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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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Wednesday, 25 March 20
CORONAVIRUS CRISIS IS CRUSHING GLOBAL GDP GROWTH - FITCH RATINGS
The coronavirus crisis is crushing global GDP growth according to Fitch Ratings in its latest quarterly “Global Economic Outlook” (GEO) ...
Wednesday, 25 March 20
MARKET INSIGHT - INTERMODAL
There is no doubt that the Covid-19 pandemic crisis is a world-shattering event that will change the world as we know it. Societies are facing chal ...
Wednesday, 25 March 20
INDONESIA TO CANCEL RULES REQUIRING DOMESTIC SHIPS FOR COAL, PALM EXPORTS : REFINITIV
Indonesia's government will revoke rules requiring exporters of coal and palm oil to use domestic shipping companies for shipments, Coordinatin ...
Wednesday, 25 March 20
JAN-FEB 2020, INDONESIA SHIPPED 64.5 MLN TONNES OF COAL, UP +3.4% YOY - BANCHERO COSTA
In the 12 months of calendar 2019, Indonesia exported 386.4 mln tonnes of coal, according to vessel tracking data from Refinitiv. This represents a ...
Tuesday, 24 March 20
MARKET ANALYSIS - ALLIED
As countries around the world struggle to take back control of the ongoing COVID-19 pandemic the global economy shuts down bit by bit, leaving only ...
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- Indo Tambangraya Megah - Indonesia
- Meralco Power Generation, Philippines
- LBH Netherlands Bv - Netherlands
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Timah Investasi Mineral - Indoneisa
- Power Finance Corporation Ltd., India
- Eastern Coal Council - USA
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- IHS Mccloskey Coal Group - USA
- Sree Jayajothi Cements Limited - India
- Sinarmas Energy and Mining - Indonesia
- Chamber of Mines of South Africa
- Wood Mackenzie - Singapore
- India Bulls Power Limited - India
- Parry Sugars Refinery, India
- Siam City Cement PLC, Thailand
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Leighton Contractors Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Antam Resourcindo - Indonesia
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- PTC India Limited - India
- Central Electricity Authority - India
- Coastal Gujarat Power Limited - India
- Xindia Steels Limited - India
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- MS Steel International - UAE
- Global Coal Blending Company Limited - Australia
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- Borneo Indobara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- Bhushan Steel Limited - India
- Madhucon Powers Ltd - India
- Coalindo Energy - Indonesia
- Goldman Sachs - Singapore
- Holcim Trading Pte Ltd - Singapore
- Kepco SPC Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Rio Tinto Coal - Australia
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Vizag Seaport Private Limited - India
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- CNBM International Corporation - China
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Merrill Lynch Commodities Europe
- Grasim Industreis Ltd - India
- Banpu Public Company Limited - Thailand
- Formosa Plastics Group - Taiwan
- Bharathi Cement Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Indogreen Group - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Asmin Koalindo Tuhup - Indonesia
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Chettinad Cement Corporation Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Lanco Infratech Ltd - India
- Iligan Light & Power Inc, Philippines
- London Commodity Brokers - England
- Directorate General of MIneral and Coal - Indonesia
- Heidelberg Cement - Germany
- Petron Corporation, Philippines
- Attock Cement Pakistan Limited
- Marubeni Corporation - India
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Planning Commission, India
- Ministry of Mines - Canada
- Maheswari Brothers Coal Limited - India
- Ministry of Transport, Egypt
- Bhoruka Overseas - Indonesia
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Romanian Commodities Exchange
- White Energy Company Limited
- International Coal Ventures Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Australian Coal Association
- Sakthi Sugars Limited - India
- Tamil Nadu electricity Board
- GVK Power & Infra Limited - India
- PowerSource Philippines DevCo
- Posco Energy - South Korea
- Alfred C Toepfer International GmbH - Germany
- Gujarat Electricity Regulatory Commission - India
- Bahari Cakrawala Sebuku - Indonesia
- Carbofer General Trading SA - India
- Kalimantan Lumbung Energi - Indonesia
- Georgia Ports Authority, United States
- Orica Mining Services - Indonesia
- Bayan Resources Tbk. - Indonesia
- McConnell Dowell - Australia
- Semirara Mining and Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Makarim & Taira - Indonesia
- Standard Chartered Bank - UAE
- European Bulk Services B.V. - Netherlands
- Malabar Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- Metalloyd Limited - United Kingdom
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Larsen & Toubro Limited - India
- The Treasury - Australian Government
- Indian Energy Exchange, India
- Ministry of Finance - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Interocean Group of Companies - India
- Independent Power Producers Association of India
- Coal and Oil Company - UAE
- Meenaskhi Energy Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- GAC Shipping (India) Pvt Ltd
- The University of Queensland
- Jindal Steel & Power Ltd - India
- Jaiprakash Power Ventures ltd
- Aditya Birla Group - India
- Pendopo Energi Batubara - Indonesia
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Indonesian Coal Mining Association
- Indika Energy - Indonesia
- Uttam Galva Steels Limited - India
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Anglo American - United Kingdom
- Semirara Mining Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Global Business Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Singapore Mercantile Exchange
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Kohat Cement Company Ltd. - Pakistan
- Samtan Co., Ltd - South Korea
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Rashtriya Ispat Nigam Limited - India
- Ind-Barath Power Infra Limited - India
- SMC Global Power, Philippines
- Price Waterhouse Coopers - Russia
- Commonwealth Bank - Australia
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Agrawal Coal Company - India
- Deloitte Consulting - India
- Sarangani Energy Corporation, Philippines
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- ASAPP Information Group - India
- Barasentosa Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Cement Manufacturers Association - India
- Central Java Power - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Therma Luzon, Inc, Philippines
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Minerals Council of Australia
- New Zealand Coal & Carbon
- Star Paper Mills Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- Karbindo Abesyapradhi - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Energy Link Ltd, New Zealand
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- Edison Trading Spa - Italy
- South Luzon Thermal Energy Corporation
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