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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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Tuesday, 31 March 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.43 PCT - XINHUA
China Taiyuan coal transaction price index stood at 132.17 points Monday, down 0.43 percent week on week.
The index, released by Chi ...
Tuesday, 31 March 20
COAL POWER REMAINS IN GLOBAL DECLINE, DESPITE CHINESE SURGE - SYDNEY MORNING HERALD
The impact of coronavirus has prompted a surge in coal-fired power plant construction permits in China, with the Chinese government issuing more pe ...
Monday, 30 March 20
CORONAVIRUS - IMPLICATIONS FOR SHIPS AND CREW - GARD
KNOWLEDGE TO ELEVATE
Countries around the world are strengthening their border control measures in order to prevent the further spread of COVI ...
Monday, 30 March 20
LAY-UP AND RE-ACTIVATION REVISITED - GARD
KNOWLEDGE TO ELEVATE
The COVID-19 pandemic has affected the maritime industry in previously unthinkable ways. Ports around the world are denyi ...
Monday, 30 March 20
PANAMAX: INDONESIA LACKED VOLUME, PARTLY DUE TO FORCE MAJEURE IN INDIAN PORTS - BALTIC BRIEFING
Capesize
As Covid-19 continued to ratchet up tensions across the globe, the Cape market dealt with the change to remote working. Most regions o ...
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Showing 1036 to 1040 news of total 6871 |
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- Coal and Oil Company - UAE
- Gujarat Sidhee Cement - India
- Global Coal Blending Company Limited - Australia
- PetroVietnam Power Coal Import and Supply Company
- Goldman Sachs - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- The University of Queensland
- India Bulls Power Limited - India
- Energy Development Corp, Philippines
- Heidelberg Cement - Germany
- Electricity Generating Authority of Thailand
- Tata Chemicals Ltd - India
- Ministry of Mines - Canada
- Medco Energi Mining Internasional
- Billiton Holdings Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- Riau Bara Harum - Indonesia
- Chamber of Mines of South Africa
- Economic Council, Georgia
- Indogreen Group - Indonesia
- MS Steel International - UAE
- Indika Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Vizag Seaport Private Limited - India
- Essar Steel Hazira Ltd - India
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Directorate Of Revenue Intelligence - India
- Kohat Cement Company Ltd. - Pakistan
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Carbofer General Trading SA - India
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement PLC, Thailand
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- PNOC Exploration Corporation - Philippines
- McConnell Dowell - Australia
- Interocean Group of Companies - India
- Central Java Power - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Chettinad Cement Corporation Ltd - India
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Bhatia International Limited - India
- Independent Power Producers Association of India
- Bhushan Steel Limited - India
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- Tamil Nadu electricity Board
- Global Green Power PLC Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Vedanta Resources Plc - India
- Kobexindo Tractors - Indoneisa
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Metalloyd Limited - United Kingdom
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- Standard Chartered Bank - UAE
- Marubeni Corporation - India
- PTC India Limited - India
- GAC Shipping (India) Pvt Ltd
- Bangladesh Power Developement Board
- Renaissance Capital - South Africa
- Bayan Resources Tbk. - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jindal Steel & Power Ltd - India
- White Energy Company Limited
- TeaM Sual Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Grasim Industreis Ltd - India
- Sarangani Energy Corporation, Philippines
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Africa Commodities Group - South Africa
- Latin American Coal - Colombia
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- Sojitz Corporation - Japan
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- Aboitiz Power Corporation - Philippines
- Sical Logistics Limited - India
- IHS Mccloskey Coal Group - USA
- Sakthi Sugars Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- Ind-Barath Power Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Orica Mining Services - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- GMR Energy Limited - India
- Samtan Co., Ltd - South Korea
- Eastern Coal Council - USA
- Toyota Tsusho Corporation, Japan
- Mercuria Energy - Indonesia
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Mercator Lines Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Parliament of New Zealand
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- Wood Mackenzie - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Power Finance Corporation Ltd., India
- PowerSource Philippines DevCo
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Simpson Spence & Young - Indonesia
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Minerals Council of Australia
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Transport, Egypt
- Borneo Indobara - Indonesia
- Central Electricity Authority - India
- SMG Consultants - Indonesia
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Semirara Mining Corp, Philippines
- VISA Power Limited - India
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Banpu Public Company Limited - Thailand
- Meralco Power Generation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- ICICI Bank Limited - India
- ASAPP Information Group - India
- Karaikal Port Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- Malabar Cements Ltd - India
- Thiess Contractors Indonesia
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Meenaskhi Energy Private Limited - India
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Kumho Petrochemical, South Korea
- Planning Commission, India
- Aditya Birla Group - India
- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- SMC Global Power, Philippines
- Australian Coal Association
- Bhoruka Overseas - Indonesia
- Altura Mining Limited, Indonesia
- Straits Asia Resources Limited - Singapore
- Agrawal Coal Company - India
- GVK Power & Infra Limited - India
- Petron Corporation, Philippines
- Makarim & Taira - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Lanco Infratech Ltd - India
- IEA Clean Coal Centre - UK
- Holcim Trading Pte Ltd - Singapore
- Barasentosa Lestari - Indonesia
- Coalindo Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Price Waterhouse Coopers - Russia
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Siam City Cement - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Kideco Jaya Agung - Indonesia
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