Phosphate Rocks Chapter 45: Closure

After the sulphuric acid plant and the superphosphate plant, the next plants to close were the remaining acid plants. The wise Senegalese had invested development money from the World Bank to build their own phosphoric acid plants and gain some added value from their rich phosphate deposits.  

And yet, as so often happens, the market price for phosphoric acid plummeted when the new capacity came on-stream. Excess capacity in the USSR and a fall in demand in the developed world meant that the Senegalese would take a long time to pay off their debt. Tankers of phosphoric acid replaced boats full of powdered phosphate rock in Victoria Dock, but the price was not much different. 

The new nitric acid plant had only been running for three years when ICI headquarters decided to shut it down. It had performed well – a modern, efficient plant – but lacked the economies of scale enjoyed by larger units. Designed to produce steam to provide heat and power for the rest of the factory, as the other plants were mothballed, one by one, it became less and less efficient. 

The cost of running the nitric acid plants in Leith was far greater than running a few tankers of nitric acid up from Billingham. Various ideas were bounced around as to how to recover some of the investment. Mothball it and wait for better times? Demolish it for scrap? Move it? In the absence of Tall Willy’s good sense, the worst idea gained greatest favour. 

If anyone suggests to you that it would be a good idea to move a chemical plant from one location to another, then here is what you should say to them. 

No. 

The accountants looked at the shiny new plant with its £30 million value on their books and went out looking for a buyer. They managed to find another group of accountants not only willing to pay £8 million for the plant, but also willing to come and get it. 

Most engineers will be able to tell you that the true cost of a chemical plant breaks down into five parts. 

The first part is the engineering design. Every vessel, every valve, every instrument, every connection must be properly designed and specified. This is done by large teams of experienced engineers and designers working in open-plan offices producing reams of paper. Big paper, A1 drawings. Paper is cheap but people cost money, even Keith. This part is invisible and often forgotten but is the key to all projects. 

The second part, and the easiest to estimate, is the cost of the main equipment: reactors, pumps, compressors, tanks, columns, condensers, boilers. Lots of bits of shiny metal, easy to see and count and value. 

The third part is the civil and mechanical installation: the holes dug in the ground, the piles sinking like the roots of trees, driven down with massive percussive hammers to the same depth as the structures that will rise above them. The metal structures to cradle the columns and the piping to connect everything up. Not forgetting the pipe supports, and high-level vents and low-level drains and removable spools. Finally, the lagging to keep things hot, and the many layers of paint so that the plant beside the sea doesn’t rust away. 

The fourth part is the electrical instrument and control system. The motors and cables and sensors. The brain of a plant gets smaller and more agile as computer technology advances. The control system designed three years before a plant is built will be already out of date by the time it is started up. 

The fifth part is everything not included above. The cost of new boilers and cooling towers and air compressors and seawater pumps and roads and offices to run the plant, the finance costs of borrowing the money, the in-house project manager, project engineers, construction manager, safety advisors, commissioning team and the operators and maintenance teams who have to be hired long before the plant is running smoothly and making money. The raw materials and utilities for start-up, the disposal and write-off costs of the first material which is out of specification. The diesel generators and hired boilers and Portakabins. The local authority permits and registrations. 

A useful rule of thumb, in the absence of better information, is to assume that each of the five parts costs about the same. So, if you know the cost of the main equipment, multiply by five to get the cost of the plant. Of course, there are lots of exceptions: some companies don’t include the cost of their own people; if you are designing in the USA and building in China your travel budget will be significantly higher; a manually operated plant won’t have much instrumentation. And so on. 

All things being equal, the cost of the visible equipment represents about 20 per cent of the final cost of a complex chemical plant. 

If the accountants for the buyer had known this useful rule, they would have realised that if they paid £8 million for the equipment, the final cost of a five-year-old plant (by the time it was dismantled, moved and rebuilt) would be about £40 million, significantly more than a brand new plant. If it really was a small nitric acid plant that they wanted, and it was unclear why, given that the economics would not be any different, they would be better to start from scratch. 

However, the idea that they were getting a bargain had taken hold. High politics and career trajectories were tied up in the decision. Many seasoned engineers pointed out the folly of the enterprise and were sidelined. The board approved the deal based on a woeful underestimate of the risk, of the time it would take and the cost of completing it. The deal was the equivalent of selling the elegant, sunny, south-facing sitting room on the second floor of a prestigious New Town Georgian town-house in order to move the space inside it to a modern Belfast duplex. 

The nitric acid plant which moved from Leith never ran properly in its new home and was eventually shut down and demolished for scrap. It took many years of haemorrhaging money before the project was abandoned. 

The seasoned engineers were vindicated, but it gave them no pleasure. The failure of the venture affected ICI and their pensions.