managing environmental liability was a critical factor in ensuring the sustained viability of the proposed investment.

Our Approach

ERM was in an ideal situation to provide the services, knowledge and depth of expertise required by WTI.  ERM had established its first office in China in 1994; subsequently growing its business to current levels of employing some 110 full time environmental professionals working from offices in Shanghai, Beijing, Guangzhou and Chengdu.

Over the years, ERM has assisted many Fortune 1000 companies to establish its presence in China, helping them understand their EHSS liabilities and manage their compliance. To date, ERM has undertaken more than 3000 EHSS assessments across China, resulting in the accumulation of a considerable body of knowledge on the environmental conditions across the country and the consequent EHSS challenges faced by our clients.

We have maintained an in-depth knowledge of the Chinese regulatory situation as the country transitions from a developing country to a world class super-power and international manufacturing hub. 

Over the years, ERM has witnessed the growth and mounting complexity of China’s EHS and social regulations, with the previous strategy of “growth at any cost” being replaced by a more sustainable approach to the country’s continuing development and an increasing focus on public acceptance of development plans. Many international companies have struggled to keep up with the rapidly changing environmental situation, prompting ERM to set up a dedicated team to track the regulatory changes, develop an EHSS regulatory database and produce a regular news update to keep our clients better informed.

We have also positioned ourselves to bridge the gap between western expectations and Chinese reality, providing solid advice on issues of culture, clarity of the regulatory environment and enforcement. 

Benefits and Value

Working closely with WTI’s assessment team, we have:

  • walked them through the EHSS due diligence findings, 
  • helped them to assess the likely business impacts and 
  • assisting them to find solutions that meet their corporate and business needs.

Initial rapid site assessments were followed by more detailed Phase I and II investigations at key facilities. Research was undertaken to determine likely growth scenarios for Shanghai’s municipal waste and the impacts this could have for increased treatment and disposal capacity.

Considerable time has also been spent in identifying the status of facility EHSS compliance as part of ongoing compliance planning, explaining the mass of sometimes contradictory regulations and how these are applied in practice.

Throughout the initial due diligence process and subsequent more detailed assessments, ERM has been able to provide ongoing advice based on a comprehensive understanding of the current situation, reinforced with knowledge accumulated over ERM’s long presence in China. This has enabled WTI to focus rapidly on the key issues and develop responses that are appropriate in the Chinese context and also meet their corporate goals.

ERM will continue to advise WTI as they become more involved in the day-to-day operations of the new JV and its expansion into new markets, providing continuing due diligence, EHSS and other regulatory services in a business-wise and culturally sensitive way aimed at enhancing the new company’s success. 

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