Allied Defense Recycling, which has been working for years to reopen the shipyard docks, will have its proposal reviewed by both the public and San Francisco Bay Region Regional Water Quality Control Board.

The Water Board permit would allow a ship assembling and recycling facility to pump Mare Island Strait water out of two enclosed ship dry dock areas while processing ships. If approved, the permit would go into effect Sept. 1 and expire in 2013.

The water permit is one of several the company would need to obtain, including a silt dredging permit from the Army Corps of Engineers.

The water and the dredging permits are the two most time-consuming to obtain, said Gary Whitney, marine operations director for Allied Defense.

He said the process for those permits needs to begin before the company secures a shipyard property lease. Since October, the company has negotiated to lease the eastern Mare Island waterfront property. It already has various pending ship contracts with the federal government and other agencies, Whitney said. Allied proposes conducting ship repair, building, salvage and dismantling in the island docks. It is also vying to dismantle four mothball fleet ships from nearby Suisun Bay National Defense Reserve Fleet.

On Monday, the National Defense Reserve Fleet s oversight agency, the federal Maritime Administration, released an environmental report on the removal of the fleet's obsolete ships. The report emphasized the need for a ship recycling facility on Mare Island since it would be the closest such facility on the West Coast to the Suisun fleet.

Whitney, a principal owner in the company and retired naval officer, said securing Mare Island as the company's base location is integral to its operation. He said his company originally hoped to be operating on the island by May but has now set is sights on August or September.

"We're still in negotiations with the city and Lennar - we have no lease," Whitney said. "It's proceeding in some direction. That's probably the best that I can say."

In its quest to secure a shipyard lease, Allied must receive nods of approval from the U.S. Navy, Lennar Mare Island, Vallejo city officials and the California State Lands Commission, Whitney said.

One of the docks that would be used under Allied's plans, dry dock 2, is currently zoned in an historical area. Allied would have to submit a use plan to the city for the historically zoned dock through Lennar Mare Island in order to potentially set up its business there, said Gil Hollingsworth, Mare Island conversion program manager. Hollingsworth said Allied was working on such a plan.

Lennar Mare Island, which eventually will deed unsold island property back to the Lands Commission. The city also would have to be on board with the shipping industry's return. The developer and Allied officials are discussing the terms and conditions of a potential lease, Lennar Mare Island spokesman Jason Keadjian said.

Many challenges must be met before Allied, or any other interested company, could open a shipyard on the island, Keadjian said.

"Provided the environmental insurance and the regulatory issues can be addressed and the city concurs, LMI would support a ship dismantling operation on Mare Island," Keadjian said. "To the extent that this proposal addresses the issues, we would be very supportive of any additional uses in that area."

The public hearing on Allied's request for a recycling water discharge permit will be held at 9 a.m. Wednesday during the California Regional Water Quality Control Board meeting at 1515 Clay St., Oakland.