Published: June 29, 2011
KUANTAN, Malaysia — A $230 million refinery being built here in an effort to break China’s global chokehold on rare earth metals is plagued by environmentally hazardous construction and design problems, according to internal memos and current and former engineers on the project.
The plant, which would be the world’s biggest refinery for rare earths — metals crucial to the manufacture of a wide range of technologies including smartphones, smart bombs and hybrid cars — has also become the target of protesters who fear that the plant will leak radioactive and toxic materials into the water table.
Weekly demonstrations have drawn crowds since March, and someone recently threw gasoline fire bombs at the gated home of a senior project manager.
Some risks had been expected from the plant, which would refine rare earth ores into manufacturing-grade materials. Although rare earths are not radioactive, in nature they are usually found mixed with thorium — which is.
That is why the Lynas Corporation, an Australian company, promised three years ago to take special precautions when it secured the Malaysian government’s permission to build the sprawling complex here on 250 acres of reclaimed tropical swampland. It would be the first rare earth processing plant in nearly three decades to be finished outside China, where barely regulated factories have left vast toxic and radioactive waste sites.
Lynas has an incentive to finish the refinery quickly. Export restrictions by China in the last year have caused global shortages of rare earths and soaring prices. But other companies are scrambling to open new refineries in the United States, Mongolia, Vietnam and India by the end of 2013, which could cause rare earth prices to tumble.
Lynas officials contend that the refinery being built here is safe and up to industry standards, and say that they are working with its contractors to resolve their concerns.
“All parties are in agreement that it is normal course of business in any construction project for technical construction queries to be raised and then resolved to relevant international standards during the course of project construction,” wrote Matthew James, an executive vice president of Lynas, in an e-mail on Wednesday night.
Trading in Sydney of Lynas shares was halted on Thursday morning pending a company announcement. Malaysia’s ministry of international trade and industry scheduled a news conference late Thursday morning and was expected to announce what changes in the project would be required by the government after a review by a team from the International Atomic Energy Agency.
But the construction and design may have serious flaws, according to the engineers, who also provided memos, e-mail messages and photos from Lynas and its contractors. The engineers said they felt a professional duty to voice their safety concerns, but insisted on anonymity to avoid the risk of becoming industry outcasts.
The problems they detail include structural cracks, air pockets and leaks in many of the concrete shells for 70 containment tanks, some of which are larger than double-decker buses. Ore mined deep in the Australian desert and shipped to Malaysia would be mixed with powerful acids to make a slightly radioactive slurry that would be pumped through the tanks, with operating temperatures of about 200 degrees Fahrenheit.
The engineers also say that almost all of the steel piping ordered for the plant is made from standard steel, which they describe as not suited for the corrosive, abrasive slurry. Rare earth refineries in other countries make heavy use of costlier stainless steel or steel piping with ceramic or rubber liners.
The engineers also say that the concrete tanks were built using conventional concrete, not the much costlier polymer concrete mixed with plastic that is widely used in refineries in the West to reduce the chance of cracks.
Documents show that Lynas and its construction management contractor, UGL Ltd. of Australia, have argued with their contractors that the cracks and moisture in the concrete containment walls are not a critical problem.
Memos also show that Lynas and UGL have pressed a Malaysian contractor, Cradotex, to proceed with the installation of watertight fiberglass liners designed for the containment tanks without fixing the moisture problem and with limited fixes to the walls. But Cradotex has resisted.
“These issues have the potential to cause the plants critical failure in operation,” Peter Wan, the general manager of Cradotex, said in a June 20 memo. “More critically the toxic, corrosive and radioactive nature of the materials being leached in these tanks, should they leak, will most definitely create a contamination issue.”
Mr. Wan said in a telephone interview Tuesday that he believed Lynas and UGL would be able to fix the moisture problem but that he did not know what method the companies might choose to accomplish this.
The fiberglass liners are made by AkzoNobel of Amsterdam, one of the world’s largest chemical companies. AkzoNobel says it, too, worries about the rising moisture.
“We will not certify or even consider the use of our coatings if this problem can’t be fixed,” Tim van der Zanden, AkzoNobel’s top spokesman in Amsterdam, wrote on Monday night in an e-mail reply to questions.
Memos show that the refinery’s concrete foundations were built without a thin layer of plastic that might prevent the concrete pilings from drawing moisture from the reclaimed swampland underneath. The site is located just inland from a coastal mangrove forest, and several miles up a river that flows out to the sea past an impoverished fishing village.
An engineer involved in the project said that the blueprints called for the plastic waterproofing but that he was ordered to omit it, to save money. The plastic costs $1.60 a square foot, he said.
Lynas disputes that the design ever called for using the plastic.
Nicholas Curtis, the executive chairman of Lynas, said in a telephone interview from Sydney on Monday that the project here met local environmental standards and that he believed those were consistent with international standards. “I have complete confidence in the Malaysian environmental standards and our ability to meet the requirements,” he said.
Mr. James, the Lynas executive vice president, said in a separate telephone interview from Sydney on Monday that the steel piping used in the plant was carefully engineered and would not pose problems. On the record, he declined to discuss issues with the concrete except to deny that rising moisture was a problem and to say that the tanks had been engineered to meet all safety standards.
In a second interview, on Tuesday, Mr. James said the company had not cut corners. “Lynas is well funded,” he said. “We would never compromise our standards for a cost savings.”
UGL declined to comment, citing a corporate policy of not discussing its customers’ construction projects.
Lynas started the project here three years ago, but had barely begun when it ran short of money during the global financial crisis. The company resumed the project last year after Chinese export restrictions on rare earths prompted banks and multinational users of the materials to offer generous financing.
Malaysia had reason to be cautious in allowing Lynas to build the plant. Its last rare earth refinery, operated by the Japanese company Mitsubishi Chemical, is now one of Asia’s largest radioactive waste cleanup sites. That plant, on the other side of the Malay peninsula, closed in 1992 after years of sometimes violent demonstrations by citizens.
Despite the potential hazards, the Malaysian government was eager for investment by Lynas, even offering a 12-year tax holiday. The project is Australia’s largest investment in Malaysia, intended to produce $1.7 billion a year in rare earths, or nearly 1 percent of Malaysia’s entire economic output. Lynas agreed to pay 0.05 percent of the plant’s revenue each year to the Malaysian Atomic Energy Licensing Board for radiation research.
Protests against the plant started in Malaysia after an article on Lynas’s project was published in The New York Times in early March.
To address public worries about the new plant, the Malaysian government invited a team of experts from the International Atomic Energy Agency in Vienna to visit the site in early June. The team is to submit its report to the Malaysian authorities on Thursday, and the Malaysian government has said it plans to release the report to the public.
Engineers at the project said that Lynas officials had whisked the international inspectors through the factory in a single morning, partly because of security concerns about protesters outside the refinery gates. The team had little chance to examine the refinery’s structure, the engineers said.
Gill Tudor, an agency spokesman, declined to comment on the team’s work because it is not yet public.
Although Lynas has forecast repeatedly in recent months that it will start feeding ore into kilns by the end of September, engineers here said that it would take nine more months to install electrical wiring. They also said that pipe shipments were far behind schedule because of a six-month delay in ordering.
Mr. James insisted on Monday that the project remained on schedule, but he cautioned that Lynas was waiting to see whether the I.A.E.A. panel recommended any changes.