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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, 24 March 20
THE TRIPLE SHOCK OF CORONAVIRUS IN SHIPPING: WILL IT LAST? - DREWRY
Transport capacity shortages, disruptions to supply chains and inability to plan since late January have been a dangerous combination. But will all ...
Tuesday, 24 March 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.28 PCT - XINHUA
China Taiyuan coal transaction price index stood at 132.74 points Monday, down 0.28 percent week on week.
The index, released by Chi ...
Monday, 23 March 20
CHARTERPARTY REQUIREMENTS TO NOTIFY CLAIMS - TAKE CARE! - WFW
KNOWLEDGE TO ELEVATE
Voyage charterparties frequently require the owner to notify any claim with supporting documents within a relatively shor ...
Monday, 23 March 20
COAL INDIA LIMITED'S ONE-DAY OUTPUT PEAKS AT 3.17 MT - THE HINDU
Coal India Limited (CIL) output peaked at a new high of 3.17 million tonnes (MT) on March 20, overtaking the 3.14 MT production recorded on March 2 ...
Monday, 23 March 20
KOMIPO INVITED BIDS FOR 1.45 MILLION TONS OF COAL FOR JUNE & JULY 2020 LOADING
COALspot.com: Korea Midland Power Co.,Ltd (KOMIPO), on behalf of five Korean Gencos, has issued an international tender for total 1,450,000 MT (&pl ...
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- Star Paper Mills Limited - India
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- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Vijayanagar Sugar Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- Salva Resources Pvt Ltd - India
- Grasim Industreis Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- Meralco Power Generation, Philippines
- Barasentosa Lestari - Indonesia
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- Parliament of New Zealand
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- India Bulls Power Limited - India
- Deloitte Consulting - India
- Lanco Infratech Ltd - India
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- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Romanian Commodities Exchange
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- Sarangani Energy Corporation, Philippines
- SMG Consultants - Indonesia
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- Offshore Bulk Terminal Pte Ltd, Singapore
- San Jose City I Power Corp, Philippines
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- Semirara Mining Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- Indian Oil Corporation Limited
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- Sinarmas Energy and Mining - Indonesia
- GMR Energy Limited - India
- Bhushan Steel Limited - India
- Vedanta Resources Plc - India
- Madhucon Powers Ltd - India
- Energy Development Corp, Philippines
- Eastern Coal Council - USA
- Uttam Galva Steels Limited - India
- Agrawal Coal Company - India
- Kohat Cement Company Ltd. - Pakistan
- Oldendorff Carriers - Singapore
- CNBM International Corporation - China
- ASAPP Information Group - India
- Edison Trading Spa - Italy
- Petron Corporation, Philippines
- Vizag Seaport Private Limited - India
- Bhoruka Overseas - Indonesia
- Interocean Group of Companies - India
- Electricity Generating Authority of Thailand
- Essar Steel Hazira Ltd - India
- SMC Global Power, Philippines
- Central Electricity Authority - India
- Sakthi Sugars Limited - India
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Xindia Steels Limited - India
- Wilmar Investment Holdings
- Australian Commodity Traders Exchange
- Global Business Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Videocon Industries ltd - India
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- Indika Energy - Indonesia
- Thiess Contractors Indonesia
- Borneo Indobara - Indonesia
- Tata Chemicals Ltd - India
- CIMB Investment Bank - Malaysia
- Gujarat Sidhee Cement - India
- ICICI Bank Limited - India
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- SN Aboitiz Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kartika Selabumi Mining - Indonesia
- Trasteel International SA, Italy
- Aditya Birla Group - India
- London Commodity Brokers - England
- Siam City Cement PLC, Thailand
- Siam City Cement - Thailand
- Electricity Authority, New Zealand
- Rio Tinto Coal - Australia
- Georgia Ports Authority, United States
- Jaiprakash Power Ventures ltd
- Mjunction Services Limited - India
- Sindya Power Generating Company Private Ltd
- Iligan Light & Power Inc, Philippines
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- Singapore Mercantile Exchange
- GVK Power & Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Bulk Trading Sa - Switzerland
- Kepco SPC Power Corporation, Philippines
- Chamber of Mines of South Africa
- Ministry of Finance - Indonesia
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- GN Power Mariveles Coal Plant, Philippines
- Renaissance Capital - South Africa
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Sical Logistics Limited - India
- IEA Clean Coal Centre - UK
- The State Trading Corporation of India Ltd
- Bharathi Cement Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Eastern Energy - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Banpu Public Company Limited - Thailand
- Straits Asia Resources Limited - Singapore
- Larsen & Toubro Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- Globalindo Alam Lestari - Indonesia
- Coalindo Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Posco Energy - South Korea
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Tamil Nadu electricity Board
- White Energy Company Limited
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Indogreen Group - Indonesia
- Minerals Council of Australia
- Wood Mackenzie - Singapore
- Kapuas Tunggal Persada - Indonesia
- Orica Mining Services - Indonesia
- Kaltim Prima Coal - Indonesia
- PTC India Limited - India
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Commonwealth Bank - Australia
- Rashtriya Ispat Nigam Limited - India
- Port Waratah Coal Services - Australia
- Sree Jayajothi Cements Limited - India
- PetroVietnam Power Coal Import and Supply Company
- GAC Shipping (India) Pvt Ltd
- The University of Queensland
- Krishnapatnam Port Company Ltd. - India
- Malabar Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Pendopo Energi Batubara - Indonesia
- Ind-Barath Power Infra Limited - India
- Intertek Mineral Services - Indonesia
- Bukit Makmur.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Semirara Mining and Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Standard Chartered Bank - UAE
- Directorate Of Revenue Intelligence - India
- Mercuria Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- TNB Fuel Sdn Bhd - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- Makarim & Taira - Indonesia
- Mintek Dendrill Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Medco Energi Mining Internasional
- Heidelberg Cement - Germany
- MS Steel International - UAE
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- The Treasury - Australian Government
- Baramulti Group, Indonesia
- Parry Sugars Refinery, India
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Dalmia Cement Bharat India
- Asmin Koalindo Tuhup - Indonesia
- Timah Investasi Mineral - Indoneisa
- Karbindo Abesyapradhi - Indoneisa
- Bhatia International Limited - India
- Latin American Coal - Colombia
- Planning Commission, India
- Cigading International Bulk Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
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