In October 2005, the State Environmental Protection Administration (SEPA) strengthened the domestic environmental impact assessment (EIA) market by conducting a nationwide review of the environmental impact assessment agencies (EIA Agencies) and re-issuing qualification certificates. This action follows SEPA’s issuance of the PRC Administrative Rules Concerning Construction Project Environmental Impact Assessment Qualifications (EIA Qualification Rules) on August 15, 2005. The new EIA Qualification Rules replaced the old rules promulgated by SEPA in 1999 (Old Rules)1 and became effective on January 1, 2006.
EIA And Related Agencies
China strengthened its EIA system by promulgating the new Environmental Impact Assessment Law (EIA Law) in late 2002.2 Under the EIA Law, EIA is defined as a system for (1) analyzing, forecasting and assessing the potential impact on the environment after implementation of planning and construction projects, (2) establishing strategies and measures to prevent or alleviate adverse impacts on the environment, and (3) implementing follow-up reviews and monitoring.
The EIA Law requires a project developer/owner to submit an "EIA document" to SEPA or its local counterpart before commencing construction of any project in China "EIA documents" are classified into three categories depending on the level of a construction project’s potential environmental impact: (1) where the potential impact is "significant", the developer must prepare an environmental impact report (EI Report) containing a comprehensive assessment of the resulting environmental impact; (2) where the potential impact is "light", the developer must fill out an environmental impact report form (EI Form) containing an analysis or special assessment of certain aspects of the resulting environmental impact; and (3) where the potential impact is "very light", the developer may simply file an environmental registration form, and assembly of an EIA is not required. SEPA formulated and published the EIA Classification Catalogue, from which reference can be made to determine what type of EIA documents are required for a particular construction project.
An EI Report or an EI Form must be prepared and issued by an EIA Agency certified by SEPA. As of August 2005, China had a total of 973 qualified EIA Agencies, among which 4 are foreign-invested (e.g., the Sino-Japan Friendship Environmental Protection Centre and ERM Environmental Resources Management Consulting (Shanghai) Co., Ltd.), and 10 are privately-owned. The majority of qualified EIA Agencies are State-owned enterprises, research arms of universities, and research institutions.3 The EIA service market in China is still highly monopolized by the government.
New Qualification Rules
Qualification Classification
The new EIA Qualification Rules provides for a two class qualification system, Class A and Class B, and EIA Agencies must apply for the proper qualification with SEPA at the national level. Class B EIA Agencies are permitted to undertake EIA and issue EI Reports and EI Forms for projects that require approval by environmental protection administrations (i.e., SEPA’s local counterparts) at or below the provincial level, while Class A EIA Agencies are permitted to do the same for projects that require approval by SEPA at the national level, 4 in addition to those permitted for Class B EIA Agencies. After examination and approval, SEPA will issue a qualification certificate with a four-year term renewable option at its expiration to qualified EIA Agencies.
Furthermore, the new EIA Qualification Rules divide the EI Reports into 11 categories according to the use of the construction projects for which such EI Reports are issued, including textile, agriculture, commercial real estate and marine projects. The EIA Qualification Rules also divide EI Forms into two categories, special EI Forms for nuclear and electricity projects and general EI Forms for all other projects. Both Class A and Class B EIA Agencies may apply with SEPA to prepare and issue any or all of such 11 categories of EI Reports and/or 2 categories of EI Forms by satisfying certain requirements (e.g., a Class A EIA Agency applicant must have at least 3 qualified EIA engineers for each category of the EI Reports it applies for, two of whom must have drawn up EI Reports in the same category before application). Such categories, once approved by SEPA, will constitute the business scope of the EIA Agencies, and the EIA Agencies must conduct EIA within such business scope.
Qualification Requirements
In order to apply for a Class A qualification, an EIA Agency must satisfy, among other things, the following requirements:
(i) be an entity registered in China with fixed assets amounting to at least RMB10 million, with a minimum registered capital of RMB3 million; (ii) have at least 20 EIA technical personnel, 10 of whom must be qualified EIA engineers registered with SEPA; (iii) have prepared, in the three years prior to application, at least 5 EI Reports for projects approved SEPA; (iv) have a sound EIA quality control system; and (v) have required facilities and computer systems commensurate with the proposed business scope of the EIA Agency.Class B qualification is subject to a lower threshold. The applicant EIA Agency must have fixed assets amounting to at least RMB2 million, with a minimum registered capital of RMB500,000,5 and have at least 12 EIA technical personnel, 10 of whom must be qualified EIA engineers. All other requirements for Class B qualification are similar to those of Class A, except that an EIA Agency applying for Class B qualification does not need to have any experience as specified in (iii) above.
Continuing Supervision
The EIA Qualification Rules strengthen the continuing supervision powers of SEPA after the qualification certificates are issued to EIA Agencies. SEPA will conduct selective inspections on such EIA Agencies from time to time, publish the inspection results and impose administrative penalties (as discussed below) on those found in violation of relevant rules and regulations.
Liabilities
EIA Qualification Rules require that EIA Agencies be held liable for the conclusions reached in EIAs. EI Reports and EI Forms must be signed by technical personnel, who will be liable for the portions he/she prepared.6
EIA Qualification Rules set forth more severe administrative penalties that may be imposed by SEPA on EIA Agencies than those set forth in the Old Rules. Such penalties include, among other things, (a) reducing the agency’s qualification or revoking such agency’s qualification certificate, imposing a penalty of 1-3 times the fees collected by such agency and de-registering the responsible EIA engineer(s’) qualification, if an EI Report or EI Form is inconsistent with the facts due to dereliction of duty or falsification of facts by an EIA Agency; (b) revoking its qualification certificate if an EIA Agency conducts any EIA beyond its business scope; and (c) suspending such agency’s qualification certificate for 3-12 months for it to rectify an incomplete or mistaken report, and then reducing such agency’s business scope if an EIA Agency is grossly negligent, adopts incorrect evaluation standards or methodologies, or draws an unclear conclusion.
The EIA Qualification Rules do not set forth any civil liabilities on EIA Agencies in regards to project developers/owners that entrust such EIA Agencies to conduct EIA. However, the project developers/owners may seek remedies under the PRC Contract Law7 and other pertinent general civil principles.
Impact On EIA In China
The new EIA Qualification Rules send a message that SEPA will continue to establish higher threshold requirements for EIA Agencies, in addition to stricter supervision of such agencies. The new EIA Qualification Rules also encourage various reforms, including foreign participation in reorganization of the EIA Agencies in order to make the EIA service market more competitive. In November 2005, American-based AECOM acquired 51% of the equity interests of Nan Chang Environmental Protection Research Institute,8 indicating that foreign EIA service providers will play an increasingly more important role in the EIA service market.
Foreign investors that retain an EIA Agency for their construction projects should determine the business scope of the EIA Agency to see whether such construction projects fall within the permitted business scope of such agency. With the implementation of the new EIA Qualification Rules, we expect to see that the quality of EI Reports and EI Forms be improved, and the foreign investors’ risk to incur environmental liabilities due to a mistaken or inappropriate EIA be reduced.
Footnotes
1. Administrative Measures of Construction Project Environmental Impact Assessment Qualification Certificates, promulgated by SEPA on and effective as of March 30, 1999.
2. EIA Law was promulgated by the Standing Committee of the People’s Congress on March 15, 1999, and became effective as of October 1, 1999.
3. This data was disclosed by Zhao Weizhun, a Director with SEPA in charge of EIAs, as published in SEPA’s website on August 25, 2005.
4. Article 23 of EIA Law provides for three types of projects requiring SEPA’s approval: (i) construction projects of nuclear facilities and top-secret projects; (ii) construction projects that straddle the border between provincial-level jurisdictions; and (iii) construction projects entailing approval by the State Council or the relevant central department authorized by the State Council.
5. If the applicant EIA Agency applies only for a business scope to prepare EI Forms, the minimum amount of fixed assets and registered capital is RMB1 million and RMB300,000, respectively.
6. Articles 21 and 22 of EIA Qualification Rules.
7. PRC Contract Law, promulgated by the Standing Committee of the People’s Congress on March 15, 1999 and effective as of October 1, 1999.
8. This news was published in www.cenews.com.cn on November 1, 2005.
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