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With patented technology and years of
experience Eco Logic is poised for growth
Environmental Services
Hazardous Waste Destruction
(TSX: ELI)
ELI Eco Logic Inc.
143 Dennis Street
Rockwood, Ontario NOB 2K0
Phone: 519-856-9591
Fred T. Arnold, Ph.D.
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Editor
CEOCFOinterviews.com
March 2003
Bio of CEO,
Since December 1997, Dr. Arnold has
held the positions of Chief Executive Officer and Vice-Chairman of ELI Eco Logic Inc., a
TSX listed Canadian corporation. From 1994 to 1996, he was Executive Vice President,
Defense Practice, for ICF Kaiser Consulting of Fairfax, Virginia. He previously served as
President and Chief Executive Officer of Jane’s Information Group, Inc., the
world’s largest provider of defense and aerospace information, and Group Vice
President of McGraw Hill’s Data Resources Inc. (DRI), where he directed their
government and defense practices. Dr. Arnold began his professional career with the
US Environmental Protection Agency in the early 1970s where he had responsibility for
pesticide regulation. He received his undergraduate training from Colorado State
University and graduate degrees from the University of Maryland in agricultural economics
and operations research. He resides with his family on their farm on Chesapeake Bay's
western shore near Annapolis.
Company Profile:
ELI Eco Logic Inc. (TSX: ELI), headquartered in
Rockwood, Ontario, Canada is an engineering technology company that licenses and supports
commercial applications of its patented Gas-Phase Chemical Reduction™
(“GPCR”) technology for the treatment of toxic materials in a safe, permanent,
cost effective manner. Using this technology, Eco Logic's customers convert organic
hazardous waste and contaminated material into reusable or disposable products. The
world-wide market for Eco Logic's GPCR technology includes systems to treat POPs chemicals
in industrial waste streams, systems for the treatment of hazardous waste stockpiles
including polychlorinated biphenyls (PCBs), hexachlorobenzene, pesticides, dioxin,
contaminated electrical equipment, contaminated soils, chemical warfare agents, CFCs, and
petrochemical wastes, and systems for the regeneration of contaminated carbon filters.
GPCR technology is a proven solution for organic hazardous waste remediation, pollution
prevention and waste minimization. Eco Logic provides a mobile, commercial-scale
technology with proven performance, throughput and regulatory acceptance.
Eco Logic's GPCR™ technology highlights:
Robust technology for treatment of chlorinated and
other halogenated hydrocarbons in various matrices
Operated large-scale systems at sites worldwide
Committed to continual improvement of the core
technology
Permitted by regulatory authorities in four countries
Internationally accepted by the environmental
community
Extensively vetted and approved for chemical weapon
destruction
Selected as the non-incineration alternative by
international donor organizations in support of the objectives of the Stockholm Treaty
Business Markets:
Chemical Demilitarization
GPCR technology was successfully tested for all US
chemical weapon agents and all contamination matrices under the Assembled Chemical Weapons
Assessment Program. The company is currently in the final stages of the competitive
process for design, construction and operation of a chemical demilitarization facility in
the US. It pursues other work in this area with agencies of the Departments of Defense and
Homeland Security in the US, and the Canadian program that supports weapon destruction in
Russia.
Military Wastes, Energetic Materials and Munitions
Military bases around the world are contaminated with industrial hazardous wastes
including PCBs and other toxic hydrocarbons. They are also characterized by unique
soil contamination caused by open burning or detonation of stockpiled munitions and
chemicals. Bases near urban areas are particular priorities for remediation. Eco
Logic has conducted demonstrations of the GPCR technology on hazardous wastes, radioactive
low-level mixed wastes, and energetics for the US Department of Energy and DoD.
Energetic materials include explosives used in military shells and mortars, and
propellants such as liquid and solid fuels used in missile and rocket systems. These
materials, which are stored on most military bases, contain contaminants capable of
creating highly toxic emissions. Eco Logic has successfully conducted demonstrations
of the GPCR technology on most defense-specific waste streams and energetics.
Pollution Prevention/Waste
Minimization
Industries today face increasing pressure from regulators and environmentally conscious
consumers to reduce or prevent the generation of hazardous wastes during plant
operations. In particular, the USEPA called for voluntary partnerships between the
EPA, state regulators, and industry that will facilitate a reduction or elimination in the
generation of 53 persistent, bioaccumulative and toxic (PBT) chemicals.
Additional USEPA reduction goals exist for 12 special chemicals of concern, including
PCBs, HCB, dioxins, pesticides, etc., all of which have been successfully treated using
GPCR.
Industrial Hazardous Wastes Including PCBs
Eco Logic has operated full-scale, commercial waste
processing systems in Kwinana, Western Australia and Ontario, Canada, successfully
treating over 3,000 tons of high strength PCB oil, PCB-contaminated electrical equipment
and pesticides. Eco Logic’s GPCR technology has been approved for commercial
use in Japan, Australia and Canada, and has received many R&D permits in support of US
Army and EPA programs in the US. No requested permits have ever been denied, and
during over 30,000 hours of operation, none have been rescinded or otherwise restricted.
Site Remediation
The site remediation market involves the treatment of soil, sludge and sediment
contaminated with a variety of toxic organic contaminants at industrial and manufacturing
facilities, contaminated landfills and harbors. Contaminated sites are frequently
the location at which high strength industrial hazardous wastes are stockpiled
In September 1997, Eco Logic completed waste treatment operations at a General Motors
plant in St. Catharines, Ontario. During this project, the company successfully
treated PCB-contaminated electrical equipment, soil, and PCB oil using the GPCR
technology. Eco Logic has also successfully demonstrated the technology on
PCB-contaminated harbor sediment.
CEOCFOinterviews: Mr.
Arnold, please tell us about the current direction of Eco Logic.
Mr. Arnold: A redirection of the company began in 1998. Prior
to that time, the company pursued strategy of commercializing its invention, Gas-Phase
Chemical Reduction, or GPCR, a non-incineration method for destruction of hazardous waste,
in a vertically integrated business model. It did that in Canada and in Australia by
constructing and operating plants for multi-client, multi-waste stream applications.
The problem that we encountered was that it placed all of the financial risk for
the still evolving market with the company and its shareholders. Hazardous waste
treatment is a very difficult market to predict in the short and near term. It tends
to be politically controversial because of the type of work performed and the history of
past practices. And it is one with excess capacity for conventional waste
destruction solutions, which are increasingly at odds with public and regulatory
preference. To limit future risk for the company, in 1998 and continuing today, we
redirected toward partnerships and licenses with organizations that were in, or wanted to
enter, the hazardous waste business, and who required a technology that could be used for
many years in the future. We also sought partners for large, customer-specific jobs
like chemical weapon destruction in the United States, where our GPCR process was
demonstrably preferred or an important tie-breaker in a competitive market. Through
pursuit of these strategies, we developed a fairly significant backlog of opportunity that
we are working through in terms of contract negotiations and competition.
CEOCFOinterviews:
What is it about your process that differentiates ELI from others in your industry?
Mr. Arnold: In general,
the waste for which our technology was developed is classified as “hazardous
organic” waste. Here we refer to obsolete pesticides like DDT and other
chlorine-based pesticides that have been cancelled or prohibited in the US and many other
countries, PCBs that at one time served broadly as insulators in the utility and
telecommunication industry for transformers and capacitors, and chemical weapon munitions,
which are being destroyed in accordance with international convention. All have been
restricted in countries that comprise our markets, are subject to national and
international treaties for disposal, and require non-incineration-based technology for
safe, publicly acceptable destruction. For most of recorded history, and certainly
for the majority of the history where destruction of these chemicals has been regulated by
national authority, incineration has been the approved and accepted method. But,
incineration comes with a cost. First, incinerators have varying degrees of ability
to completely destroy waste and second, when the waste contains chlorine, incineration can
and does lead to the creation of more toxic chemicals. These are dioxins and furans;
they are the products of incomplete combustion, or PICs. Advanced incinerator
design does a better job of controlling PIC production, but it is a chemical reality that
PICs result from incineration. Eco Logic’s GPCR technology is a non-oxidizing
(non-combustion) method of accomplishing complete destruction of hazardous organic waste,
and because our GPCR reactions occur in the absence of oxygen, the reactions do not create
dioxins or other PICs. So, we are positioned in the market as the supplier of a
proven and patented destruction method for specialized waste streams, which in the past
have been incinerated, often with unacceptable consequences.
CEOCFOinterviews: When
you compare your process to incineration is cost a factor? Are government and
environmental considerations a factor?
Mr. Arnold: Cost is always a factor; Adam Smith is alive and
well in the environmental technology marketplace. On a life cycle basis, and with a level
playing field, which requires clear regulatory standards and enforcement, our technology
competes effectively with alternatives. There is a growing realization on the part
of regulatory authorities that incineration, when employed for waste destruction in our
markets, has unacceptably negative consequences. As a result, incineration of
hazardous organic waste has been restricted through regulatory actions. For example,
in the mid-90s, Australia banned incineration for hazardous waste treatment. In another
example, over 90% of the medical waste incinerators that were permitted in the United
States in 1990, a significant source of dioxin creation in metropolitan areas, are no
longer permitted today. In another notable case, destruction of the stockpile of chemical
weapons in the US, scientific concerns voiced by citizens and legislators led to public
law that mandated consideration and incorporation of non-combustion technologies as
alternatives to incineration. In all countries, proposals to permit new incinerators
result in public demand for consideration and use of alternative methods of waste
destruction and management. Eco Logic’s GPCR process always comes to the fore
when this occurs. Advocacy groups who seek alternatives to incineration favor our process,
and our history of performance has resulted in excellent relations with regulators.
We are building a business as an alternative to the system that the scientific,
regulatory, and NGO communities have come to question in terms of environmental
stewardship and public health consequences.
CEOCFOinterviews: Do you
envision an end to incineration?
Mr. Arnold: Incineration will always be a tool for waste
disposal. It will continue to be challenged for the chlorinated and other
halogenated waste streams where incineration is incapable of accomplishing complete
destruction and where it has the potential for creation of toxic PICs. Industrial
processes that create dioxins and furans, the most toxic PICs, are specifically prohibited
in many countries, and with adoption of the Stockholm Treaty dealing with POPs, the
international community has substantially tightened the standards that define our
marketplace. As a result, the waste streams we have quietly dealt with over the last
decade are now called the “Dirty Dozen”, and incineration as a solution to
destruction of these compounds can be most appropriately viewed from the rear view mirror.
We are working today with international donor organizations in fulfillment of
treaty obligations where non-incineration destruction technology is a specific goal.
Getting a country or organization to the point where they will allocate
funding to alternative, environmentally sound technologies that do not pose adverse
secondary impacts, externalities in the economic sense, is a long-term process, and the
regulatory structures in individual countries are critical drivers for our success.
CEOCFOinterviews: Why
choose your method when moving from incineration?
Mr. Arnold: There are many non-incineration approaches to
hazardous waste destruction, each offering technical and/or cost advantages for particular
applications. They range from bio-remediation in the simplest case to complex
chemical processing technology like GPCR and others like plasma torch, electro-chemical
oxidation and super critical water oxidation. Of course, the most effective
long-term solution is modification of the manufacturing base that creates hazardous waste
in the first place, and regulators are increasingly focused on this approach, pollution
prevention and hazardous waste minimization, as the preferred long-term solution. We
have developed several GPCR applications that support this long-term solution. We live,
however, in the present, and for many years waste owners and technology providers will
collectively deal with the legacy of past actions. The advantages that we bring to the
market are several. First, we deal effectively and predictably with all organic
waste, whether in high or low concentration. When GPCR is utilized there are no
lingering residues that require subsequent treatment technologies or long term storage in
regulated landfills. Second, we deal with the hazardous waste in all matrices –
drums of liquid, contaminated electrical equipment, munitions and their components, and
soil. GPCR is a chemical process, and our technology packages include varying
front-end appliances, which efficiently remove the hazardous organic waste from its
surrounding media or container for conveyance to the GPCR system’s reactor.
Third, through chemical reduction we create re-usable energy, methane to power the system,
and clean metal parts that can be recycled. Both of these results contribute
to lower cost and enhanced environmental stewardship for our customers. Lastly,
GPCR is a scalable, mature and certain system.
CEOCFOinterviews: How do
you get most of your clients?
Mr. Arnold: As I said earlier, we operate in a long-term
market building environment. Successful business development requires that we
adopt a problem-seeking attitude, one where we can assist the customer in the full
definition of their requirement and their options. When we are successful, we work with
the customer in the configuration of our technology that best solves their problems.
This requires an intimate understanding of the customers’ operations and
strategic objectives, their procurement procedures, and the regulatory structures in which
they operate today and expect to operate in the future. In our BD process, we attempt to
select from among the many potential customers who have a requirement to those where our
solutions can successfully overcome known hurdles. We must be cognizant of the
customers’ commitment to improved destruction of hazardous waste, their time horizon,
and capital constraints. When these and other factors align, we make the investment
in business development to convert market potential to fulfillment reality. We are in the
development stage that all new capital suppliers must traverse, and in our case it is
slightly more tedious because, from a strict accounting perspective, our customers’
expenditure to address legacy problems does not result in positive increments to their
income statement in the near term. Capital expenditures for GPCR do, however, remove a
potentially large liability from the customers’ balance sheet, and over time, result
in lower cost for their continuing operations. By illustration, the US chemical
weapon demilitarization market reflects our business development process. When we
began investing in trial and demonstration work in the mid-90s to prove that GPCR was
capable of playing an important role in satisfying the customer’s requirement, our
technology was one of many alternatives to incineration, which was the preferred
destruction solution. Today, our technology is a key component to a non-incineration
approach that was vetted through multiple external reviews and the EIS process, and
subsequently mandated by the Department of Defence. In collaboration with our
partners, we are in the final stages of a competitive procurement process to design, build
and operate our technical solution at a chemical weapon storage site in the US. The path
we have taken for this market required that we modify various engineering aspects of our
system to accommodate unique customer requirements, out-perform over a dozen competitors,
and form an alliance team with complementary technology providers. Most importantly,
we also had to convince an Engineering & Construction integrator of the efficacy of
our process, and nourish the tenacity required from many groups to overcome the status
quo. Our path to becoming the preferred non-incineration solution for international
POPs elimination has been similar, and like the military market above, we believe we can
clearly see the weather mark, if I can use a sailing analogy, and we expect to be first
around. These opportunities, each very important for our company this year, and each
reinforcing the feasibility of using a new technology to deal with an age old problem,
will contribute to market maturity and a more efficient business development model in the
future.
CEOCFOinterviews: It
sounds as if being able to deal with the regulatory and environmental people is just as
important as having the right technology.
Mr. Arnold: These relationships and the support they engender
are essential. The work our technology supports never happens until there is a
forcing action. The reality of hazardous waste management is that the owners of the
liability, whether public or private, tend almost always to employ the least cost,
permitted solution. We and other suppliers of new solutions operate in a competitive
environment with an excess supply of older, less efficient approaches to hazardous waste
management, like regulated landfills, deep well injection, and incineration. The
competitive response of the in-place industry to a new market entrant is to reduce price
in the short term, and since their capital base is often fully depreciated, this gives
them a significant competitive advantage. We, on the other hand, define market
opportunities where we expect to provide the low cost, long-term solution for particular
applications, but where new capital investment is required. We must, therefore,
perceive compelling evidence for our partners, our customers, and ourselves that the
opportunity allows full cost recovery and a reasonable profit. Given this disparate
economic view of the world (and anecdotal evidence suggests that it is correct because
history has shown that our competitors lower their prices for hazardous waste services
when we enter the multi-customer market as we did in Canada and Australia and raise prices
when we exit), it is essential that national authorities define and communicate long term,
acceptable standards. A level playing field leads, we believe, to improved environmental
stewardship and lower long-term costs, but with the reality of external forces that drive
the need for regulation, any company that thinks a better solution will, in and of itself,
dominate the market is in for a very rude awakening. There is no environmental
stewardship component on most customers’ balance sheets.
CEOCFOinterviews:
Tell me a little bit about the cash and credit position of the company today.
Mr. Arnold: We closed our 2002 books in December with about
$3.7 million in cash and no debt, and here I refer to Canadian dollars because we are a
Canadian company. We anticipated, several years ago, that we were well positioned to win
important contracts that would provide a stable opportunity for growth, but recognized
that the timing of these awards was beyond our control. So, we took the opportunity
for equity financing to assure that the company had sufficient cash to be there when the
customers were ready. We control our cash burn very carefully and are quite
selective on where we spend our engineering and development dollars. We are also
very careful on where we place our long-term business development dollars. We do expect to
initiate new work this year, all of which will have multi-year consequences and reinforce
the strength of our company. It is important to know that the markets in which we
have invested substantial time and money are continuing to deliver the signals that we
made the right decision, and that the company has the financial resources to succeed.
CEOCFOinterviews: Do you
own and maintain much equipment or do you actually purchase it and use it at the site when
you are doing a job?
Mr. Arnold: Principally, the latter. We have a
well-defined process that we implement at appropriate scale for each customer. In
each case we design and construct a system that is calibrated to the unique waste
destruction requirements and site infrastructure of the customer. Our capital
systems are largely created with off the shelf, industry standard components, and castings
and metal fabrication services from suppliers that we have worked with in the past.
For the most part, we do not maintain an inventory of spare parts and accessories.
CEOCFOinterviews: You
sound very well positioned for moving forward.
Mr. Arnold: We are comfortable in our current position and
optimistic for the future. I am frequently asked the inevitable question: should I invest
in your company? My answer is that we are a development company with all the risk of
uncertainty and upside potential that this entails. We are a company that generates an
aggressive market response when we succeed because, when we get it right, we control a lot
of the turf. We are, however, in a tough market; its difficult to change the way
societies solve problems. On the bright side, the company is standing in a space
that was one occupied by well funded corporations that offered the same potential, but who
failed because of less efficient technology and poor cash management. Our
markets are valued in the billions of dollars worldwide, we understand their dynamics with
sufficient clarity to succeed, and we may have weathered the worst of the storm associated
with barriers to entry.
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