Ah, I think Stephen meant to write the following:

  fun add-refs( a : ref<h,int>, b : ref<h,int> ) : st<h> int {
    a := 10
    b := 20
    (!a + !b)
  }

where indeed the effect is `st<h>` as the updates are observable. How the function was written before, the two arguments use a "rank-2" polymorphic type and the heaps are fully abstract -- in that case it would be unobservable but you cannot create such values :-)