In December 2002, COAG agreed to a national review of the regulation, reporting and security around the storage, sale and handling of hazardous materials. The review is being guided by a steering committee, led by the Department of the Prime Minister and Cabinet (PM&C), and including representatives from the Australian Government Department of Transport and Regional Services, the Australian Government Attorney-General’s Department and the Queensland, New South Wales and Victorian Governments.

Ammonium nitrate was given priority within the COAG Review. The draft report on ammonium nitrate was completed in late December 2003 and circulated to jurisdictions for comment. Following this, a set of recommendations was conveyed to jurisdictions in late March 2004, and there was in-principle agreement by all jurisdictions to these recommendations, and in particular to a licensing system to better control AN. Officials from all jurisdictions met in Canberra on 28 April and again on 10-11 May 2004. The outcome of these deliberations was an agreed set of Principles for the Regulation of Ammonium Nitrate.

These Principles were developed to ensure a nationally consistent approach to the regulation of ammonium nitrate, recognising that the control of explosives and dangerous goods was a state and territory responsibility. While each jurisdiction would need to implement its own regulatory regime, there was agreement to be guided by the Principles to ensure a nationally consistent approach.

2. Statement of the Problem

Ammonium nitrate is widely used as an explosive ingredient by the mining industry. It is relatively stable until mixed with a fuel and initiated with an explosive charge. This mixture of ammonium nitrate and fuel oil is known as ANFO, and is the most widely used commercial explosive in the world.

Accidental explosions

Although relatively stable in isolation and when handled and stored carefully, ammonium nitrate will support combustion initiated in another material. Its oxidising quality will intensify a fire, even in the absence of air. When subjected to sufficient heat, ammonium nitrate becomes molten, extremely sensitive to impact, and will detonate, as demonstrated by the following major accidents:

· In 1921 in Krieweld, central Europe, 30 tons of ammonium nitrate in two rail cars had turned into solid blocks. In order to break these blocks apart, a 100-gram cartridge of mine explosive was fired into them. The rail cars exploded, killing 19 people;

· In 1921 in Germany, the town of Oppau was levelled and 500 people were killed when 450 tons of ammonium nitrate blended with ammonium sulphate exploded at the BASF manufacturing plant;

· In 1942 in Belgium, several hundred people were killed at a fertilizer plant when a cartridge was fired into 150 tons of ammonium nitrate;

· In 1947 in Texas City, USA, 576 people were killed when two ships carrying ammonium nitrate caught fire and exploded;

· In 1974 in Taroom, Queensland, 2 tonnes of ammonium nitrate on a truck caught fire and exploded, killing three people;

· In 2001 in Toulouse, France, 30 people were killed and 2,242 injured when 400 tonnes of ammonium nitrate at the AZF fertilizer factory exploded;

· on April 22, 2004 in North Korea, during shunting operations two train wagons carrying ammonium nitrate came into contact with a wagon containing fuel oil and exploded. The explosion creating a large crater and levelled everything in a 500 m radius, killing 161 and injuring approximately 1,300 people ; and

· in May 2004 in South-East Romania, 16 people were killed and 11 injured when a truck carrying ammonium nitrate fertilizer overturned and exploded.

Terrorism concern

Australia’s current national counter-terrorism alert level is at ‘medium’, the second of four levels. This means that a terrorist attack in Australia is feasible, and could well occur.

The best known example of terrorist use of ammonium nitrate was the bombing of the Alfred P Murrah building in Oklahoma City in 1995, destroying the nine storey office block, killing 168 people and injuring over 500 more. Approximately two tonnes of ammonium nitrate was used in that bomb.

Ammonium nitrate was also used in the IRA’s 1996 bombing of London’s Canary Wharf. Total damage was estimated at £85m and several buildings had to be demolished. Two people were killed and 100 injured, the low casualty count due to a series of IRA coded warnings which gave police an hour to evacuate the area. Ammonium nitrate was also used in the 1998 Omagh bombing which killed 29 and injured 330 people.

On 30 March 2004, UK police announced the arrest of eight individuals on terrorism charges. The eight were British citizens, possibly of Pakistani descent, and a related search of a ‘lock-up’ found half a tonne of ammonium nitrate fertilizer. The men were arrested on suspicion of being involved in the commission, preparation or instigation of acts of terrorism.

Of particular interest to Australia is that Jemaah Islamiyah (JI) had planned to use ammonium nitrate to bomb US and other western targets in Singapore, including the Australian High Commission. The Prime Minister of Singapore, announcing the arrest of 13 JI members on 19 February 2002, said JI planned up to seven simultaneous attacks using ammonium nitrate truck bombs. The group had already stockpiled 3.9 tonnes of ammonium nitrate and planned to acquire another 16.7 tonnes.

Islamic extremists in the Philippines are also known to have used ammonium nitrate, prompting that country to ban its import.

Availability of ammonium nitrate in Australia

A survey of the facts revealed that approximately 95% of ammonium nitrate in Australia is used as an explosive in the mining industry, the remainder used as a fertilizer. There is no regulation of its sale as either a fertilizer or an explosive ingredient in Australia, and very little regulation governing its security in transportation or storage.

3. Statement of the policy objective

In December 2002 COAG agreed to a national review of the regulation, reporting and security around the storage, sale and handling of hazardous materials.

The aim of the review was to identify means to limit opportunities for the illegal/unauthorised use of hazardous materials through improvements in Australia’s regulation, monitoring, control and education systems concerning such materials, in order to assist counter-terrorism efforts.

The terms of reference for the review were:

· to examine and report on controls of harmful biological materials (primarily pathogens and toxins), explosives and their precursors, radiological sources and hazardous chemicals, determining those that are comprehensively regulated (e.g. radiological materials), those that are partly regulated but where there may be a case for more comprehensive regulation, and those that are not regulated at all; and

· to make recommendations to ensure that, in respect of these goods:

- regulations and controls are effective and sufficient to prevent their procurement or possession for illegal purposes;

- offences and penalties for illegal possession and use are appropriate;

- there are no gaps in the current regulatory provisions governing their possession, storage and transport, or if so what these gaps are and how they could be addressed;

- attempts to acquire them for illegal purposes can be detected early;

- measures are in place to report to relevant authorities their illegal procurement, possession and transport; and

- any non-regulatory means which might promote better security (e.g. education campaigns or voluntary reporting schemes) are identified.

Ammonium nitrate was given particular attention within the review.

4. Current control measures

Before considering the most appropriate control measures, current control measures were assessed.

In general, regulations in Australia apply only to bulk transport and bulk storage of ammonium nitrate, reflecting the fact that, until now, it had been considered a health and safety issue rather than a counter-terrorism problem.

Manufacture

There are four ammonium nitrate manufacturing plants in Australia. These are at Kwinana WA (CSBP Westfarmers), Newcastle NSW (Orica), Gladstone QLD (Orica) and Moura QLD (Queensland Nitrates). Most of the production is explosive-grade ammonium nitrate, with the Orica plant in Newcastle producing most of Australia’s ammonium nitrate fertilizer for fertilizer subsidiary Incitec Pivot. Other ammonium nitrate fertilizer comes from the Kwinana plant, or is imported.

To manufacture the fertilizer the production process is temporarily switched over to produce high-density granules, whereas the usual process is to produce low-density prills designed to absorb fuel oil.

In relation to manufacturing sites, national standards for Major Hazard Facilities have been developed by the National Occupational Health and Safety Commission (NOHSC). Where ammonium nitrate is stored in quantities greater than 2,500 tonnes the storage facility falls within Major Hazard Facilities standards.

Of the states and territories, Queensland and Victoria have enacted legislation adopting these national standards. The other states and territories have not adopted these national standards, although Western Australia has given effect to the provisions under existing legislation. Therefore, the manufacturing facilities in Queensland and Western Australia are subject to state regulations which, while focused on occupational health and safety issues also have some physical security requirements, such as boundary security and controlling access.

Importation

In 2003 Australia imported 68,000 tonnes of ammonium nitrate, most of this coming from South Africa (40%) and China (28%), followed by Lithuania and the Ukraine (6% each). Over the past six months the annualised rate has increased to about 100,000 tonnes per annum, but the rate of importation fluctuates depending on overseas prices, value of the Australian dollar and periodic gaps in supply which Australian production cannot meet. The imported product is used by both the mining and agricultural industries, and helps keep down the cost of the Australian product.

Ammonium nitrate is imported into most capital city ports around Australia. In 2003, the number of shipments recorded into Australian ports were:

Fremantle 15

Brisbane 13

Sydney 12

Melbourne 10

Newcastle 5

Port Adelaide 5

Gladstone 3

Dampier 2

There is no statistical information to indicate whether the importations were sold into the mining or agricultural sectors, because there is no requirement to declare end-use and no regulations to prevent explosive-grade ammonium nitrate from being sold into the agricultural market. The port of entry is the best indicator of intended use. For example, an importation into Dampier is probably for the mining industry whereas importations into Melbourne and Port Adelaide were probably destined for agricultural use.

As a category 5.1 dangerous good, ammonium nitrate at sea is subject to the International Maritime Dangerous Goods Code. Once landed, it is subject to the Australian Dangerous Goods Code for transport by road and rail. However, a report by DoTARS for the Australian Logistics Council Security Committee (ALCSC) found that the importation of dangerous goods is a major problem area. Although there are regulations in place, in practice these are often ignored. Importers often do not declare their cargo as dangerous goods, enforcement is negligible and penalties for non-compliance inadequate.

The ALCSC has recommended the development of improved security measures on a national basis for the movement of High Consequence Dangerous Goods, which would include ammonium nitrate. The COAG review should endorse the ALCSC report and its recommendations.

There is some concern by Australian producers of ammonium nitrate that the imported product is inferior in quality and that safe storage and handling requirements are not followed. The ALCSC’s conclusions would seem to support this view.

Transport

Ammonium nitrate is generally classified by transportation regulators as an oxidising substance (class 5.1) within dangerous goods regulations. Where it is mixed as ANFO and transported in this form it would generally be subject to explosives regulations rather than dangerous goods regulation.

This dangerous goods classification makes ammonium nitrate subject to:

· the Australian Dangerous Goods Code for transport by road and rail;

· the International Maritime Dangerous Goods Code for transport by sea; and

· the International Air Transport Association Dangerous Goods Code for transport by air.

The Dangerous Goods Code covers ammonium nitrate only while in transit, and does not cover it while in storage.

Much of the ammonium nitrate used in mining is transported as a hot solution of

80-90% ammonium nitrate in water. This intermediate form of the chemical is safer to transport and it is made sensitive to detonation near to, or at the mine site.

In Queensland, ammonium nitrate transported by road or rail comes under the control of Queensland Transport, which monitors and enforces the Australian Dangerous Goods Code. The code applies mostly to ‘bulk transport’ (generally over 1,000 kg) and requires vehicles and drivers to be licensed, with dangerous goods placards on the vehicle. Ammonium nitrate transported in packages is subject to only minimal requirements.

A licence to transport dangerous goods requires a medical examination, traffic and police checks and approved training. The training focuses on safety issues and legal requirements, and does not focus on security practices such as not leaving the vehicle unattended. There are approximately 5,000 holders of dangerous goods drivers’ licences in Queensland. The checks and tests required for this licence vary between the states and the territories.

If ammonium nitrate were declared an explosive different regulations could apply, and compliance in Queensland would be carried out by the Chief Inspector of Explosives in the Department of Natural Resources and Mines. The precise nature of the regulatory regime would need to be developed by state and territory explosives regulators, working together to ensure there are nationally consistent standards.

The National Road Transport Commission has commenced production of a revised version of the Australian Dangerous Goods Code to take into account new security provisions in UN model regulations. The UN model includes requirements for security plans, identity cards, security training and background checks. The revised code may be ready for consideration by the states and territories by late 2004.

Storage

There is no specific national standard covering safety and security requirements for the storage of ammonium nitrate under 2,500 tonnes. Where it is stored in quantities greater than 2,500 tonnes, the storage facility falls within Major Hazard Facilities standards developed by the National Occupational Health and Safety Commission. While the Major Hazard Facilities standards are focused on occupational health and safety issues, there are some physical security requirements such as controlling access and boundary security.

Of the states and territories, Queensland and Victoria have enacted legislation adopting these national standards, and Western Australia has given effect to the provisions under existing legislation. Western Australia has a licensing system for the storage of dangerous goods (which includes ammonium nitrate) over one tonne. In the case of ammonium nitrate, the licence requires it to be kept under lock and key or with a security fence of a certain standard. Farmers are exempt from these provisions.

In December 2002 the UK Government lowered the notification threshold of ammonium nitrate from 500 tonnes to 150 tonnes, so that anyone handling or storing (or likely to handle or store) 150 tonnes or more of ammonium nitrate must notify the UK Hazardous Installations Directorate.

Sale

There are no regulations restricting the sale of ammonium nitrate in Australia.

Ammonium nitrate fertilizer is sold in approximately 150,000 individual transactions by about 2,000 retail outlets across Australia, generally rural supply stores. While ammonium nitrate fertilizer is not widely sold in hardware stores and garden centres, there is no restriction on this occurring.

5. International overview

In considering Australia’s policy response to the problem of ammonium nitrate, the approach of other countries was considered with a view to possibly adopting control measures which might have proved successful elsewhere. Several Australian Embassies and High Commissions assisted with liaison with overseas authorities.

It was found that many countries have grappled with the ammonium nitrate issue. Some have introduced a total ban, others a ban on the fertilizer, others have allowed only blends of the fertilizer, and others have found the problem too difficult. There is no simple universal solution and ammonium nitrate presents different policy challenges for different countries. While ammonium nitrate is the main ingredient in virtually all explosives, some countries have very little mining or quarrying. In some countries the agricultural sector is highly dependent on ammonium nitrate fertilizer, while in others it has been banned with little impact.

It is illustrative to compare the use of ammonium nitrate in Australia with that in the US and the UK, where policy makers are also grappling with this issue. In Australia, the agricultural sector is not as dependent on ammonium nitrate fertilizer; we use approximately 36,000 tonnes per annum whereas the US and UK both use approximately 1.8 million tonnes each. It is not the main nitrogen fertilizer here, and is used by only 3,500 farms. In the UK it is the main nitrogen fertilizer and is used by 144,000 farms, 60% of all UK farms.

While the agricultural sector in Australia is not a heavy user of ammonium nitrate, the mining and quarrying industries are. About 95% of all our ammonium nitrate is used in mining, in the US about half is used in mining and half in agriculture, while in the UK about 98% of all ammonium nitrate is used in agriculture.

From these statistics alone, it can be concluded that restricting ammonium nitrate as an explosives ingredient would have an enormous impact on the mining and quarrying industries in Australia. They use virtually no other explosive. On the other hand, restrictions on the availability of ammonium nitrate fertilizer here would not have the same profound effect on agriculture, where ammonium nitrate is very much a minority fertilizer and, according to fertilizer producers, readily replaceable.

United Nations

In 1999 the UN completed a 14-month study on the problems of ammunition and explosives. The report recognised that:

‘the most accessible explosive chemical is ammonium nitrate and as a result of this has been used in many bombings worldwide. It is relatively simple to convert fertilizer-grade ammonium nitrate to explosive-grade. Measures to render ammonium nitrate inert to prevent detonation have been investigated in the United States and Canada. This has included addition of fire retardants, textiles, polymers and limestone and other chemicals. Field results have been mixed, but generally it was found that determined bombers with basic chemical knowledge could circumvent any measure used to date. Research in this area is continuing.’

One of the recommendations was to encourage member states ‘to register, regulate and approve all of the participants in the ammunition and explosives supply chain, including producers, brokers and shippers.’

USA

Ammonium nitrate is widely used in the US, about half for explosives and half as a fertilizer. Explosive-grade ammonium nitrate has been regulated at the Federal level since 1971, while the sale of ammonium nitrate fertilizer is not regulated at all except for South Carolina.

Major Studies

Following the use of ammonium nitrate fertilizer in the 1995 Oklahoma City bombing, the US undert ook a major study: “Containing the Threat from Illegal Bombings”. Undertaken by the National Research Council, the report examined the feasibility of marking, rendering inert and licensing explosive materials. The report gave particular attention to ammonium nitrate and published its findings in 1998.

The report concluded that identification tagging of explosives is technically feasible but based on a cost-benefit analysis and the threat level at the time, it should not be required. It also concluded that ammonium nitrate could not be rendered inert without seriously affecting its use as a fertilizer.

Based on the threat level at the time, the report recommended strengthening the voluntary industry campaign ‘Be Aware for America’, which encouraged sellers to report suspicious purchases. It also recommended that only packaged blends of ammonium nitrate fertilizer which are non-detonable should be sold in retail outlets, or alternately, the purchaser should be required to produce identification and the seller to keep records of transactions.

The report also recommended further measures if the threat level greatly increased; that buyers should be required to obtain permits and sellers should be required to have licences. These recommendations have not been enacted at the Federal level.

A 1997 progress report by the International Fertilizer Development Centre was titled “Imposing Controls on, or Rendering Inert, Fertilizer Chemicals Used to Manufacture Explosive Materials". The report concluded that rendering ammonium nitrate fertilizer inert is not feasible due to the potentially serious economic and agronomic effects. This conclusion was consistent with that of the National Research Council study, that ammonium nitrate could not be made inert without ruining its utility as a fertilizer.

These two studies highlighted the complexity of the problem, and recommended further research into tagging and rendering ammonium nitrate inert. They focused on voluntary and technical solutions, and since then only one US state has taken up one of the legislative solutions recommended – the creation of a permit system.

South Carolina

In July 2002, South Carolina amended its fertilizer laws to create a category of ‘restricted fertilizers’. Permits are now required for all companies that wish to sell ammonium nitrate, anhydrous ammonia and urea, the three fertilizers currently classified as ‘restricted’. Compliance is monitored by the Department of Fertilizer and Seed Certification at Clemson University, which employs six inspectors and also produces training material.

Manufacturers, distributors and retailers pay $US250 for an annual permit to sell ‘restricted fertilizers’. The law requires retailers to record a valid driver’s licence number or other approved photo identification for each sale, and to keep these records for two years. No manufacturer or distributor can sell a ‘restricted fertilizer’ to another distributor or a retailer who does not hold a ‘restricted fertilizer’ permit. Blends containing less than 80% ammonium nitrate are not classed as ‘restricted fertilizers’.

South Carolina also requires anyone selling any type of fertilizer to obtain a no-fee ‘general fertilizer’ permit. This is so compliance officers can check fertilizer distributors and dealers to ensure they are not unlawfully handling ‘restricted fertilizers’. The database of all fertilizer distributors and retailers enables direct communication with all permit holders for quick dissemination of security alerts and for strengthening the “Be Aware for America” campaign.

UK

In early 2003 the UK enacted regulations which required a certificate of detonation resistance for ammonium nitrate fertilizer, and for it to also satisfy other technical characteristics such as porosity and particle size. The detonation tests are based on an European Community (EC) standard, and ammonium nitrate fertilizer from outside the EC cannot be imported to the UK without prior submission of a detonation test certificate.

The problem of storing large quantities of ammonium nitrate was highlighted by the Tolouse explosion, and the UK now requires anyone handling or storing 150 or more tonnes of ammonium nitrate to notify the government Health and Safety Executive. This affects fertilizer manufacturers, importers, distributors, ports and some farmers.

Republic of Ireland and Northern Ireland

Due to the threat of IRA bombings, Northern Ireland has classified ammonium nitrate as an explosive and banned any fertilizer containing more than 79% ammonium nitrate. The Republic of Ireland has similar regulations. Ammonium nitrate has been replaced by the compound product CAN, which consists of 78.5% ammonium nitrate and 21.5% calcium carbonate. While CAN is a popular fertilizer in its own right, some farmers consider it less efficient than 100% ammonium nitrate.

The Irish regulations have been in place since 1972. Ammonium nitrate is controlled as an explosive and import licences and secure storage are required. According to Ireland’s Department of Agriculture, farmers accept the need for the regulations, and in fact many have no experience of farming prior to the regulations. When the regulations were introduced the main effect was to increase costs for farmers. Greater quantities of CAN had to be used, resulting in greater purchase, haulage, storage and spreading costs.

Europe

Belgium, Denmark, Germany and the Netherlands have such strict controls over 100% ammonium nitrate fertilizer that as a result CAN is the main nitrogen fertilizer within the European Union (EU).

France, the UK, Spain and Italy continue to allow 100% ammonium nitrate fertilizer, and EC fertilizer regulations mandate that only packaged fertilizers which have passed the EC’s detonation test and other quality characteristics can be marked and sold as an ‘EC fertilizer’. Following the Toulouse explosion, the French Ministry of the Environment undertook a review of regulations and recommended that ammonium nitrate fertilizer should be sold only in blends, or otherwise should be classified as an explosive.

In March 2003 the EU embarked on a 3-year study titled ‘Safety Research on Ammonium Nitrate.’

Indonesia

Ammonium nitrate is classified as an explosive and the manufacture, distribution, sale and use of ammonium nitrate as a fertiliser is banned. The Indonesian Ministry of Defence regulates its manufacture, distribution and sale to the explosives and mining industries by the application of licences, and when ammonium nitrate is transported internally by road it requires police escort.

The Ministry of Defence has issued licences to a limited number of companies to distribute and sell ammonium nitrate. Although three licences for the manufacture of ammonium nitrate have been issued, to date only one small production facility exists.

The import of ammonium nitrate is also controlled by the Ministry of Defence, which requires importers to obtain three permits: an import permit, a permit to store and a permit to sell.

South Africa

South Africa also bans the use of ammonium nitrate as a fertilizer and regulates it as an explosive for use in the mining industry. The mining industry uses about 500,000 tonnes per annum, and in agriculture CAN has replaced ammonium nitrate as the alternative nitrogen fertilizer, with over 500,000 tonnes being used per annum.

China

In September 2002, China moved to ban 100% ammonium nitrate fertilizer. The tighter regulatory regime was prompted by two incidents, one of which resulted in the collapse of a residential building and the death of several hundred people, the other resulting in police casualties. Both bombs were made from ammonium nitrate fertiliser.

Banning ammonium nitrate fertilizer has been a significant step for China, as about 60% of ammonium nitrate production in China was for agricultural use. Fertilizer blends and compounds using ammonium nitrate are still permitted, and of the 54 manufacturers producing ammonium nitrate half have indicated plans to switch production to blended and other compound fertilisers. Those that have done so already found the switch to manufacturing compound fertilizers relatively easy. Some also increased urea production to make up for the loss from ammonium nitrate. The government is offering loans to help companies restructure their production line, the subsidies being granted on a case-by-case basis. No new manufacturing projects will be permitted.

Ammonium nitrate is now categorised as an explosive and managed accordingly, meaning tighter transportation standards and a ban on imports. Given the international concern on ammonium nitrate, there is reportedly a strong dialogue emerging between the Chinese and various European regulatory bodies.

Rest of the World

Peru banned ammonium nitrate fertilizer after it was used in bombings by the Shining Path guerrilla group, and in 2002 Colombia banned the importation and production of ammonium nitrate fertilizer due to concerns about the FARC terrorist group. Colombia restricted the importation of CAN, without banning it completely. The Philippines has also banned the importation of ammonium nitrate due to terrorist use, and its availability is restricted in Israel.

6. Is government intervention necessary?

The key question addressed by the COAG Review of Hazardous Materials was whether government intervention was necessary, or whether existing arrangements for ammonium nitrate were sufficient to address national security concerns.

The review found that there are currently no regulations restricting the sale of ammonium nitrate in Australia, and the review concluded that the threat of terrorism means that the ready availability of ammonium nitrate presents an unacceptable risk to public safety, and that government intervention is necessary to manage this risk.

The review concluded that:

· the unregulated sale of ammonium nitrate fertilizer is the most serious security risk, and measures should be introduced to control its sale;

· Australia’s use of ammonium nitrate fertilizer is not economically significant and a ban might be possible. However, those who would be most affected are small horticulturalists and dairy farmers, and insufficient field testing has been done to fully test the viability of alternative fertilizers. Further work should include study of the costs and viability of these alternatives;

· ammonium nitrate used in the mining industry does not present as significant a risk, because in this market it is generally sold to known account customers and less likely to be appropriated for misuse. Banning ammonium nitrate for use in mining and quarrying is not a viable option;

· there would be benefit in establishing nationally uniform security standards for the importation, storage and transport of ammonium nitrate. The Australian Logistics Council Security Committee has recommended the registration and licensing of domestic carriers, forwarders and importers/exporters of high consequence dangerous goods such as ammonium nitrate; and

· more comprehensive background checking, including security checking of people with access to ammonium nitrate (and other explosives) would improve the security environment.

After concluding that government intervention was necessary, a number of measures were considered including banning the manufacture, sale and use of ammonium nitrate as a fertilizer. This may still be an option for Australia. However, field testing needs to be done on the cost and viability of alternatives for certain sectors of the agricultural industry. It is likely that horticulturalists, in particular, would not welcome the adjustment to the use of any alternatives.

The other main option considered was to allow the supply and purchase of ammonium nitrate with a licensing and permit system. This would apply to all ammonium nitrate whether used as a fertilizer or as an explosive in the mining industry. Suppliers would require a licence to sell and buyers would require a permit to buy. This option was adopted by the Steering Committee for the COAG Review of Hazardous Materials on 29 March 2004.

This and the other recommendations of the ammonium nitrate review were developed over a long period of research and consultation. The research involved study of the policy settings in numerous other countries, as well as research into the security, economic and agronomic issues involved. The consultation was with industry bodies, state and territory governments, and relevant Australian Government agencies.

After consideration of various options, the steering committee for the COAG Review of Hazardous Materials recommended:

1. The supply chain from manufacture to end use of ammonium nitrate should be regulated by each state and territory through a licensing and permit system. This system should be introduced as soon as possible this year [precise timing to be agreed.] Criteria for issuing the licences/permits should include:

- a demonstrated legitimate need for access to ammonium nitrate;

- safe and secure storage and handling procedures; and

- that applicants for licences and permits are not of security concern.

(States and territories should examine the most appropriate mechanism to implement the licensing system within their jurisdiction, including using existing explosives or dangerous goods legislation.)

2. In implementing recommendation one, states and territories should review background checking procedures and training for persons with access to ammonium nitrate and other explosives, to ensure standards are adequate and nationally uniform. A framework should be established to enable states and territories to include security (ASIO) checks as an additional procedure in determining suitability, on a fee for service basis.

3. Security surrounding the importation of ammonium nitrate should be addressed in port facility and ship security plans under the Maritime Security Act 2003.

4. States and territories, in conjunction with Department of Transport and Regional Services (DoTARS) should develop nationally uniform standards for the transport of ammonium nitrate, informed by the Australian Logistics Council Security Committee’s (ALCSC) review of the transport of dangerous goods.

5. As soon as possible, Queensland, NSW and WA should examine the security plans of the ammonium nitrate manufacturing plant(s) in their jurisdiction, and determine the adequacy of these plans in relation to counter-terrorism concerns.

6. A specific and targeted information campaign regarding the reporting of suspicious activity should be developed as soon as possible, and aimed at those working in the fertilizer and explosives industries, to be implemented in conjunction with the fertilizer and chemicals industries’ security codes of practice.

7. There should be fuller investigation of the viability and cost of alternative fertilizers and of a transition to an eventual ban on ammonium nitrate fertilizer.

7. Proposed Regulations

Following the recommendations of the review the Australian Government sought the agreement of the states and territories to a licensing system to control ammonium nitrate. The states and territories responded positively to this recommendation, and officials met and agreed on these policy objectives:

A nationally consistent, effective and integrated approach to control access to security sensitive ammonium nitrate to those with a legitimate need.
To ensure accountability at all stages of the ammonium nitrate supply chain, in order to address security and safety concerns.
To establish a framework for control which may be applicable for other materials of security concern

A set of Principles, which will guide state and territory regulations, was agreed by a meeting of officials in Canberra on May 10-11 2004. The Principles are:

1. An authority would be required to import, manufacture, store, transport, supply, export, use or dispose of security sensitive ammonium nitrate (SSAN).

2. Security sensitive AN (SSAN) shall be defined as ammonium nitrate, ammonium nitrate emulsions and ammonium nitrate mixtures containing greater than 45% ammonium nitrate, excluding solutions. (These include dangerous goods under the Australian Dangerous Goods Code with the UN numbers 1942, 2067, 2068, 2069, 2070, 2071, 2072, 3375 and 3139 where applicable.)

3. Persons seeking an authority will be required to:

a) demonstrate a legitimate need for access to SSAN[1];

b) provide safe and secure storage and handling procedures;

c) report any loss, theft, attempted theft or unexplained discrepancy to the regulatory authority and the police;

d) undergo background checking; and

e) be a minimum of 18 years of age, and

f) provide verifiable proof of identity, and if a company, details of the company.

4. Background checking will include police and ASIO checks.

a) As a minimum, background checks will be required for the person responsible for the security of SSAN at a workplace (‘responsible person’), as well as for any person who has unsupervised access to SSAN.

b) The owners and directors of companies which are not publicly listed will also undergo background checking.

c) Police checking should be done regularly.

d) ASIO checks need only be done once, provided ASIO is notified of the change of name of a person who is subject to security checking.

5. An authority in relation to import, manufacture, store, transport, supply, export, use or dispose of SSAN will impose requirements on the holder of that authority.

Following is a description of the requirements for each type of authority.

6. Importation from overseas:

a) Importers of SSAN must have an authority to import and must inform the regulatory authority of each importation at least seven days prior to import.

b) This notification must include:

i. name of vessel,

ii. details of the quantity to be imported,

iii. location of arrival,

iv. name and contact details of the person receiving the goods,

v. where the goods will be stored or sent,

vi. authorisation details of the recipient,

vii. confirmation of dangerous goods classification and a certificate of analysis for each batch comprising the importation.

c) The Australian Customs Service should notify the authority of each importation of ammonium nitrate, and hold any importation which is not properly licensed. (This could be done by placing ammonium nitrate on the prohibited import list, unless authorisation conditions were satisfied. Note: This outcome pending consultation with ACS.)

7. Manufacture

a) An applicant for authority to manufacture SSAN must provide details including:

i. the siting and location of the manufacturing facility,

ii. details of the production process to be used,

iii. details of the sourcing of ingredients,

iv. name of the responsible person,

v. the specification of the product to be made,

vi. confirmation of dangerous goods classification,

vii. where the goods will be stored or sent, and

viii. authorisation details of the recipient.

8. Storage

a) An applicant for authority to store SSAN must have an approved security plan for storage, based on a risk assessment.

b) The security plan must specify how the ammonium nitrate will be stored to ensure it is secure, and set out procedures for controlling access and for recording and reporting the loss, theft or attempted theft of ammonium nitrate.

c) As a minimum, SSAN must be stored under lock and key or be under constant surveillance. (A detailed national code for safe and secure storage will be developed.)

d) The security plan must designate a ‘responsible person’ who will be responsible for implementation of the security plan.

e) The security plan must also outline measures to ensure safe storage, in accordance with established safety regulations and requirements.

f) Records of stock receipts and issues are to be maintained.

9. Transport:

a) An applicant for authority to transport SSAN must have an approved security plan for transport, based on a risk assessment.

b) The security plan must specify how the ammonium nitrate will be transported to ensure it is secure and safe for the duration of the entire journey, and set out procedures for controlling access and for recording and reporting the loss, theft or attempted theft of ammonium nitrate.

c) As a minimum, SSAN must be transported under lock and key or be under constant surveillance.

d) The security plan must designate a ‘responsible person’, who will be responsible for implementation of the security plan.

e) The security plan must also outline measures to ensure safe transport, in accordance with established safety regulations and requirements.

f) An authority would not be required for the transport of quantities of SSAN of 20kg or a lesser weight.

10. Supply:

a) A person may only supply SSAN to another authorised person, under the conditions of their authority.

b) Records must be kept of all transactions, including the authorisation type and number of the recipient, the date, quantity, and a description of the product (name and UN number).

c) The supplier must confirm the bona fides of the purchaser, and, as a minimum, sight the authorisation or a certified copy of the authorisation, photo identification, and if applicable, proof of employment.

11. Export

a) Exporters of SSAN must have an authority to export and must inform the authority of each exportation at least seven days prior to exportation.

d) This notification must include details of the quantity to be exported, where the goods will be sent, and documentation confirming that the shipment complies with import regulations in the receiving country.

e) The Australian Customs Service should notify the authority of each exportation of SSAN. (This outcome pending consultation with ACS.)

f) A person exporting SSAN must keep records of all transactions, ensure safe and secure handling, and report any loss, theft, or attempted theft.

12. Use/disposal

a) A person may only acquire SSAN from another authorised person.

b) Records must be kept of all transactions, including the authorisation type and number and identification details of the supplier, the date, quantity, and a description of the product (name and UN number).

c) Records must also be kept of use or disposal.

13. Offences

It will be an offence to import, manufacture, store, transport, supply, export, acquire, use or dispose of SSAN without an authorisation.

a) It will also be an offence to breach the requirements of an authorisation.

b) Penalties will be consistent with penalties for breaches of explosives legislation in each jurisdiction.

c) Penalties will include loss of authorisation and confiscation of the product.

14. Reporting of loss, theft, attempted theft and discrepancies

a) Such incidents must be reported to the authority in each jurisdiction as well as to the police in each jurisdiction.

b) The police will be responsible for passing these incident reports, as well as discoveries of abandoned or illegally held SSAN to the Australian Bomb Data Centre, which will keep a national data base of such incidents.

15. Explosives regulations

In view of these measures to be introduced for SSAN, which in some cases are more stringent than those for the control of explosives, states and territories should review their explosives regulations. In particular, states and territories should quickly move to:

a) implement security checking for persons having access to explosives, and

b) ensure penalties for breaches of explosives regulations are appropriately severe.

8. Analysis

To assess the most appropriate strategy for controlling ammonium nitrate, analysis of its use in Australia was undertaken, together with analysis of a number of key issues requiring consideration before policy settings could be determined.

Use of ammonium nitrate

Ammonium nitrate is a chemical used as a fertilizer in the agricultural industry and as an explosive ingredient in the mining industry. More than 900,000 tonnes per year are used in Australia. Most of this is produced at four manufacturing plants, but there is also some import and export. In 2003 we imported about 70,000 tonnes and exported about 40,000 tonnes.

While ammonium nitrate is generally perceived as a fertilizer that can also be used as an explosive, the reverse is actually the case in Australia, where 95% of ammonium nitrate is used as an explosive in the mining industry.

Mining Use

In 1998, around 95% of non-military explosives in use throughout the world were ammonium nitrate-based. In Australia, the mining and quarrying industries use virtually nothing else. Ammonium nitrate based explosives are cheap, effective and relatively safe to handle.

There are four manufacturing plants in Australia, at Kwinana (WA), Newcastle (NSW), and Gladstone and Moura (QLD). Almost all production is for the mining industry.

Ammonium nitrate is often transported by road from the manufacturing plant to the mine site as a ‘hot solution’ (usually 80-90% ammonium nitrate in water). It is then mixed with an emulsifier, sensitised, and converted to an explosive mixture. Sometimes this is done at a processing station. Alternatively, mobile mixing units take the ingredients to the mine site, where they are mixed and sensitised to detonation on site.

Agricultural use

The most recent Agricultural Census by the Australian Bureau of Statistics shows that 3,497 farms used a total of 36,054 tonnes of ammonium nitrate fertilizer in the year ending June 2001. The main users of ammonium nitrate fertilizer are horticulturalists (25,000 tonnes) followed by the dairy industry.

Ammonium nitrate fertilizer amounts to less than 1% of all fertilizer used in Australia. Even within the group of nitrogen based fertilizers, ammonium nitrate is very much a minor or specialist fertilizer. The Agricultural Census shows that urea is the predominant nitrogen fertilizer, with 34,780 farms using a total of 1,064,888 tonnes, approximately 30 times more than ammonium nitrate.

Urea is clearly the favoured nitrogen fertilizer for most farmers in Australia in most climatic conditions. It is also the most popular nitrogen fertilizer in the world.

The Agricultural Census provides details of ammonium nitrate fertilizer tonnage use in each state and territory.

In all of areas where ammonium nitrate is used, urea was used in vastly greater volume. It is cheaper than ammonium nitrate and contains more nitrogen. So why is ammonium nitrate sometimes used by some farmers in preference to urea?

The answer is ammonium nitrate’s ability to deliver nitrogen efficiently in certain conditions, especially in winter, when soil temperatures are low. It is generally applied to the soil in dry granular form, although it is soluble and can be applied in liquid solution form through fertigation (applied in irrigation water).

Ammonium nitrate fertilizer’s most common usage is for:

- side-dressing vegetables;

- tree and plantation crops; and

- for top-dressing rain-grown crops and pastures where ammonium volatilization loss (nitrogen lost as ammonia gas) may be high, such as dairy pastures in southern Australia during the drier times of year.

Ammonium nitrate fertilizer is generally available through rural supplies stores. These take the form of individual retail businesses and larger chains such as Elders and Westfarmers Landmark. There are approximately 2,000 of these retailers throughout Australia, mainly located in rural areas and the outskirts of the major cities. Hardware stores and garden centres do not generally stock ammonium nitrate, although there are no regulations to prevent them from doing so. Each year, sales of ammonium nitrate fertilizer take place in approximately 150,000 individual retail transactions.

Other Issues

In developing an appropriate policy response to the problem of ammonium nitrate, several key issues required consideration.

Is ammonium nitrate one product or two?

Before a ban or regulations are considered a fundamental question needed to be asked – are we dealing with one product or two? Should a ban, if adopted, apply to both the fertilizer and the explosive-grade ammonium nitrate? And if regulated, should one be more highly regulated than the other?

Manufacturers have taken note of the explosive qualities of ammonium nitrate and market one product as an explosive and a slightly different product as a fertilizer. Within Australia they are generally marketed and distributed separately, although anecdotally, farmers do use the fertilizer to blow up tree stumps etc. The fertilizer is sold through farm supply retailers, while explosive-grade ammonium nitrate is generally sold direct to mining companies, and often delivered in gel or emulsion form to be mixed on site and used immediately.

Under current practices, concern from a counter-terrorism perspective is largely the ready availability of ammonium nitrate as a fertilizer. The fertilizer has the same chemical formula as explosive-grade ammonium nitrate, and the fertilizer can be used for bomb-making.

Conclusion

· Ammonium nitrate should be regarded as an explosive ingredient, whether or not it is labelled as a fertilizer.

Is a ban feasible?

Australia has a large mining industry which is highly reliant on ammonium nitrate based explosives. A total ban on ammonium nitrate would overturn established mining practices and add significantly to costs. Compared to other ready-made commercial explosives, ANFO is efficient and safe to use, and any ban could force the industry to use less safe explosives.

With 95% of ammonium nitrate in Australia used as an explosive, and used within established and narrow distribution channels, one option would be to allow availability to continue in the mining industry but ban the sale of 100% ammonium nitrate fertilizer. While explosive-grade ammonium nitrate is sold and distributed to a relatively small number of large and well-known customers, the unregulated sale of the fertilizer presents the greatest counter-terrorism risk.

A ban on the fertilizer would have an impact on the agricultural user. The Australian Bureau of Agricultural and Resource Economics (ABARE) estimated that the cost of banning ammonium nitrate fertilizer would be a minimum of $5 million a year, with this cost quite geographically concentrated and most affecting the horticulture and dairy industries. Nevertheless, prohibiting the production and supply of ammonium nitrate fertilizer would close down the most likely means by which terrorists could acquire ammonium nitrate.

A major 1997 US study, ‘Containing the Threat from Illegal Bombings’, concluded that allowing the sale of ammonium nitrate fertilizer only in diluted blends would be a worthwhile measure. It recommended that “packaged ammonium nitrate-based fertilizers typically sold in retail outlets should be sold only as nondetonable mixtures (blends), as defined by a standard test protocol to be developed. Alternatively, the purchaser should be required to produce identification and the seller to keep records of the transaction.”

Because ammonium nitrate is a minority fertilizer here, Australia could seriously consider adopting the recommendations of the US study and allow the sale of ammonium nitrate fertilizer only in nondetonable blends. If a ban of 100% ammonium nitrate fertilizer were considered a viable option, the next question to be addressed would relate to alternative fertilizers.

Are there alternative fertilizers?

There could be an element of custom or habit in some users’ choice of ammonium nitrate. This could be especially so with small horticulturalists who have confidence in the benefits of ammonium nitrate and familiarity with its application techniques. They may not have considered alternatives because there has been no compelling reason to do so.

Removing 100% ammonium nitrate fertilizer from the Australian market would have an immediate public safety benefit; the substitute blends would be less detonable and more difficult to use as an explosive ingredient. In general, the lower the proportion of ammonium nitrate the ‘safer’ the blend, and the allowable proportion of ammonium nitrate in a blend could be set accordingly. This option would give farmers access to ammonium nitrate but only where packaged with other fertilizers in non-detonable blends.

Australia’s two main manufacturers, Incitec Pivot and CSBP, believe they can supply substitute fertilizers. The alternatives for ammonium nitrate fertilizer, which contains 34% nitrogen (N) are:

· urea, 46% N,

· calcium ammonium nitrate (CAN), 27% N, a blend containing 80% ammonium nitrate,

· blends containing CAN,

· urea-ammonium nitrate (UAN), a liquid 50/50 blend with 32%N,

· ammonium sulphate nitrate, 26% N, and

· anhydrous ammonia, a liquefied gas containing 82% nitrogen.

If 100% ammonium nitrate fertilizer were unavailable the alternative nitrogen fertilizers might be crop specific. The alternatives are as follows.

Grapes

Substitutes are already widely adopted, such UAN, calcium nitrate and potassium nitrate.

Fruit and Orchards

UAN, calcium nitrate and potassium nitrate have been widely adopted.

Vegetables

The alternative fertilizers are ammonium nitrate blends, CAN, ammonium sulphate nitrate and UAN. They are already being used in increasing quantities. Soluble products such as calcium nitrate and potassium nitrate are substituting traditional ammonium nitrate sales, and the manufactured liquid UAN is a direct substitute in this crop segment.

Dairy

Ammonium nitrate blends can directly replace ammonium nitrate. Dairy farmers apply additional nutrients such as phosphorus, potassium and sulphur to their pastures, and ammonium nitrate blends offer dairy farmers the convenience of applying all the required nutrients in one application, saving them time and reducing application costs. Other potential nitrogen substitutes for dairy farmers are urea, CAN and ammonium sulphate nitrate.

Broadacre – (Grains)

Broadacre growers do not see much value in nitrate nitrogen, preferring to apply the cheapest form of nitrogen available, which is generally urea. A small amount of ammonium nitrate is sold into the broadacre market periodically, in the majority of instances only when it is price advantageous to use ammonium nitrate in preference to urea. Ammonium nitrate is directly substitutable by urea or UAN.

Cotton

A small amount of ammonium nitrate is sold into cotton production periodically, and the market has proved to swing from ammonium nitrate back to substitutes on the basis of price. Ammonium nitrate is directly substitutable with CAN, urea, anhydrous ammonia, and UAN. Eighty percent of the cotton crop is irrigated so fertigation (application of fertilisers through irrigation water) is becoming commonplace. There is a significant trend towards the use of liquids (such as UAN) from a convenience perspective.

A common theme within the question of substitutes is that where fertigation is used, UAN is considered a superior product to 100% ammonium nitrate solutions. Western Australia has reported that UAN (a liquid 50/50 blend of urea and ammonium nitrate) is becoming increasingly popular. CSBP projects that 100,000 tonnes of this product will be in annual use in WA by 2006/2007. Incitec Pivot, Australia’s largest ammonium nitrate manufacturer, currently sells 3,500 tonnes of UAN and 25,000 tonnes of 100% ammonium nitrate fertilizer per annum.

In general, for dry application CAN is a direct substitute for ammonium nitrate. It consists of about 80% ammonium nitrate and therefore has the same agronomic benefit as 100% ammonium nitrate, although it has to be applied in greater quantity for the same amount of nitrogen, making it more costly per unit of nitrogen. South Africa, Northern Ireland and the Republic of Ireland use this as a substitute, where CAN contains no more than 79% ammonium nitrate. This product is already widely used in Australia, including as a component in other blends.

The problem with CAN is that although it is a substitute fertilizer, it is also a substitute explosive ingredient. If ammonium nitrate fertilizer blends were allowed in Australia, consideration would need to be given as to whether CAN would be available or whether the allowable ammonium nitrate content should be set lower than the 80% ammonium nitrate content in CAN. CAN is not classified as a dangerous good in Australia.

If ammonium nitrate were unavailable, urea or UAN would be the other main alternatives. At first glance the safety benefit of urea may appear negligible, because it was used in the 1993 World Trade Centre bombing. However, in that case urea was combined with nitric acid to make a more complex improvised explosive than ammonium nitrate. In addition, UAN is available only as a liquid solution and would require considerable ‘processing’ before it could be converted to an explosive ingredient. Once blended, the separation of ammonium nitrate from urea is impractical because they are almost physically indistinguishable in dry form and have similar solubility in water.

In 1995 J. Edmund Hay, a research physicist with the US Bureau of Mines testified before a committee of the US Congress that at sufficient levels of dilution with urea, the detonability of ammonium nitrate is greatly reduced. Hay testified that adding up to 20% urea to ammonium nitrate fertilizer increases its detonability, because the urea is, in effect, a fuel. Beyond that concentration of urea, detonability decreases. Hay did not have field test data on the level of dilution required to make an absolutely non-detonable mixture, but from the data available he postulated this to be 58% urea to 42% ammonium nitrate. In addition, UAN is a liquid blend, rendering it more difficult to convert back to an explosive ingredient.

The Australian Dangerous Goods Code considers a blend containing less than 70% ammonium nitrate and not more than 0.4% combustible material to be non-detonable. Therefore, UAN is not considered a dangerous good. However, US research indicates that the absolutely ‘safe’ proportion of ammonium nitrate in any blend may be much lower and the U.S. Department of Commerce does not allow fertilizer blends with more than 15% ammonium nitrate content to be exported to the seven designated ‘terrorist countries’ (T-7) and Afghanistan.

Conclusions

· There are substitutes for ammonium nitrate fertilizer, but except for urea, they are more costly.

· If 100% ammonium nitrate fertilizer were banned, blends containing ammonium nitrate could still be available in packaged non-detonable blends. The proportion of ammonium nitrate allowed in the blends could be determined after field testing to determine detonability.

· There should be fuller investigation of the viability and cost of alternative fertilizers and of a transition to an eventual ban on ammonium nitrate fertilizer.

Costs of alternative fertilizers

Most farmers choose their nitrogen (N) fertilizer by calculating the cheapest and most efficient per unit cost of nitrogen. This is not always a simple calculation, especially where blends are concerned. It can be difficult to price-compare products that not only have different amounts of nitrogen but may contain other useful components. For example, CAN contains calcium which some farmers value. Ammonium sulphate nitrate may be a valued alternative because it contains sulphur, as is potassium nitrate where the farmer needs potassium.

In calculating their choice of nitrogen fertilizer, farmers also take into account the volatilization of urea in certain conditions and also application costs, which in the case of anhydrous ammonia, requires specialised equipment to store, handle and apply. Some farmers, particularly horticulturalists, are prepared to pay a price premium to use ammonium nitrate relative to urea. They must believe it has superior agronomic properties in certain conditions, or that it allows more efficient application methods.

ABARE estimated that ammonium nitrate fertilizer is worth a minimum of $5 million per annum to the agricultural industry. This calculation was based on the assumption that there are sound agronomic reasons why farmers choose to pay the price premium of ammonium nitrate fertilizer over other nitrogen fertilizers.

Horticulture Australia accepts that CAN is a direct substitute for ammonium nitrate in dry applications, but argues that the extra costs are unacceptable. CAN is a popular blend which is not made in Australia but imported, and used in the same situations as ammonium nitrate. Incitec Pivot, Australia’s largest ammonium nitrate fertilizer producer, sells 6,900 tonnes of imported CAN per year and 15,000 tonnes of blends that include CAN as a ingredient.

In table form, the following cost comparisons were offered by one of Australia’s fertilizer manufacturers.

Dry application (applied direct as a granular fertiliser)

Product	Kg	Total N (nitrogen)	Nitrate	Ammonium	Urea	Cost (AUD)
Ammonium Nitrate	100	3.4	1.7	1.7	0	$41.00 (for 100kg)
Calcium Ammonium Nitrate	125	3.4	1.7	1.7	0	$50.00 (for 125 kg)
Urea	75	3.45	0	0	3.45	$28.50 (for 75 kg)

This table indicates that 125 kg of CAN and 75 kg of urea provide the same amount of nitrogen as 100 kg of ammonium nitrate. CAN provides this in exactly the same form (half nitrate and half ammonia) as ammonium nitrate. 125 kg of CAN costs $50 compared to $41 for 100 kg of ammonium nitrate. The cost comparison does not take account of the benefit of the calcium in the blend. Urea is considerably cheaper.

Fertigation application (applied into crops as a liquid in irrigation systems)

Product	Rate kg’s	Total N	Nitrate	Ammonium	Urea	Cost (AUD)
Liquid ammonium nitrate	100	3.4	1.7	1.7	0	$41.00
Liquid urea	125	3.4	0	0	3.4	$28.90
Urea Ammonium Nitrate	105	3.4	0.84	0.84	1.7	$43.05

As previously detailed, UAN is becoming an increasingly preferred product because it combines the benefits of ammonium nitrate and urea, and the two together enhance each other’s solubility. UAN is also delivered as a liquid solution for easy application, whereas ammonium nitrate is delivered in dry form, requiring extra handling for the farmer to create the solution on site.

Supply chain risk analysis

If the decision was made to regulate ammonium nitrate, there are several points in the supply chain to be considered. These are:

· Manufacture;

· Importation;

· Transport;

· Storage;

· Sale; and

· Purchase.

Manufacture

Australia’s four ammonium nitrate manufacturing plants are aware of the hazard risk of their products and have security measures in place. While the 2001 Toulouse explosion may be a warning, Australia’s manufacturers point to factors leading to that explosion, particularly poor storage of discarded product, that do not pertain in Australia. As already mentioned, the plants in Queensland are encompassed by Major Hazard Facilities regulations and the plant in WA has similar standards.

Terrorists are less likely to attempt to covertly acquire ammonium nitrate from a manufacturing plant when they are able to buy it anonymously with cash at a retail outlet. If the retail option was closed however, other ‘soft spots’ are likely to emerge, so security all along the ammonium nitrate distribution chain may need to be strengthened too.

With only four manufacturing plants in Australia, it would be a relatively straightforward exercise to review their security plans to ensure there is adequate attention to physical and personnel security.

Import/Export

Australia imported about 70,000 tonnes of ammonium nitrate in 2002-2003. Most of this was for use as an explosive, but there is no requirement to state end-use and no regulations to prevent explosive-grade ammonium nitrate from being sold into the agricultural market. Australia’s two major explosives companies, Orica and Dyno-Nobel, export ammonium nitrate emulsion. This product generally goes to Asian markets.

Importation of ammonium nitrate is of concern from both a counter-terrorism and public safety view. It is imported in large volume, and in some cases into ports near population centres and extensive infrastructure. We have already noted (section 2.3) that the largest ammonium nitrate accident in history, in Texas in 1947, involved ships containing ammonium nitrate.

As has been noted, a report by the Australian Logistics Council Security Committee (ALCSC) for DoTARS found that the importation of dangerous goods is a major problem area. The ALCSC has developed recommendations for enhancing the regulatory environment to provide improved security measures for the import and export by sea of High Consequence Dangerous Goods. If developed, these measures would encompass the import and export of ammonium nitrate.

Most of the export of ammonium nitrate is in emulsion form, which is one step closer to explosive form, and there is some debate among Australian regulators as to whether it should be classified as a 5.1 dangerous good or a 1.5 explosive in this form. The whole issue of classification is clouded because both the International Maritime Dangerous Goods Code and the Australian Dangerous Goods Code follow UN classifications to a large extent, in which ammonium nitrate is not classified as an explosive. Ammonium nitrate can be classified as a class 1 explosive, depending on the amount of organic matter (fuel) it contains.

In practice, the 5.1 classification seems to be invariably used by default. It would be disruptive and possibly confusing to change ammonium nitrate’s classification contrary to the UN standards which have been adopted by Australia. One common objection to this is the higher insurance premiums to transport explosives compared to dangerous goods.

Al-Qa’ida and associated groups have demonstrated a water-borne capability and an interest in attacking shipping. They successfully attacked the USS Cole and the MV Limburg, and planned attacks against US and British ships in Singapore, an operation disrupted in December 2001.

Because of the explosive potential of ammonium nitrate, measures may need to be taken to diminish the risk of a terrorist attack using shipping carrying this product. The proximity of these ships to population centres or major infrastructure is a significant factor in their potential attractiveness as a terrorist target, and consideration could be given to whether ships carrying ammonium nitrate should be allowed to enter certain ports.

Maritime security is an issue wider than ammonium nitrate and other high consequence dangerous goods. Security of ammonium nitrate imports could be partially addressed in port facility and ship security plans under the Maritime Security Act 2003.

Conclusions

· Importation of ammonium nitrate is of some security concern.

· Security surrounding the importation of ammonium nitrate should be addressed in port facility and ship security plans under the Maritime Security Act 2003.

Transport

Transport of ammonium nitrate is not a primary concern from a counter-terrorism perspective. Should terrorists intend to steal ammonium nitrate they are more likely to favour static targets such as retailers or farms. These static targets provide more certainty for operational planning, and are less likely to raise immediate alarm than theft of a truck.

In the new security environment there is concern that any truckload of explosives or dangerous goods could be used as a weapon, in a land-based version of the September 11 attacks. In this scenario, pure dry ammonium nitrate would not be as attractive for terrorists as other chemicals which are more intrinsically dangerous and ready to use.

Although transport security for ammonium nitrate is not an immediate problem, if the sale of ammonium nitrate was regulated then extra attention could be paid to its security in transit.

Where ammonium nitrate is transported in bulk tankers as a solution, the risk in transportation is even lower and there is a case for the product transported in this form to remain classified as a dangerous good.

Transportation security and the Australian Dangerous Goods Code are complex issues and progress towards better security could be achieved through existing state and territory authorities in conjunction with DoTARS. This work should be informed by the review of the transport of dangerous goods recently completed by the Australian Logistics Council Security Committee.

Conclusion

· Tighter transportation regulations for ammonium nitrate should be considered in any new regulations.

· States and territories, in conjunction with Department of Transport and Regional Services (DoTARS) should develop nationally uniform standards for the transport of ammonium nitrate, informed by the Australian Logistics Council Security Committee’s (ALCSC) review of the transport of dangerous goods.

Storage

Ammonium nitrate fertilizer falls within Queensland’s Major Hazard Facilities regulations if stored in quantities of over 2,500 tonnes. This is a safety rather than security measure, but the regulations do entail some security requirements. Generally, theft of ammonium nitrate would be relatively easy though, and less than one tonne is needed to construct a powerful vehicle bomb.

There is scope for increased security of ammonium nitrate, although any measures imposed would be an added cost to many small users who may not have secure sheds. Tighter storage regulations would have a side-benefit, in that users would time their orders of ammonium nitrate so that it can be applied immediately, rather than left in storage. Regulations could be graded according to the amount of ammonium nitrate stored, and whether commercial explosives are in the vicinity.

Conclusion

· Tighter storage regulations for ammonium nitrate should be considered in any new regulations.

Sale

While there are no specific regulations limiting the sale of ammonium nitrate, the fertilizer industry is developing a Security Code of Practice which includes an awareness campaign educating sellers on how to spot a suspicious buyer. Unfortunately, malicious intent may not be obvious, so it would help sellers fulfil this responsibility if there was a legislative requirement to obtain a specific set of details from each buyer.

This could be introduced with a ‘licence to sell’ ammonium nitrate. In accordance with the licence the seller would have a standard form on which to record each transaction, detailing the buyer’s photo identification, the quantity sold, payment details and the specific intended application. For cash sales the seller could be required to obtain further identification, such as vehicle registration or a delivery address. These records could be kept for 3 years.

It logically follows that a licence to sell should follow all the way up the distribution chain, so that importers, manufacturers, wholesalers and distributors should keep similar records when there is a change of possession of the product. An Australian Business Number should be recorded at all points of change of possession, including the final sale.

A licence would add to the costs of selling ammonium nitrate fertilizer, firstly in the cost of the licence and also in the administrative paperwork. This may compel retailers to make a business decision about whether they really want to sell ammonium nitrate fertilizer, and could result in fewer retail outlets. Constricting the avenues through which the product is available would have a counter-terrorism benefit, with those retailers who decide they want to sell the product more likely to be familiar with its uses and with their legitimate customers.

To obtain a ‘licence to sell’ ammonium nitrate fertilizer, retailers could be required to undergo a security check and to have undertaken training in security awareness. Several Queensland and Australia-wide agencies conduct similar training for retailers in dangerous and poisonous substances such as pesticides, and a module could be added to these courses to give retailers accreditation for selling ammonium nitrate. The accreditation could depend on premises meeting storage security standards, as is required for poisons and pesticides.

Conclusion

· If ammonium nitrate fertilizer continues to be available there needs to be regulation at the point of sale, to ensure retailers do not sell fertilizer to buyers who intend misuse.

· It logically follows that there should be similar regulation covering its sale as an explosive ingredient for the mining industry.

· Criteria for issuing a licence to supply ammonium nitrate should include:

- a demonstrated legitimate need for access to the product;

- safe and secure storage and handling procedures; and

- that applicants for licences are not of security concern.

Purchase

Requiring a permit to buy ammonium nitrate fertilizer would affect approximately 3,500 current users, and could prompt objections from some in the farming community, many of whom have been using ammonium nitrate for years. If a permit were issued free of charge, the complaints would probably be about ‘unnecessary paperwork’.

However, the scheme could be explained to farmers as a responsible way for governments to know who is buying this explosive ingredient, and would allow them to continue using it as a fertilizer. The paperwork could also be minimised if the permit had a long validity, say ten years. The permit could be issued free of charge, after verifying that the applicant is a genuine primary producer with a need for the product.

This system would allow for background checking, possibly including security checking.

A permit scheme would have the advantage of being able to cover other fertilizers of concern. If ammonium nitrate were nominated as the first ‘restricted fertilizer’ requiring a permit, others could be added if the need arose, or if the threat level escalated.

Conclusion

· Requiring a licence to buy ammonium nitrate fertilizer would have a counter-terrorism benefit, enabling a range of measures to help ensure only legitimate users gained access to the product.

· It logically follows that there should be similar regulation covering its purchase as an explosive ingredient for use in the mining industry.

· Criteria for issuing licences to buy ammonium nitrate should include:

- a demonstrated legitimate need for access to the product;

- safe and secure storage and handling procedures; and

- that applicants for permits are not of security concern.

In the planning stage of an operation terrorists would want to remain undetected, so ammonium nitrate fertilizer is a better prospect for anonymous purchase than explosive-grade ammonium nitrate. Theft also carries some risk of detection, so terrorists in search of ammonium nitrate are most likely to acquire it through an anonymous cash purchase.

Manufacturers and distributors are aware of the product’s explosive capacity, and market explosive-grade ammonium nitrate and the fertilizer separately, in the hope that the fertilizer will not be misused. The fertilizer industry is suggesting an awareness campaign, reminding sellers to be alert for and report any suspicious purchases.

While an industry awareness campaign would be a worthwhile initiative, there are approximately 2,000 retailers of ammonium nitrate fertilizer in Australia, probably conducting about 150,000 individual ammonium nitrate fertilizer transactions per year. Some of these dealers would have an inevitable turnover of staff, with some staff more tuned in to the awareness campaign than others. It would take a strong-minded salesperson to refuse a face-to-face sale with no legal basis for doing so. Alert retailers would be assisted by a regulatory regime which required buyers to demonstrate a need for the product.

The National Security Hotline has received several dozen calls relating to fertilizer, and several on ammonium nitrate in particular. A National Security Hotline publicity campaign targeted at those in the fertilizer and explosives industries could be undertaken in conjunction with the proposed Codes of Security Practice being developed by the fertilizer and chemical industries.

Any government regulations controlling ammonium nitrate would add indirect costs which would ultimately be borne by the consumer. These costs would arise from extra security requirements in transport and storage, and in administrative costs for any training and permit requirements.

However, with the changed international security environment and the known intention and capacity of al-Qa’ida to conduct terrorist operations there is a worldwide trend towards tighter controls of explosive ingredients such as ammonium nitrate.

If ammonium nitrate were to be more highly regulated, it would be prudent to adopt similar security requirements on the product whether it is used in mining or agriculture.

Conclusions

· The unregulated sale of ammonium nitrate represents an unacceptable risk to public safety, and there is a strong argument for either a ban on 100% ammonium nitrate fertilizer or effective regulation of its sale.

· The relatively minor use of ammonium nitrate as a fertilizer and the availability of suitable substitutes suggests that a total ban on 100% ammonium nitrate fertilizer could be a viable policy option, and would be more cost-efficient than a regulatory regime. This could be considered after further research, and a ban introduced in time following agronomic testing of alternative fertilizers (including ammonium nitrate blends) and technical testing of their sensitivity to detonation.

· If ammonium nitrate were regulated, tighter regulations should focus on the security of the product whether for agricultural or mining use.

· A specific and targeted information campaign regarding the reporting of suspicious activity should be developed as soon as possible, and aimed at those working in the fertilizer and explosives industries, to be implemented in conjunction with the fertilizer and chemicals industries’ security codes of practice.

· The supply chain from manufacture and import to end use of ammonium nitrate should be regulated by each state and territory through a licensing system.

9. Consultation with Industry

During the research and policy development work the Department of the Prime Minister and Cabinet held informal consultations with numerous representatives from the fertilizer and chemical industries, including officials from their representative associations.

On 3 March 2004, the Department of the Prime Minister and Cabinet chaired a formal meeting with representatives of peak industry bodies. A representative from Queensland’s Department of the Premier and Cabinet, who is on the COAG review’s steering committee, also attended this meeting.

Industry organisations at the meeting were the:

National Farmers Federation;
Plastics and Chemicals Industries Association;
Minerals Council of Australia;
Australian Trucking Association;
Australian Explosives Manufacturing Safety Committee;
Cotton Australia; and
Fertilizer Industry Federation of Australia.

ASIO briefed the meeting on the current terrorist threat to Australia, and consultations took place in a constructive and cooperative atmosphere. All participants accepted the counter terrorist imperatives driving the review.

On 11 March 2004, separate consultations took place with Horticulture Australia, who had been unable to attend the 3 March meeting. As horticulturalists are the main users of ammonium nitrate fertilizer, the Department of the Prime Minister and Cabinet considered this consultation particularly necessary.

In the earlier stages of compiling this report several Queensland industry bodies were also consulted. Their views were taken into account in the development of the policy options.

In addition, the views of Australia’s two main manufacturers of ammonium nitrate were sought. Senior representatives of Orica Explosives and Incitec Pivot (fertilizers) attended a meeting with the Department of the Prime Minister and Cabinet on 23 February 2004, and several telephone discussions were held with CSBP representatives based in WA.

Industry perspectives

Mining and Explosives industries

The mining and explosives industries would accept tighter regulation of ammonium nitrate, although there was reluctance to have ammonium nitrate classified as an explosive. They advocated that all ammonium nitrate, whether distributed as a fertilizer or an explosive ingredient, should be subject to the same security requirements, and strongly urged the Australian Government to take a pro-active role in setting nationally uniform security standards. They stated that if left to the states and territories to interpret and adopt an agreed standard there would be differences between the requirements in each jurisdiction leading to confusion within the mining and explosive industries.

Chemicals Industry

The Plastics and Chemicals Industry Association (PACIA) would like to see a regulatory regime developed which could then be applied to other key chemical precursors. It also advocated strong Australian Government leadership in developing a nationally uniform approach, pointing to inconsistencies between jurisdictions in explosives legislation compared to the success in transport of dangerous goods legislation which was led by the National Transport Commission. PACIA also advocated that ammonium nitrate be continued to be classified as a dangerous good rather than an explosive, to maintain consistency with UN regulations.

Fertilizer and agricultural industries

The fertilizer and agricultural industries accepted the need for some regulation of ammonium nitrate fertilizer. They advocated the need for continued access to ammonium nitrate fertilizer, but would accept a permit system to enable access for legitimate users. Horticulture Australia provided some useful insights into the make-up of the horticultural industry. Many are small land-holders on the city fringes, often of senior years and from a non-English speaking background, and operating on marginal profitability. Horticulture Australia accepted that CAN could provide all the agronomic benefits of ammonium nitrate, but would cost more due to the slightly higher price of the product and the greater quantities needed for the same benefit. Otherwise, the views of Horticulture Australia were consistent with those of the National Farmers Federation; the industry would accept a permit system (though some may not understand it or attempt to circumvent it) to enable continued access to ammonium nitrate fertilizer.

Manufacturers

Orica and CSBP manufacture ammonium nitrate for use in mining. Both CSBP and Incitec Pivot prefer not to make ammonium nitrate fertilizer and believe there are ready replacement fertilizers. In April 2004, ammonium nitrate fertilizer producer Incitec Pivot, which is 70% owned by Orica, withdrew from the manufacture and marketing of 100% ammonium nitrate fertilizer.

10. Cost-benefit considerations

It is difficult to quantify the benefit of individual counter-terrorism measures in financial terms. Individual measures simply do not lend themselves to cost-benefit analysis, because any one security measure, by itself, cannot provide a measurable outcome. However, the benefit to Australia overall of having a strict security regime which deters terrorism is obvious.

The terrorist attacks of 11 September 2001 had enormous and widespread economic consequences, with an estimated cost of 0.75 per cent of American GDP or a sum equivalent to $75 billion US*. One analysis also estimates the fall in US investment due to ongoing terrorism threats at about 0.2 per cent of GDP.

The Bali bombings and the economic damage to Indonesia’s tourism industry provide an example of the financial implications of a terrorist bombing. After the bombing Indonesia's tourist arrivals fell, and financial market analysts place the cost of lost tourist receipts at around 1 per cent of Indonesia's GDP*, or $US6.8 billion.

The Department of Foreign Affairs and Trade (DFAT) recently issued a paper titled “The Costs of Terrorism and the Benefits of Cooperating to Combat Terrorism”.

DFAT’s conclusions, pertinent to this report, are:

the immediate costs of terrorist acts including loss of life, destruction of property and depression of short term economic activity are compounded by the costs associated with the continuing threat of terrorism;
terrorism unchecked creates uncertainty, reduces confidence and increases risk perceptions and risk premiums leading to lower rates of investment and lower economic growth;
terrorist acts can severely disrupt international trade and the continuing threat of terrorism imposes costs on international trade;
the costs of implementing counter-terrorism measures should be viewed as an investment that, by reducing the threat of terrorism, will reduce risk premiums and the bias against longer term, productivity raising activities that uncertainty and risk create; and
economies which fail to combat terrorism and ensure the safety of trade and people movement could expect to incur significant costs in terms of lost investment and trade opportunities.

On the particular risk of terrorist bombings using ammonium nitrate, it is clear that a bombing or series of bombings in Australia could cost the Australian community many millions. The cost of the physical damage in the Oklahoma City bombing of 1995 is estimated at $US80m, while the US Government spent $US82.5 million to investigate the bombing and prosecute Timothy McVeigh and Terry Nichols. The legal defence team spent about $US15 million defending McVeigh. The human costs are immeasurable. The single truck bomb killed 168 people, including 19 children, with more than 500 others injured. The cost of the ingredients (ammonium nitrate and racing fuel) for the bomb was approximately $US1,000.

Control of the ammonium nitrate supply chain would have a clear national security benefit, removing from public circulation the explosive ingredient most likely to be used by terrorists.

Cost of a licence

The administrative cost of a licence to possess ammonium nitrate could be estimated at $400, based on the current cost of a shotfirers licence in Queensland. Another $20 could be added to the cost for ASIO checks.

The licences will be issued by the eight different state and territory jurisdictions, and it will be a decision for each jurisdiction as to whether there is full or partial cost-recovery through licence fees. If current practices for shotfirers licences are adopted, most of the administrative costs will be born by the states and territories and not passed on to applicants.

There will also be additional storage and transportation costs for the users of ammonium nitrate, due to the need for security measures to prevent theft. It should be noted that explosives are already subject to these type of costs, and the proposed measures merely subject ammonium nitrate to the same level of security costs as commercial explosives. As already discussed, the approach to regulating ammonium nitrate is to consider it an explosive and to regulate it according to this hazard.

Review

The regulation of ammonium nitrate will bring it under controls similar to those for explosives. Explosives regulators in the states and territories recognise the need for greater consistency in their explosives laws in general, and the issue is being considered by state and territory Workplace Relations Ministers.

There will be continuing dialogue between the Australian Government and the states and territories to monitor the implementation of ammonium nitrate regulations and a more nationally consistent approach in explosives’ regulation in general.

There will also be continuing work on hazardous materials in general, informed by the COAG Review of Hazardous Materials. There is also a review underway of explosives precursors by the National Institute of Forensic Science (NIFS), which is likely to inform government consideration of other chemicals needing greater control in the current security threat environment.

[1] Legitimate need is likely to include use in commercial production processes, mining, quarrying, the manufacture of fertilizer and explosives, educational, research and laboratory use, commercial agricultural use by primary producers, and services for transportation, distribution and use of the product. Household and domestic use, and the fertilisation of recreational facilities will not be considered a legitimate need.

* Paper by the DFAT Economic Analytical Unit: ‘The Costs of Terrorism and the Benefits of Cooperating to Combat Terrorism’.

Commonwealth Numbered Regulations - Explanatory Statements

Attachment A

2. Statement of the Problem

Accidental explosions

Sale

USA

UK

Republic of Ireland and Northern Ireland

Europe

Indonesia

South Africa

China

Use of ammonium nitrate

9. Consultation with Industry

Cost of a licence