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Friday, 13 March 20
TOP 4 ACCOUNTING CONSIDERATIONS AFTER THE IMPLEMENTATION OF IMO 2020 - PWC
 To install or not to install?
Following the IMO 2020 global low sulphur cap for marine fuel effective since 1 January 2020, many shipowners are still evaluating their positioning on whether to install scrubbers or not.
Some shipping companies have already made an initial assessment, have weighed the risks and have taken the decision not to install scrubbers just yet, advocating a “wait and see” approach in an effort to avoid speculation of bunker spreads. They also keep the option (put/call) to install a scrubber later in the future, in case the spreads between HSFO and LSFO / ULSFO increase significantly. On the other hand, there is a large number of shipowners (by January 2020 approximately 11% of the global fleet by tonnage and 4.5% by vessel count*) who have already decided to invest in scrubbers installation (the amounts range between $1,5m – $5m depending on the type of vessel) in order to avoid the uncertainty related to the future supply and prices of LSFO /ULSFO. One of the main drivers behind such investment decisions, is the assumption that these vessels will be more employable in the future as charterers are also being driven by their boards and corporate responsibility initiatives to employ more “green” friendly vessels. Moreover, the vessel owners can also take advantage (i.e. higher rates, lower fuel cost) of scrubber investment programs in a rising market.
Investing in scrubbers is one of the most significant one-off capital improvements having an important impact on the shipping industry over the last decade. The cost of the scrubbers is either being funded by the owners of the vessels, the charterer (lessee) or a combination of both. Where the charterers fully or partially fund the cost of scrubbers, this is done through either an upfront payment or through increased hire charter rates during the lease term.
For those shipping companies that have taken the decision to install scrubbers on their vessels, PwC has identified four main accounting considerations to be taken into account.
Capitalization of scrubbers
In general, an expenditure that adds to the productive capacity or improves the efficiency of an existing asset can be considered a capital item. Some key benefits that vessels with scrubbers are expected to generate in the future include:
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Demand higher charter rates;
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Incur lower fuel costs;
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Increase corporate responsibility – more employable vessels, take advantage of the rising market;
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Reduce environmental footprint;
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Maintain their current speed;
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Possibly a reduction in interest rates (finance costs), as more banks are turning to “green lending” or are now incorporating reduction in interest rates for environmentally friendly assets
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On the other hand, vessels without scrubbers may demand lower charter rates, incur higher fuel costs and potentially slow down their speed
Overall, taking into consideration that scrubbers improve the efficiency of the vessel, a view can be taken that the costs related to scrubber installation qualify for capitalization.
Useful life of the scrubber
The useful life of an asset is defined as the period over which the asset is expected to contribute directly or indirectly to future cash flows, the assessment of which can require a significant amount of judgment dependent on a number of factors.
Based on inquiries with technical departments of shipping companies, it is rather difficult to say that there is a certain useful life for a scrubber. Given that there are no regulations or guidelines yet on scrubbers’ lifecycle and replacement, we can assume that a scrubber with proper maintenance can contribute to the operation of the vessel over the remaining useful life of the asset.
Who is the owner of the asset?
It is generally expected that the owner of the vessel will be the owner of the scrubber as it would be difficult for a charterer to remove a scrubber after the completion of a charter – in which case, probably neither of the two parties would undertake the incremental cost. It is also highly likely that the scrubber will be used by subsequent charterers, regardless of whether the installation was funded by the vessel owner or reimbursed by the charterer. In both cases, the increase in the daily hire rate or the one-time payment from the charterer could be considered as an additional revenue for the owner as it relates to the premium that the charterer is willing to pay in order to benefit from the lower bunker expense. Any potential upfront reimbursements from the charterer for the scrubber could be deferred and amortized over the lease term.
Impairment considerations
To the extent scrubbers will be fitted, there is a need to determine if the cash flow projections used in the long-lived asset impairment tests will need to include an estimate of the relevant outflow (i.e. scrubber costs and future maintenance costs). The effect of any additional operating expenses associated with the scrubber maintenance on the projected cash flows should also be considered.
Currently, vessels predominantly utilize HSFO, and the installation of scrubbers would allow the vessels to continue to utilize this fuel. The ability to consume specific types of fuel could become a new service potential, with vessels’ scrubber installation probably being a cash outflow able to maintain this new service.
Charterers may fund or partially fund the installation of a scrubber through either a one-time payment or an amended charter rate including a potential premium. For cases where one-time payment is received from the charterer, the impairment assessment may not include this payment or the related scrubber cost and accordingly keep the original charter rate until the scrubber is installed. With this approach projected revenue is not overstated and the expense will be included upon installation, to offset the additional charter hire. Ultimately, the impact to the cash flows should be nil or minimal when the charterer is funding or partially funding the cost of the scrubber, respectively.
The above-mentioned accounting considerations include a high level of judgement. Therefore, it is crucial that management assesses the accounting treatment on a case by case basis, taking into consideration its specific characteristics and ensuring that the proper disclosures are made.
Source ING
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Thursday, 16 April 20
CHINA'S BENCHMARK POWER COAL PRICE FALLS 5 YUAN PER TONNE - XINHUA
China’s benchmark power coal price fell by 5 yuan (about 70 U.S. cents) per tonne during the past week.
The Bohai-Rim Steam-Co ...
Thursday, 16 April 20
MARKET INSIGHT - INTERMODAL
As everyone anticipated the results of the OPEC + G20 meeting last week, it was very interesting to watch the reaction of tanker rates that were in ...
Monday, 13 April 20
SUPRAMAX: A 56,000DWT SHIP WAS FIXED DELIVERY PARADIP, REDELIVERY CHINA, AT $4,700 - BALTIC BRIEFING
Capesize
The Capesize market this past week looks to have come off life support and found some improved sentiment. The week began rather ordina ...
Saturday, 11 April 20
FAQ: COVID-19 AND CLUB COVER - UK P&I
KNOWLEDGE TO ELEVATE
The Coronavirus (COVID-19) pandemic has generated a significant number of enquiries and questions from Members in recent ...
Saturday, 11 April 20
KOEN POWER PLANTS INVITED BIDS FOR 1.5 -1.62 MMT OF STEAM COAL
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 1,500,000-1,620,000 Metric Tons (M ...
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Showing 1016 to 1020 news of total 6871 |
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- Deloitte Consulting - India
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- Leighton Contractors Pty Ltd - Australia
- Agrawal Coal Company - India
- GAC Shipping (India) Pvt Ltd
- PetroVietnam Power Coal Import and Supply Company
- Renaissance Capital - South Africa
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Bulk Trading Sa - Switzerland
- Mintek Dendrill Indonesia
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- San Jose City I Power Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Australian Commodity Traders Exchange
- Coal and Oil Company - UAE
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- GMR Energy Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Latin American Coal - Colombia
- Meenaskhi Energy Private Limited - India
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- Goldman Sachs - Singapore
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Energy Link Ltd, New Zealand
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- Chamber of Mines of South Africa
- Trasteel International SA, Italy
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Java Power - Indonesia
- Bhushan Steel Limited - India
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Malabar Cements Ltd - India
- Georgia Ports Authority, United States
- Thai Mozambique Logistica
- Straits Asia Resources Limited - Singapore
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Coalindo Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Ceylon Electricity Board - Sri Lanka
- Global Green Power PLC Corporation, Philippines
- Marubeni Corporation - India
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Indonesian Coal Mining Association
- PTC India Limited - India
- MS Steel International - UAE
- Videocon Industries ltd - India
- Billiton Holdings Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Electricity Authority, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Salva Resources Pvt Ltd - India
- Grasim Industreis Ltd - India
- Eastern Energy - Thailand
- Australian Coal Association
- Globalindo Alam Lestari - Indonesia
- Cement Manufacturers Association - India
- European Bulk Services B.V. - Netherlands
- Semirara Mining Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Vizag Seaport Private Limited - India
- London Commodity Brokers - England
- Planning Commission, India
- Wilmar Investment Holdings
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Barasentosa Lestari - Indonesia
- PowerSource Philippines DevCo
- Gujarat Mineral Development Corp Ltd - India
- Bangladesh Power Developement Board
- Orica Mining Services - Indonesia
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- IHS Mccloskey Coal Group - USA
- SMG Consultants - Indonesia
- Antam Resourcindo - Indonesia
- Africa Commodities Group - South Africa
- Toyota Tsusho Corporation, Japan
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Banpu Public Company Limited - Thailand
- LBH Netherlands Bv - Netherlands
- Wood Mackenzie - Singapore
- Borneo Indobara - Indonesia
- PNOC Exploration Corporation - Philippines
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- CNBM International Corporation - China
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Anglo American - United Kingdom
- Baramulti Group, Indonesia
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Directorate Of Revenue Intelligence - India
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- Tamil Nadu electricity Board
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- GN Power Mariveles Coal Plant, Philippines
- Indika Energy - Indonesia
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- Simpson Spence & Young - Indonesia
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- ASAPP Information Group - India
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement PLC, Thailand
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Dalmia Cement Bharat India
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Pendopo Energi Batubara - Indonesia
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- Star Paper Mills Limited - India
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Medco Energi Mining Internasional
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Sree Jayajothi Cements Limited - India
- Indogreen Group - Indonesia
- SMC Global Power, Philippines
- Romanian Commodities Exchange
- Timah Investasi Mineral - Indoneisa
- Makarim & Taira - Indonesia
- Aditya Birla Group - India
- Parry Sugars Refinery, India
- Bukit Baiduri Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Mercator Lines Limited - India
- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- White Energy Company Limited
- Formosa Plastics Group - Taiwan
- Electricity Generating Authority of Thailand
- Lanco Infratech Ltd - India
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Mercuria Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Sakthi Sugars Limited - India
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