SOCIO-ECONOMIC ANALYSIS Public version

Legal name of applicant: Grupa Azoty S.A.

Submitted by: Grupa Azoty S.A.

Substance: Trichloroethylene

Use title: Industrial use as a process chemical in

caprolactam purification

Use number: 1 Disclaimer

This report has been prepared by Risk & Policy Analysts Ltd, with reasonable skill, care and diligence under a contract to the client and in accordance with the terms and provisions of the contract. Risk & Policy Analysis Ltd will accept no responsibility towards the client and third parties in respect of any matters outside the scope of the contract. This report has been prepared for the client and we accept no liability for any loss or damage arising out of the provision of the report to third parties. Any such party relies on the report at their own risk. Table of contents

1 Summary of socio-economic analysis ...... 1 1.1 Description of the use and importance of TCE ...... 1 1.2 Requested review period...... 1 1.3 Human health impacts from the continued use of TCE...... 1 1.4 Economic and social benefits from the continued use of TCE...... 2

2 Aims and scope of the SEA...... 3 2.1 Aims and scope of the SEA...... 3 2.2 Definition of “Applied for use” Scenario...... 47 2.3 Definition of “Non-use” Scenarios...... 49 2.4 Information on the length of the review period...... 57

3 Analysis of Impacts...... 61 3.1 Human health impacts...... 61 3.2 Environmental impacts ...... 69 3.3 Economic impacts ...... 70 3.4 Social impacts...... 78 3.5 Wider economic impacts ...... 85

4 Combined assessment of impacts...... 89 4.1 Comparison of impacts ...... 89 4.2 Distributional impacts...... 90 4.3 Uncertainty analysis...... 92

5 Conclusions ...... 93 5.1 Socio-economic benefits of continued use...... 93 5.2 Residual risks to human health and the environment of continued use...... 93 5.3 Factors concerning operating conditions, risks management measures and monitoring arrangements...... 94 5.4 Factors relating to the duration of the review period...... 94

6 Annex 1 – Grupa Azoty S.A. PA6 Products...... 97

7 Annex 2 – Justification for confidentiality claims ...... 101

8 Appendix 1 - References ...... 109

1 Summary of socio-economic analysis

1.1 Description of the use and importance of TCE

Trichloroethylene (TCE) (EC number: 201-61-04, CAS number: 79-01-6) is a process chemical used in caprolactam purification at Grupa Azoty S.A.’s Tarnów site in Poland. Grupa Azoty S.A. is the parent company within ‘the Grupa Azoty Group’ and its operations are inextricably linked to those of other companies within the Group, namely Grupa Azoty Puławy, based in Puławy, Poland and Grupa Azoty ATT Polymers, based in Guben, Germany. The production and sales of all three companies would be significantly affected by a refused Authorisation for TCE (see Section 2.1.2).

At Tarnów, Grupa Azoty S.A. manufactures considerable quantities of caprolactam, polyamide-6, modified grades of the polyamide, polyoxymethylene polymers as well as several fertiliser products such as high-quality ammonium sulphate, ammonium sulphate nitrate and calcium ammonium nitrate. The integration of production at the Tarnów site (caprolactam is used internally to make polyamide-6, while ammonium sulphate fertiliser is generated as by-product of the manufacture of caprolactam and then used to make value-added ammonium sulphate nitrate) drives the profitability of Grupa Azoty S.A. and underpins the importance of the use of TCE (see Section 2.1.5). 1.2 Requested review period

Grupa Azoty S.A has selected toluene as its preferred replacement for TCE, as discussed in the AoA document. However, this alternative is not technically and economically feasible at present. If new facilities were constructed and further R&D was carried out in the hope of improving the technical feasibility of the toluene-based extraction process, the substance would have the potential to become a technically feasible alternative in the future. The practical steps required to make the technology technically feasible would require a minimum of 12-15 years from 2016, assuming R&D does not identify further issues with the technology under investigation and without considering the time required for securing the needed finance for such a transition. Therefore, the applicant submits this Application for Authorisation with a request for a review period of 12-15 years that would allow a viable replacement of TCE with toluene (see Section 2.4). 1.3 Human health impacts from the continued use of TCE

Grupa Azoty S.A. is capable of producing significant tonnages of caprolactam while employing only 15 permanent and five back-up workers on its production plant. All processes at the plant involving TCE are closed, automated processes and all workers involved use appropriate personal protective equipment. The CSR stipulates that the dermal pathway is negligible in the context of the total exposure, thus inhalation exposure is the only pathway considered in this SEA (see Section 3.1.1).

Both air monitoring and bio-monitoring data are available from recent testing and the latter have been used as most appropriate and reliable. The maximum exposure level varies by job title with the highest being 7.2 mg/m3 for the five operators (this is also assumed to apply to back-up workers), 4.2 mg/m3 for the five lab staff and 2.3 mg/m3 for the five co-ordinators (see Table 3-4).

Using both the RAC-published exposure-risk relationship for the carcinogenic kidney effects of TCE and the one that the applicant has generated and documented in the CSR, the number of estimated kidney cancer cases over an assessment period of 12 years is <0.0003 and over an assessment period

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 1 of 15 years is <0.0004. These estimates are based on very conservative assumptions. Therefore, there is very low statistical probability of the development of such cancers among the exposed worker population, as a result of the combination of very low numbers of affected workers and very tightly controlled exposure (see Table 3-12).

Monetisation of these human health impacts results in annualised costs of <€40 and present value costs (discounted at 4%) of <€500 over a period of 12-15 years, when the RAC-published exposure- risk relationship is used. These are clearly insignificant figures, in comparison to the costs that would be associated with a refused Authorisation (see Table 3-13). 1.4 Economic and social benefits from the continued use of TCE

Having considered all options available following the loss of the 100 kt/y of caprolactam production capacity at Tarnów as a result of a refused Authorisation, the option that would make best ‘business sense’ would be the outright closure the entire production site at Tarnów while maintaining operations at the other two linked plants in Puławy and Guben. Any other course of action would mean that Tarnów would operate at a significant loss and sooner or later would have to be shut down as unviable (see Sections 2.3.2-2.3.3 and Table 2-29). Consequently, the continued use of TCE would allow the following benefits to materialise (see Sections 3.3.1 and 3.4.1):

 Grupa Azoty S.A. would preserve a projected turnover of over 12- 15 years with an associated profit of and would also avoid a (one-off) decommissioning and remediation cost of

 The current workforce of 2,094 at Grupa Azoty S.A. would be maintained and the planned generation of a further 80 jobs would materialise. Additionally, 5,870 indirect jobs would be maintained in Poland and 3,478 indirect jobs would be maintained in rest of the EU and third countries, bringing the total number of jobs preserved and generated to 11,522. Social impacts of the closure of the Grupa Azoty S.A. facility resulting from a refused Authorisation would be particularly felt in the area around Tarnów, with impacts arising for locally-based subsidiary companies which provide maintenance and logistics services as well as several other external service suppliers. Unemployment rates in the area are already much higher than the Poland national average and the closure of the Grupa Azoty S.A. site could exacerbate the poor labour market conditions

 Customers of Grupa Azoty S.A., and in particular those using PA6 and POM, would not have to face increased costs for product re-approvals and R&D for materials obtained from alternative sources. Users of PA6 would also avoid having to source PA6 from their competitors, while users of AS would avoid facing a decline in the EU market availability of high-quality AS crystals. Impacts on customers would be particularly felt in Poland where a large customer base for Grupa Azoty S.A. is located, mainly comprising SME companies

 Polish tax authorities would continue receiving tax arising from the continued operations of Grupa Azoty’s Tarnów site. The total amount of tax to be collected over 12-15 years is estimated at at approximately per annum.

Overall, it can be demonstrated that the benefits of continued use of TCE greatly outweigh the risks to human health (and the environment).

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 2 2 Aims and scope of the SEA

2.1 Aims and scope of the SEA

2.1.1 Introduction

The ECHA document establishing a reference dose response relationship for carcinogenicity of TCE concluded that due to the genotoxic potential of the substance, TCE should be evaluated as a non- threshold carcinogen with respect to risk characterisation (ECHA, 2014).

As a result of the ‘non-threshold’ nature of the substance, in line with ECHA’s guidance on the preparation of an Application for Authorisation (ECHA, 2011a) and Article 60(4) of the REACH regulation, the applicant can only be granted an Authorisation if it is demonstrated that:

 There are no suitable alternatives to the Annex XIV substance  The socio-economic benefits of use of the Annex XIV substance (for the uses for which he has applied) outweigh the risks to the environment and human health.

The AoA has conclusively demonstrated that there are currently no suitable alternatives to TCE available to the applicant and this SEA aims to show that the severe adverse socio-economic impacts that would arise along the relevant supply chains from a refused Authorisation would greatly outweigh any reduction in the risk to human health from the continued use of TCE.

As will be detailed below, the consequence of a refused Authorisation would be the closure of the Grupa Azoty S.A. production site at Tarnów in Poland, which as well as depriving the owners of its business and revenues, would affect associated businesses within the Grupa Azoty Group and cause severe social impacts on the surrounding area. Many downstream users are also likely to be impacted.

The SEA also aims to support the arguments made by the applicant as to an appropriate renewal period for the Authorisation (12-15 years). This is based on a detailed analysis of the R&D work completed and that required to be undertaken by Grupa Azoty S.A. before a successful transition to a feasible alternative can be effected, as described in the AoA.

2.1.2 Grupa Azoty Group structure

Grupa Azoty S.A. (the applicant) is the parent company within ‘the Grupa Azoty Group’. The Group offers its customers a diverse portfolio of products, from mineral fertilisers and engineering plastics through to oxo alcohols, plasticisers and pigments.

Although the applied-for use of TCE is as a process chemical in caprolactam (CL) purification at Grupa Azoty S.A.’s Tarnów site, due to the long chain of integration in the relevant production processes, synergies between companies and the potential impacts associated with a refused Authorisation, in the SEA, it is necessary to consider a wider scope of activities within the Group. Consequently, a short but important overview of its organisational structure is provided below.

As of 31 December 2013, the Grupa Azoty Group comprised Grupa Azoty S.A. (the parent company, the applicant) and eight subsidiaries (seven companies in which the parent holds ownership interests above 50%, and one indirectly controlled entity), including:

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 3

2.1.5 Relevant supply chains

Introduction

Given that the “Non-use” Scenario studied in detail in this SEA focuses on the closure of the applicant’s production site at Tarnów, it is necessary to consider the core products produced at this site and not just those which are directly associated with the use of TCE. Consequently, the supply chains that need to be considered relate to the production of CL, PA6, AS, ASN, CAN and POM, as well as modified plastics, mainly those based on PA6 and POM2.

Suppliers to the applicant

Considering TCE itself, the applicant is not a manufacturer, but, rather, a downstream user of the substance. Grupa Azoty S.A. consumes TCE in the range of 100-1000 t/y t in 2013), and the substance is used exclusively in the purification of some 100,000 t/y t, in 2013) of CL produced at the plant in Tarnów. It is worth noting that TCE has been registered at a tonnage band of 10,000-100,000 t/y3. Therefore, the quantities of TCE consumed by Grupa Azoty S.A. represent only a very small fraction of the overall tonnage of the substance placed on the market in the EU. Consequently, impacts on manufacturers and distributors of TCE are assumed to be modest, and will not be given further consideration in this SEA.

Further discussion on raw materials purchased by Grupa Azoty S.A. and potential upstream impacts is confined to a qualitative analysis in Section 3.3.1, as the applicant considers that these impacts are not of particular significance in the context of the overall SEA for the Authorisation of TCE.

Caprolactam (CL)

Introduction

As discussed in the AoA, CL was first synthesised in 1899 by Gabriel & Maas by heating ε- aminocaproic acid. However, commercial interest in the material developed in 1937, when it was recognised that the substance could be used and a precursor for PA6 (Gunardson, 1997). Since then, CL has gained importance and large scale production has increased rapidly (Ritz, et al., 2014). To this day, the use of the substance in the production of PA6 (through polymerisation) remains its primary use.

As already noted, Grupa Azoty S.A. has a 100kt/y capacity for the manufacture of CL at Tarnów and Grupa Azoty Puławy have a 70 kt/y capacity for the substance. The applicant manufactures CL from cyclohexanone which is derived from phenol and benzene. The majority of the substance is then further processed internally to PA6, while a much smaller proportion is sold to customers (Grupa Azoty S.A. understands that further conversion to PA6 is also the core application of its customers for this substance). By 2020, Grupa Azoty S.A. plans to process all CL it produces to PA6, ceasing external sales. This is part of the Grupa Azoty Group investment plan and is further described below, and in Section 2.2.

2 The applicant does also make small sales of some other substances (e.g. precursors to caprolactam production such as cyclohexanone, catalysts etc.). However, in order the keep the SEA scope manageable, analysis has focused on the core products. 3 Based on an online search using the substance’s CAS number, undertaken on the ECHA Dissemination Portal (http://echa.europa.eu/web/guest/information-on-chemicals/registered-substances) on 15 July 2014.

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 8 also be noted that many of the large European CL producers also have PA6 production capabilities, and consequently use much of their own CL in further ‘value-added’ production activities.

Caprolactam market developments

It appears that global growth in the CL market is expected in coming years. For example, Transparency Market Research (2014a) reports that the CL market is expected to grow globally to a value of US$13.80 billion by 2019 (with a compound annual growth rate, CAGR, of 6.9%). Credit Suisse (2014) predicts a lower 2-3% CAGR, in line with historical margins and Deutsche Bank (2011) anticipates growth to be ca. 3-5% per annum.

On the other hand, however, this growth will predominantly be driven by increasing consumption and demand for CL in China. Supporting this view, Deutsche Bank (2011) notes that Asia remains the major demand driver for CL (with China being the ‘key player’), Transparency Market Research (2014a) notes that Asia Pacific is expected to be the fastest growing regional market in terms of both CL consumption and production, and Credit Suisse (2014) states that China represents the only significant (double-digit) growth region.

In the last few years, there have been several sources citing that the market in China has been undersupplied and heavily reliant on imports of CL (e.g. Deutsche Bank (2011); The Wall Street Journal (2013); Bae & Kim (2012)). Countering this increasing demand and internal undersupply however, are numerous capacity expansions for CL plants in China. Indeed, in 2012, China’s Ministry of Industry and Information Technology detailed its ‘12th Five-Year Petrochemical Industry Development Plan’, announcing nine new CL capacity expansion projects. In the wake of these expansions, Bae & Kim (2012) noted that China’s self-sufficiency rate for CL should rise from below 50% to more than 80% and accordingly CL imports to China were expected to gradually decline.

In this context of this capacity expansion, Ube Industries, announced that it was to cease production at its Sakai Factory in Japan (one of the four production plants the company owns) and as part of its reasoning surrounding the plant closure the company noted that “market conditions for caprolactam have been heavily eroded by the entry of new manufacturers and successive production expansion of existing manufacturers centring on Chinese companies” (Ube Industries, 2013).

More recently, in a ‘2014 Outlook’, ICIS (2014) cited that there are particular concerns for European CL players that an additional 500,000 tonnes of capacity due to come online in China in 2014 will place downward pressure on European prices, with China being expected to become self-sufficient on CL by 2015.

Indeed, this information is complemented by Credit Suisse (2014) in their estimation of global supply and demand of CL in the coming years. A key conclusion of their report is that global demand is unlikely to accommodate oncoming supply additions, with a forecast of 30% global oversupply of CL by 2016.

The Grupa Azoty Group has also highlighted this issue (amongst others) in their Directors’ report for 2013 (Grupa Azoty, 2014a). The Group notes that, in 2013, CL prices (which depend heavily on demand for polyamide and cost of raw materials pegged to crude prices) were driven by volatile benzene prices and the growing production capacities in China, which led to oversupply and lower demand for the feedstock. The average annual contract price of liquid CL in 2013 was €1,886/tonne, down 9% year on year. The situation has further deteriorated following a temporary decline in demand for PA6 on the back of the general economic situation worldwide.

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 10

Azoty S.A. customers may be able to easily source CL from a competitor of Grupa Azoty S.A., or import from a non-EU country. However, the applicant can highlight a number of relevant points which demonstrate that the ability of his customers to source CL from alternative sources may in fact be limited:

 The applicant is aware of competitors’ plans to close down some CL plants in Europe, which may affect the market availability of the substance

 European CL exports are perhaps not likely to decline by the same proportion as new capacities grow in Asia. Asian PA6 producers are involved mainly in textile applications which require the highest quality standards of the raw materials and cannot use the local CL (the applicant understands that a considerable proportion of CL plants in China use coke benzene for CL production which is of a lower quality than the petrochemical benzene precursor used in Europe). Consequently, the applicant believes that there will be a sustained demand for European products in overseas markets

 The quality of Asian CL is inadequate for many of the applicant’s basic PA6 applications such as film and bulk continuous filament. In addition, a number of compounding formulations have high raw materials requirements. It is likely that downstream users (producing PA6) will face quality challenges for some time, and the only realistic option for European PA6 producers will be to source CL locally. This could result in higher demand and, as a result, higher prices, at least in the short term (it must also be noted that other manufacturers of CL in Europe are subject to TCE Authorisation requirements, therefore their future supply of CL cannot be guaranteed at this stage)

 The applicant understands that CL from Asia can be supplied only as flakes. Most PA6 plants in Europe are not technically equipped to process the flakes. Developing the capability to handle and process flakes would require additional, high cost investments and, at the same time, would impact negatively on companies’ competitiveness

 The applicant believes that replacing a European supplier with Asian suppliers is likely to introduce an element of uncertainty, supply instability and irregularity for several reasons, least of all the distance and lead times involved. This could cause interrupted production and deliveries of PA6 to end-users.

Conclusion

Despite a forecast oversupply of CL on the global market in coming years, the applicant believes that its customers may face problems in sourcing CL from alternative sources at an acceptable quantity and quality. Associated impacts are discussed in Section 3 of this SEA, although it must be emphasised that in the context of the “Applied for Use” Scenario, the applicant is planning to cease external sales of CL by 2020.

Polyamide 6 (PA6)

Introduction

Since the 1930s, PA plastic, which is better known under its trade name nylon, has been in use for various (textile) applications. Originally produced to replace the use of silk for parachutes, the substance became extremely popular for stockings (Dupont, 2014). It should be mentioned that

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 12 there are two distinct versions of polyamide which relate mostly to the production process and the raw materials needed. PA6,6 was originally produced commercially as Nylon by the chemical company DuPont in 1939 while PA6 was produced by the German chemical company I.G. Farben with the trade name Perlon.

Grupa Azoty S.A. is Europe’s fifth-largest integrated manufacturer of PA6, and the leading producer of PA6 in Poland. Within the Grupa Azoty Group, production of PA6 also takes place at Grupa Azoty ATT Polymers GmbH in Guben, Germany. At the Tarnów facility, PA6 is produced under the Tarnamid® trade name and at the Guben facility it is produced under the Alphalon™ trade name (Grupa Azoty, undated-a).

The Grupa Azoty Internet site describes both Tarnamid® and Alphalon™ as high quality thermoplastic engineering plastics in the form of granulate for injection moulding and extrusion made by polycondensation of ε-caprolactam. Nevertheless, each company manufactures products of variable specifications at different prices. The highly diverse nature represented by the standard and modified grades of PA6 offered by the Grupa Azoty Group is an important point to consider in this SEA, and Grupa Azoty S.A. are able to tailor the PA6 products it produces to precise customer needs. Indeed, as will be explained below, for many downstream users, sourcing alternative supplies of PA6 would not be as simple as buying a generic form of the polymer material in the open market. This is to an extent reflected in the wide range of PA6 products advertised on the Grupa Azoty S.A. Internet site. This list of relevant products has been reproduced for the convenience of the reader in Annex 1 of this SEA, which also included details of the process for tailoring products to customers’ needs.

In Poland, due to the increasing importance of the automotive sector and other industries using structural fibres, the demand for plastics is growing and there are increasing numbers of small and medium-sized private companies, often family businesses, which use polyamides and composites produced locally (Grupa Azoty, 2014b). In this context, Grupa Azoty S.A. has an opportunity to become a key regional centre supplying these products, and is in the process of expanding its PA6 production capacity at Tarnów, from 45kt/y to 125 kt/y. Further details are provided below and in Section 2.2, but this expansion, coupled with the PA6 capacity figures at Grupa Azoty ATT Polymers GmbH will allow the Group to convert all the CL it produces to the value-added PA6 product.

EU capacity and production levels

As all polymers are exempt from registration and evaluation under REACH, an online search for PA6 registration related information on the ECHA Dissemination Portal has not been undertaken. However, the potential production and the import/export of PA6 were investigated for the EU using, respectively, the Eurostat manufactured Goods (Prodcom, DS_066342)8 and EU-27 trade since 1988 (DS_016890)9 databases10.

Unfortunately, the Prodcom codes are not disaggregated for the substance, and subsequently production data cannot be displayed for PA6. This is also the case for the external trade nomenclature reference for PA6. Subsequently, no accurate figures from Eurostat can be provided.

The applicant has, however, been able to provide figures on the size of the total EU market for PA6 as well as for imports and exports to and from the EU.

8 See http://epp.eurostat.ec.europa.eu/portal/page/portal/prodcom/introduction. 9 See http://epp.eurostat.ec.europa.eu/portal/page/portal/international trade/data/database. 10 Date of search: 4 March 2014.

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 13

prices of PA6 sourced from other suppliers; as downstream users would be under severe time pressure to secure re-approvals of the needed PA6 materials, PA6 suppliers might find the opportunity to increase their prices

 Mixing of products: in many cases, Grupa Azoty S.A.’s customers do not mix the PA6 they purchase with any competitors’ grades. The R&D specialists of Grupa Azoty S.A. and the customer (PA6 user) develop together the specific applications solely on the basis of the Grupa Azoty S.A.-made PA6 polymer. This gives the end-user the full guarantee that the final product meets always the highest standards in terms of the quality parameters and its stability. On the other hand, the customer is able to set out his own processing parameters that ensure constant polymer characteristics and behaviour in the material supplied by Grupa Azoty S.A.

 Cost of imports: imports of PA6 from outside the EU are affected by import duty and additional freight costs. As a result, the prices of PA6 may be higher, impacting on the profitability of customers’ activities

 Loss of benefits from associating with Grupa Azoty: Grupa Azoty manufactures and sells a very diverse wide range of PA6 products. There would be a risk that the European PA6 capacities, in respect of different grades/technical requirements, would not be sufficient to meet the market demand and that new investments would be necessary. Such a scenario would place some customers under significant pressure. In addition, Grupa Azoty offers its customers unique technological knowledge, R&D support, production experience and technical assistance, as indicated above

 Reliance on competitors: most of the customers (bulk continuous filament and compounding) would be forced to source PA6 from their direct competitors. Most manufacturers of raw PA6 are integrated with further processing of their polymers, i.e. they are also important players in these two processing sectors and compete in the finished products markets against independent producers who buy PA6 from them. Conversely, Grupa Azoty S.A. may be involved in small-scale compounding activities thus does not really compete on the compounding market against its customers who buy raw PA6 from Grupa Azoty S.A. This would be another reason of the possible increase in the price of PA6 which Grupa Azoty Group’s customers may face, as other PA6 players’ interest would certainly not be to support their competitors.

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 19 Use number: 1 Legal name of applicant: Grupa Azoty S.A. 20 Conclusion

Despite a forecast oversupply of PA6 on the global market in coming years, the applicant has in place concrete plans for the expansion of its PA6 production capacity. This will allow the completion of the internal integration plan, which will secure future profitability through sales of value-added PA6 products.

There are clearly several PA6 producers both in the EU and outside the EU with China becoming a key player on the global market. However, should the applicant’s capability of producing PA6 be impacted, there would be notable consequences on the relevant downstream users, particularly in the domestic market of Poland but also in the EU more generally. Sourcing the required PA6 material (particularly modified grades in sensitive applications) at the quality and quantity required might prove challenging due to the need for re-approving technical applications of PA6. In the short- term, inability of Grupa Azoty S.A to place its PA6 products on the market would put several SME companies under significant time, money and supply pressure.

Ammonium sulphate (AS)

Introduction

AS is a nitrogen fertiliser, containing 21% nitrogen and 24% sulphur. As noted by Kramer (2004), the substance can be produced:

 By synthesis from coke-oven by-product gases  As a by-product of either CL production or methyl methacrylate production  By direct synthesis from ammonia and sulphuric acid  From sulphur oxide-rich tail gas that is treated with ammonia.

Because of its increasing availability as a by-product from other chemical production activities, AS is not normally produced via direct synthesis (Kramer, 2004). Indeed, the presence of AS as a by- product in the production of CL is a significant benefit to Grupa Azoty S.A. and the substance is a key semi-finished and final product bonding two business activities of Grupa Azoty S.A. (fertilisers and plastics) as a result of technological optimisation and infrastructural synergies.

Typically, yields of 2.5 - 4.5 tonnes of AS per tonne of CL can be achieved from co-production of CL (OECD, 2014). The value achieved by the applicant is 4.3 t/t CL (i.e. the applicant has a capacity to produce 430 kt/y of the substance).

AS is one of the most widely used nitrogen fertilisers for crop production (Transparency Market Research, 2014b). According to IHS (2013), AS accounts for about 4.7% of the global nitrogen fertiliser market. As a spring-time fertiliser, AS may be used for all cultivated plants: AS is particularly recommended for use as an early-spring fertiliser of crucifer plants (rape, oil-yielding rape, mustard, cabbage, cauliflower, cabbage turnip), leguminous plants, potato, onion, leek, garlic and horseradish13. One of the main advantages of AS as a fertiliser is its ability to maintain a good pH balance in alkaline soils. When AS is exposed to water in the soil, it releases acid forming ammonium ions, which address issues of excess alkalinity14. In addition, AS provides plants with a

13 Information accessed at: http://Tarnów.grupaazoty.com/en/oferta/nawozy/32/36 14 Information accessed at: http://www.wisegeek.org/what-are-the-pros-and-cons-of-ammonium-sulphate- fertiliser.htm

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 21

Grupa Azoty S.A. is one of the major producers of ASN in the EU. Grupa Azoty S.A.’s market share in the domestic market suggests that inability to supply the key products of ASN (and CAN Standard 27, see below) to its current business partners would cause considerable disturbances in the activity of these companies in the domestic market. It must be noted that the Polish market is mostly a market for fertilisers with sulphur, including ASN, the only producer of which is Grupa Azoty S.A.

On the other hand, there is increasing demand for ASN fertilisers in the rest of the EU, which does not support the argument that the domestic Polish market could necessarily be supplied by imports from other sources.

Conclusion

ASN is a key multi-component fertiliser produced in significant volumes by Grupa Azoty S.A. The product utilises internal integration with AS produced as a by-product from CL production and Grupa Azoty S.A. has in place concrete plants for the expansion of its ASN production capacity, allowing a higher proportion of AS to be converted to this value-added product.

There are clearly several ASN producers both in the EU and outside the EU with China becoming a key player on the global market. However, the applicant is producing a significant volume of the product and is the only domestic supplier to the Polish market, and thus it can be assumed that should their capability of producing ASN be impacted, there may be consequences on the relevant downstream users, particularly Polish ones, who may struggle to find adequate quantities of ASN from other EU suppliers.

Calcium ammonium nitrate (CAN)

Introduction

CAN is produced from ammonium nitrate and finely pulverised calcium carbonate. It contains no less than 20.5% and up to 28% of nitrogen, half of which is in the form of ammoniac nitrogen and the other half in the form of nitrate nitrogen. It is produced as white, off-white or grey granules or prills25. CAN is marketed by Grupa Azoty S.A. under the trade name CAN Standard 27. Unlike the AS and ASN fertilisers, the product does not have a direct (or semi-direct) link with the production of CL at Tarnów. However, under the selected “Non-use” Scenario, given that site closure is the most probable outcome, the supply chain for CAN is relevant in the context of this SEA. At Tarnów, Grupa Azoty S.A. have a 212k/t y production capacity for the substance (Grupa Azoty, 2013a).

CAN is suitable for use on all types of soils and plants. It can be applied to arable land, in orchards, pastures, gardens or other cropland for every crop which requires nitrogen fertilisation (Grupa Azoty, undated-b). This fertiliser is considered superior to AS, as it is more soluble in water and the presence of calcium prevents the development of acidity within the soil (Jain, 2008).

25 FAOSTAT Glossary, information accessed at: http://faostat3.fao.org/faostat- gateway/go/to/mes/glossary/*/E

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 33

Moreover, the approval process is a costly one and, in many cases, customers use only Grupa Azoty S.A.-made POM and are not allowed to consume polymer sourced from competitors due to the specifications of end-users’ authorisations. In case they would not be able to source POM from Grupa Azoty S.A., they would be forced to find new suppliers and carry out the new technical approvals from scratch. This requires the identification of the appropriate product and it is cost and time-intensive (the issue is similar to that described in Annex 1, for PA6). In the very competitive market Grupa Azoty S.A.’s customers operate within, these companies run the risk of seeing their reputation being damaged as they would not be able to deliver their products to end-users in time, they would be faced with the cost of new approvals and, ultimately, they may lose market share.

Therefore, even though Figure 2-20 shows that Poland (in which Grupa Azoty S.A. is the sole producer) accounts for only 1% of total global POM production and ca. 4% of total EU production, impacts on customers from Grupa Azoty S.A.’s inability to supply POM would be significant, especially companies in the automotive sector33.

Conclusion

The POM market at present is currently growing and this is set to continue at least until 2018. Therefore, market availability may not become a critical issue for Grupa Azoty S.A.’s customers. Importantly, however, a switch to an alternative supplier will cause problems in the short to medium-term as POM users will need to identify the new supplier, approve the supplied POM grade(s), and undertake R&D and development of new products which will be subject to a long and costly approval process. This would affect these companies’ ability to compete in their markets, particularly in the automotive sector, which has strict approval requirements.

Summary

In this Section, the applicant has defined and considered the relevant downstream supply chains in the context of this SEA (i.e. for the core products that Grupa Azoty S.A. would lose in accordance with the selected “Non-use” Scenario, when compared to the “Applied for Use” Scenario). This has also allowed the applicant to describe (to some extent) the ability of his downstream users to source the relevant products elsewhere, and consequently allowed for the identification of potential impacts down the relevant supply chains. In this context, Table 2-24 highlights key points to consider.

Given that downstream users have not been consulted regarding the potential impacts of a refused Authorisation and the subsequent closure of the Grupa Azoty S.A. production site at Tarnów, the discussions of impacts on downstream users in Section 3 will largely be qualitative.

On the other hand, direct impacts on the applicant will be assessed quantitatively, wherever possible, as these are the key impacts to arise from a refused Authorisation. In this respect, the information in this Section is also useful in relation to Section 0, specifically where the applicant considers impacts in terms of the losses of future sales turnover and profits over the relevant assessment periods. That is, the market information does not show any drastic market changes for

33 The implications of reformulating automotive parts have been raised by the automotive industry in the past. An example is offered by ACEA’s response to the public consultation for a previous Application for Authorisation (for DEHP) available on ECHA’s Internet site: http://echa.europa.eu/documents/10162/18074545/a4a comment 127 1 attachment en.pdf (accessed on 6 August 2014).

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 44 any of the substances assessed,

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2.3 Definition of “Non-use” Scenarios

2.3.1 Introduction

The AoA has conclusively demonstrated there are no technically and economically feasible alternatives available to the applicant and based on detailed R&D plans this will be the case for (at least) 12-15 years.

Consequently, the immediate outcome of Grupa Azoty S.A. no longer being able to use TCE following the Sunset Date in April 2016 will be the cessation of production of the 100 kt/y CL plant at Tarnów. In addition to the loss of this CL, Tarnów’s capacity for 430 kt/y of high quality AS (produced as a by- product in CL production) would also be lost (as would the associated production of the value-added ASN).

The immediate knock-on effect of losing 100 kt/y of CL capacity at Tarnów would be that the Grupa Azoty Group’s CL manufacturing portfolio would be reduced from 170 kt/y to 70 kt/y (with the entire residual capacity at Puławy). This will of course leave a significant internal shortfall of CL to be converted to PA6 at the Tarnów and Guben facilities.

Given the strong synergies concerning the production and utilisation of CL and PA6 between Grupa Azoty S.A., Grupa Azoty Puławy and Grupa Azoty ATT polymers, there is a variety of potential ways that Grupa Azoty S.A. and subsidiaries could react to the above-described effects. All realistic options have been set out in the following “Non-use” Scenarios, which are considered over the two assessment periods of 12 years and 15 years, starting from the Sunset Date in 2016:

 “Non-use” Scenario 1: Under this scenario, the CL plant in Tarnów will close and the PA6 plant in Guben will also close. Grupa Azoty S.A. would continue to operate the PA6 plant at Tarnów by obtaining all CL from Puławy and also by obtaining additional imports of CL from the open market

 “Non-use” Scenario 2: Under this scenario, the CL plant in Tarnów will close and the PA6 plant in Guben will also close. Grupa Azoty S.A. would continue to operate PA6 production at Tarnów by obtaining CL from Puławy. Grupa Azoty S.A. would not attempt to obtain additional imports of the substance

 “Non-use” Scenario 3: Under this scenario, Grupa Azoty S.A. would close the entire production site at Tarnów. The PA6 plant in Guben would remain open, operating with CL made in Puławy (Puławy may underutilise its CL capacity or attempt to sell to third parties what cannot be used at Guben).

These scenarios and their eventual outcomes are described in detail in the following sections. In summary, however, the applicant has calculated that attempts to continue production at Tarnów under either “Non-use” Scenario 1 or 2 would lead to consistent and significant financial losses and the eventual cessation of production and closure of the site at Tarnów (on top of the additional planned closure associated in the scenarios at Guben). Consequently, Grupa Azoty S.A. considers “Non-use” Scenario 3 (the direct site closure at Tarnów) to be the most realistic “Non-use” Scenario as it represents the situation that makes most ‘business sense’, with the smallest (albeit still highly significant) impacts. This scenario is analysed in detail, in comparison with the “Applied for Use” Scenario, in Sections 3 and 4 of this SEA.

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would allow for the survival of the PA6 plant in Guben and would maintain some internal demand for CL made in Puławy.

In real terms and in the longer run, “Non-use” Scenario 3 would have the lowest impact of all scenarios, but of course, these impacts will still significantly outweigh the extremely small human health benefits associated with a potential refused Authorisation.

The AoA considered the feasibility of two further possibilities: converting the CL plant to use toluene or a mixture of octanol-1 in cyclohexane. However, these were rejected as technically and economically unfeasible for the following reasons:

 Technically, the existing CL plant cannot operate with either of the two alternatives  Both options would lead to significant financial losses that would result in the cessation of production at Tarnów and the closure of the Guben facility  It would be difficult to acquire the required finance, given the extended downtime required and resulting poor business prospects following the conversion; in addition, the time available for conversion by the Sunset Date is too short.

In light of the above, given the current lack of technical and economic alternatives and the poor prospects of Grupa Azoty S.A.’s production site without the use of TCE, and the loss of internal integration, only one “Non-use” Scenario, the outright closure of the production site at Tarnów at the Sunset Date, will be compared to the “Applied for Use” Scenario in Sections 3 and 4 of this SEA. 2.4 Information on the length of the review period

As concluded in the AoA36, the alternative substances (toluene and 1-octanol in cyclohexane) can be considered ‘available’ to the applicant; however, the technology that would enable their use will require substantial R&D that could only be completed well beyond the Sunset Date. Therefore, no suitable alternatives can be considered available to the applicant. Consequently, the length of the review period needs to be sufficiently long to allow Grupa Azoty S.A. to implement its planned R&D activities.

The applicant believes that toluene represents an alternative that is likely to become technically feasible sooner than the mixed solvent system and has already planned an R&D campaign to improve the feasibility of this substance for use in their Tarnów plant. Considerable barriers exist to the successful completion of the R&D programme crucially due to the need to preserve the high quality of the products currently produced and sold by Grupa Azoty S.A.; a breakdown of the required R&D steps is provided in Table 2-30.

The table describes the likely length of time for essential R&D work, the construction of a pilot plant and the execution of a pilot plant development campaign, as well as the timeframe associated with the construction and commissioning of the final replacement production plant. It is expected if these are successful and a new facility can be financed, a technically and economically feasible alternative may be available between 2028 and 2032. For the convenience of the reader, the expected R&D timeline for substitution is also presented schematically in Table 2-31.

36 The required steps to allow use of toluene as an alternative for TCE are provided in detail in Section 5.1 of the AoA document. Section 6.3 of the AoA also includes an overall conclusion and information on future research and development planned by the applicant.

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evaporates quickly upon release. Modelling the fate of TCE on the skin (see Annex 3 of the accompanying CSR) indicates that evaporation from human skin is also the dominant pathway with clearly less than 0.1 % of an applied dose being available for absorption. Comparisons of dermal exposure with inhalation exposure using two different approaches demonstrate that total exposure is clearly dominated by the inhalation pathway. The contribution of the dermal pathway to the overall exposure is therefore considered negligible (maximum < 0.2 % of the total exposure for the different modelling approaches). Inhalation exposure is thus the only pathway considered in the SEA analysis.

Measures taken against exposure

All processes at the plant involving TCE are closed, automated processes. In order to control for any breaches of the system, or any other unforeseen releases, four CTX 300 gas detectors specific to TCE are in place. The alarms are set to the current Polish occupational exposure limit: 50 mg/m2.

Written standard operating procedures are in also place, which meet the requirements of occupational safety and hygiene principles. These procedures also instruct workers to carefully handle the substances e.g. by avoiding splashes during sampling.

All workers entering the purification unit or unloading station (during unloading) carry personal protective equipment with them in case of unforeseen TCE releases. The following gloves and respiratory protective equipment (RPE) are worn during tasks involving potential exposure:

 Gloves: Fluorocarbon rubber (Viton) gloves (0.7mm), category 3, AQL <0.65  RPE: Full mask with A2B2E2K1 combination filter.

Employment levels and patterns of work

As a result of the high level of automation in the plant, the number of workers required for running the plant is low and the time they are required to be present in those parts of the purification unit where exposure to TCE is possible is very restricted. A team of four workers each shift (unit operator; co-ordinator; lab staff; back-up staff) manages the extraction unit, with 5 teams overall (i.e. 20 workers in total) running the unit through a 3-shift system. However, only the operator regularly enters the unit to carry out tasks 1-4 described below and may be accompanied by the co- ordinator on some tasks. The operator also spends a substantial proportion of his workday in the control room supervising the processes. Only one of the tasks identified below is not performed by the operator, i.e. laboratory analyses (task 5) performed by lab staff.

Back-up staff are considered a control group (but less well defined than the control group actually used for the bio-monitoring campaign) which is normally not exposed to TCE.

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3.1.2 Human health impacts under the “Non-use” Scenarios

This assessment is not relevant, as the outcome of the “Non-use” Scenarios will be the closure of plants rather than the use of an alternative solvent(s).

3.1.3 Number of people exposed

As shown in Table 3-2, a total of 15 regular workers are exposed to TCE during the normal operation of the applicant’s plant. A further five back-up staff may also occasionally work on the plant. 3.2 Environmental impacts

3.2.1 Environmental impacts under the “Applied for Use” Scenario

As TCE is listed in REACH Annex XIV due to its carcinogenic effects, no assessment of effects to the environment was performed in the CSR. Nevertheless, it must be emphasised actual releases of TCE to wastewater have been demonstrated to be negligible. Therefore, no discernible impact on the environment from the continued use of TCE over the next 12-15 years can be expected.

3.2.2 Environmental impacts under the “Non Use” Scenarios

Given that the outcome of the “Non-use” Scenarios would be the discontinuation of operations, impacts on the environment might include the generation and disposal of waste arising from the decommissioning of plants. These impacts have not been quantified.

On the other hand, it is not expected that customers of Grupa Azoty S.A. would import materials from outside the EU in quantities large enough to warrant an estimation of the externalities of increased transportation of materials from outside the EU into the EU.

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Decommissioning costs

In the “Non-use” scenario, in addition to the loss of sales turnover and profits described above, Grupa Azoty S.A. would also incur one-off decommissioning and site remediation costs for the site at Tarnów.

Together with plant assets that would not be fully amortized under the “Non-use” scenario, site remediation the costs have been very preliminarily estimated as by the applicant.

Impacts on customers of Grupa Azoty S.A.

As discussed in Section 2.1.5, the “Non-use” Scenario, in terms of impacts on downstream users, needs to consider all core products produced by Grupa Azoty S.A. at their Tarnów facility (i.e. CL, PA6, AS, ASN, CAN and POM). For the convenience of the reader, relevant impacts are discussed in terms of the individual products, below.

Caprolactam (CL)

Despite a forecast oversupply of CL on the global market in coming years, the applicant believes that its customers may face problems in sourcing CL from alternative sources at an acceptable quantity and quality. It must be emphasised that in the context of the “Applied for Use” Scenario, however, the applicant is planning to cease external sales of CL by 2020.

Polyamide 6 (PA6)

There are clearly several PA6 producers both in the EU and outside the EU with China becoming a key player on the global market. However, should the applicant’s capability of producing PA6 be impacted, there would be notable consequences on the relevant downstream users, particularly in the domestic market of Poland. Sourcing the required PA6 material (particularly modified grades in sensitive applications) at the quality and quantity required might prove challenging due to the need for re-approving technical applications of PA6. In the short-term, inability of Grupa Azoty S.A to place its PA6 products in the market would put several SME companies under significant time, money and supply pressure.

Ammonium Sulphate (AS)

There are several AS producers both in the EU and outside the EU with China becoming a key player on the global market. However, Grupa Azoty S.A. is one of the few producers of AS in EU with carefully selected, homogeneous and large granulation. Should the applicant’s capability of producing AS be impacted, there might be notable consequences on the relevant downstream users, who may find it difficult to obtain AS of the same quality as produced by Grupa Azoty S.A.

Ammonium Sulphate Nitrate (ASN)

Grupa Azoty S.A. is one of the major producers of ASN in the EU. Grupa Azoty S.A.’s market share in the domestic market suggests that inability to supply the key products of ASN (and CAN Standard 27, see below) to its current business partners would cause considerable disturbances in the activity of these companies and in the domestic Polish market, with short-term difficulties for Polish companies in sourcing ASN from alternative suppliers.

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Discount factor

Given the volume of potential losses as a result of a refused Authorisation, it is not considered necessary to re-run the calculations using an alternative discount factor.

Overall impact of uncertainties

The estimated impacts on Grupa Azoty S.A. are far greater than the human health impacts that would be associated with the continued use of TCE at the Tarnów plant. As a result, any uncertainty in the calculations above does not have any discernible effect on the conclusions of this analysis. 3.4 Social impacts

3.4.1 Employment impacts

Employment impacts for Grupa Azoty S.A. and subsidiaries

Labour market situation - Małopolska region and Tarnów

The city of Tarnów is situated within the Małopolska region, a region considered as one of the most economically diversified in Poland (Perek-Białas, et al., 2013). Traditional sectors such as steel, chemicals, mining, tobacco and food are still dominant within Małopolska; however, recently there has been an increase in high value, technologically advanced sectors (Perek-Białas, et al., 2013).

The European Commission states that the Małopolska region has a convenient geographic location, located on the crossroads of important transportation routes. The region has good train connections with a number of cities, including Warsaw, and the second largest airport in Poland, which operates a number of domestic and European flights (European Commission, undated). Grupa Azoty S.A. is one of the largest Polish companies within the region (European Commission, undated).

In 2011, the Małopolska region ranked fifth among the other regions of Poland on the measure of total Gross Value Added (GVA), and accounted for approximately 7.46% of total national GVA (Polish Central Statistical Office, 2014). Industry accounts for 23.1% of total GVA within Małopolska; this is slightly below the national average of 25.6% (Polish Central Statistical Office, 2014). More specifically, manufacturing51 accounts for 18.7% of the total regional GVA (Polish Central Statistical Office, 2014).

As of 31 December 2013, the population of Małopolska stood at approximately 3.36 million52. The main cities in Małopolska are Kraków – the former capital of Poland and the current capital of the region (760,000 inhabitants), Nowy Sącz (84,000 inhabitants) and Tarnów (114,000 inhabitants)53. The Małopolska Region has the fourth largest population in Poland, after the Mazowieckie, Śląskie and Wielkopolskie Regions (2012). In 2012, the Region's inhabitants accounted for 8.7% of the total population of Poland (EURES, 2013).

51 NACE rev.2 Category C (includes C20.1: Manufacture of basic chemicals, fertilisers and nitrogen compounds, plastics and synthetic rubber in primary forms). 52 Source: http://krakow.stat.gov.pl/en/zakladka1/ (accessed on 25 July 2014). 53 Population figures for Kraków, Nowy Sącz, and Tarnów are 2012 estimates taken from EURES (2013).

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employers most frequently offer the minimum wage, which is 1,680 PLN (ca. €403). Based on this information, it is reasonable to assume that redundant workers would find it extremely difficult to secure a job outside Grupa Azoty S.A. with the same level of pay.

The education level of the affected employees is comparable to the level of workers outside the site. The educational structure of the group is as follows:

 123 employees (6%) have primary education  627 employees (30%) have basic vocational education  846 employees (40%) have secondary education  498 employees (24%) have a university degree.

It can be seen that the majority of workers have secondary or vocational education while 6% employees only have primary education. For workers with only primary education, it may be particularly hard to regain employment because, as stated earlier, the level of education in the Malopolska region is high (see Table 3-21). Furthermore, the applicant believes that all of the affected employees would find it difficult to regain employment because their specialist skills are not in demand within the local labour market.

Employment impacts for downstream users

As highlighted in Section 2.1.5 although Grupa Azoty S.A. produces a wide range of products at Tarnów, it is envisaged that impacts down the supply chain would be somewhat limited due to the wide availability of these products elsewhere on the market. The particular exception to this are PA6 and POM, where the applicant notes that some downstream users may face temporary cessations in production due to the need to re-qualify certain products (such as automotive parts58 and food contact materials). As the size and structure of companies downstream is not well known, it is difficult to assess the potential impact such production cessation could have. However, for any SMEs or companies focusing purely on the production of affected PA6/POM articles, consequences could be severe and may have knock on effects to levels of employment at the companies.

3.4.2 Assumptions and uncertainties

Downstream users have not been consulted regarding the potential impacts of a refused Authorisation and the subsequent closure of the Grupa Azoty S.A. production site at Tarnów. As such, it has not been possible to obtain direct feedback on the potential impacts of this scenario, although some general information is provided.

Detailed assumptions used to calculate the number of jobs supported by the presence of the Grupa Azoty S.A. production site (based on employment multipliers) have been explained above.

58 A useful description of the issues surrounding qualification of automotive parts has been provided by the relevant trade association, ACEA, in the framework of a past Application for Authorisation and can be consulted here: http://echa.europa.eu/documents/10162/18074545/a4a comment 127 1 attachment en.pdf (accessed on 6 August 2014).

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Use number: 1 Legal name of applicant: Grupa Azoty S.A. 88

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Use number: 1 Legal name of applicant: Grupa Azoty S.A. 100 7 Annex 2 – Justification for confidentiality claims

Particular care has been taken to minimise the presence of confidential information in the SEA document and thus the confidentiality claims made by the applicant. However, it is necessary to include some confidential information to provide the rapporteurs and Committees the necessary information to fully evaluate this AfA in more quantitative terms. The justifications of confidentiality are given in the table overleaf.

It is important to note that, as Grupa Azoty S.A. has a status of the issuer listed on the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.), the submitted document cannot be made public as a whole, due to the fact that it contains confidential information within the meaning of Article 154 of the Act of 29 July 2005 on Trading in Financial Instruments (Journal of Laws 2014.94), i.e. the ones defined in a precise manner, referring directly or indirectly to one or more Issuers of financial instruments, one or more of such financial instruments or acquisition or sale of such instruments which have not been made public and which after such submission could considerably affect the price of those financial instruments or the price of related derivative financial instruments.

In particular, the publication of the submitted document must not cover items which were not made public by the Company, i.e. financial plans and financial forecasts, sales plans, and other relevant information that may have an impact on the share price of the Company.

In accordance with the regulations of the Polish capital market, the breach of disclosure obligation would result in administrative and penalty sanctions as set out in the Act on Trading in Financial Instruments and related legislation.

The table of justifications (pages 102 to 107) has been removed as they are themselves confidential – page numbers have been amended to reflect this.

Use number: 1 Legal name of applicant: Grupa Azoty S.A. 101 Use number: 1 Legal name of applicant: Grupa Azoty S.A. 108 8 Appendix 1 - References

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