India is reported to have more than 2.5 crore vehicles that need to be scrapped immediately. To begin this process, the Government of India announced a new End of Life Vehicle policy in August 2021. Analysts have given mixed response to the policy. Some think it is too weak to address a big problem. Some believe the policy, if communicated well, offers attractive incentives for owners to replace their old vehicles. Masood Mallick, MD of Ramky Enviro Engineers Ltd, belongs to the second lot.
Ramky is pioneering India’s efforts at extracting value out of scrapped vehicles. The company announced that it is setting up 26 facilities across India that can strip down old vehicles and recover metals and other valuable resources. Mr. Mallick seeks fiscal and GST support from the government for his company’s ambitious plans to be viable.
In a free-wheeling chat with Benedict Paramanand, Editor of SustainabilityNext, Mr. Mallick delved deep into the dynamics of the new business opportunity. More than that, he is excited about the positive environmental impact as well as the circular economy benefits for everyone in the ecosystem. Edited excerpts:
Your View on the GOI’s New ELV Policy
I think it’s a very progressive policy. It’s the first time there is a policy that speaks very clearly about vehicle scrappage and how to extract resources from it. I think the policy is not understood well, yet. Someone needs to articulate it better.
Without making much noise the policy addresses opportunities lying idle inside scraps.
If India can scientifically recover value from old rusting scrap vehicles, it will have a significant impact on the environment. India can mine less by using steel or aluminium recovered from the scraps. India imports 1.5 million tons of scrap a year for its mills even when it is sitting on mounds of old vehicles all over the country. If executed well India can reduce its import bill significantly and save on foreign exchange outflow.
There is an opportunity here, and there’s also a need. When you bring them together it can honestly make a big change. I think this is truly a forward-looking policy. You have the fleet that has aged and needs to be renewed. This is an opportunity to do it responsibly. You can get new vehicles on the road that are nicer, are safer and cleaner.
Stick not long enough, but the carrot is good
As an environmental student I agree that the stick is not long enough to ensure compliance to the new scrappage policy. Is the carrot big enough? Incentives on the registration fee is good. With 25% incentive on lifetime road tax and 5% or 6% discount on the value of the new vehicle are attractive. Finally, if you don’t want to buy a new vehicle, you can sell that certificate, it’s tradable.
There is a need for an ecosystem to support the translation of the policy intent into reality. And two areas where a lot of work needs to be done – one by the government and two by the private sector. We need a large number of automated testing facilities They have to certify vehicles really professionally.
We also need ecosystem around the collection, recycling and then putting the resource that we recover to responsible use. This is where people like us come in. We need hundreds of players like us in this space who will help collect these vehicles, aggregate and recycle them and take them to steel, aluminium, copper and plastic recovery facilities. There are plenty of circularity opportunities.
What Will These Facilities Really Do?
They will take the vehicles apart in a safe mechanical way especially oil, chemical substances, brake pads, potentially hazardous friction material, rubber etc. It is done using automated processes, hydraulic machines, cutters shears. We have to ensure that the fumes are being sucked into a filter system. Various such pollution control precautions are being taken.
Now to make this work, you know you need to have a large number of vehicles coming in. Our plants have a capacity to deconstruct 100 vehicles a day. And to put in so much capital and technology and to ensure there is no pollution we need scale, otherwise, we will lose money.
We have about one crore vehicles facing end of life today. Totally, it is estimated that India has 2.5 crore crore vehicles ready for scrapping. Even if it does not make a lot of commercial sense in the first few years, there is a big opportunity out there. It is better to recover resources than mine them afresh.
Who Will Pay for the Services
I’m a firm believer of the ‘polluter pays’ concept Who is the polluter here? Is it the person who uses the car? Is it the manufacturer? Or is it both? If you look at it from a philosophical standpoint, anyone who benefits from this activity should have the responsibility for the consequences.
Many original equipment manufacturers (OEMs) and auto companies are in touch with us because they want to see this ecosystem come up.
How Can Single Owners Take Advantage?
We are going to set up a technology platform and an application. If an owner comes and says he wants to get rid of his old vehicle and wants to do it responsibly, we should be ready to offer this service. It can be done both as a B2B and B2C play.
Lessons from Developed Markets
The Europeans are doing it the best. The US is still crushing old cars.
Will Auto Get Into Scrap Business if Lucrative?
I don’t think they will get into the business of recovery of steel or copper or plastic. That’s not their core business. They will prefer a different player to do it for them. They will be happy that we are there so that fleet renewal could be quicker.
What’s Your Revenue Model
Our revenue will come from essentially selling off the recovered materials. Until we reach a particular scale, our revenues will be low, and costs will be high. We basically will have to wait for scale to build so that these facilities become viable.
Are Recovered Steel Poorer than New Steel?
No, recovered steel is of very high-quality.
Are Government Incentives Attractive?
We are hoping so. We are hoping that through market-based instruments we can make it work to help make transition quicker and efficient.
We have a wish list – some capital subsidy and support through lower custom duty on some imported items will certainly help. We also want GST subsidy to promote the use of recycled materials. We think if the government pushes recycled materials, even a little bit this industry can take off.
Exchange for Recycled Materials?
Europe has had many material exchanges for recycled materials. We see that eventually getting formed here. But for this to work we need at least 300 players. In the long term I see all of these recovered/recycled commodities being traded to enable circular economy to work well.
Carbon Offsets Benefits?
Yes, carbon offsets are possible. If I just take the aluminium example, per tonne of aluminium spews out 17 tonnes of carbon. When you use recycled aluminium like the one that we will be offering, it will be only 0.3 tonnes of carbon per tonne of aluminium. There is a significant upside.
How do we monetize it? I don’t know that yet. I don’t have the foresight for that yet. The crystal ball that will allow me to predict the tradable value of carbon? If that happens, instead of losing money in the first five years, I might lose money only in the first three years.
We will be auditing the whole process stringently. Because if there is that opportunity to sell that material along with the accumulated sort of sustainability benefit, then we want the audit trail to certify that. So from a technical standpoint, we are ready but in our financial models, we’re not factoring any value of carbon at this moment.
Cost of Setting Up Your Units
Depending on the location each plant can cost from Rs. 30 to 50 crores. But we think once we see scale investment cost will drop. The key is to localise our expertise. Localization is extremely important and therefore we are doing our best to leverage technology, but make it in India. And I think that is the balance that we’re trying to maintain, which is sourced technology from the best in the world, but localize it and build that in India.
Now our demand for this equipment is significant and therefore that is an incentive for foreign companies to localize fabrication or the assembly. We want to minimize import. And typically beyond the first few such plants, we don’t want to import.
Leading European auto majors are also engaging with us on this aspect of technology because it’s part of their sustainability program. And it’s good for them, right? I mean, they don’t have to worry about doing it, somebody is doing it for them so they can sort of leverage that, which forms some of these potential partners, as well.
How About Learning from the Chinese
Two different types of lines exist in China. Some of the Chinese are going down the American route – the whole body compaction route. We don’t believe in that. But some Chinese facilities are very much like European facilities where every component is taken apart and is separately de-polluted. That is the philosophy that we are aligned with, and I think what we need to learn from and understand from China is doing it at scale. We have been researching this space for several years now. There is a reasonable body of work already. I am pretty sure whatever I’m saying to you right now, a year from now I will have better insights because obviously, we would have learnt more, we would have known more, and five years hence you know, maybe we will be doing things even better.