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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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- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Indian Oil Corporation Limited
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Central Java Power - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Coal and Oil Company - UAE
- San Jose City I Power Corp, Philippines
- Formosa Plastics Group - Taiwan
- Attock Cement Pakistan Limited
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Australian Coal Association
- Merrill Lynch Commodities Europe
- Essar Steel Hazira Ltd - India
- Latin American Coal - Colombia
- Timah Investasi Mineral - Indoneisa
- The Treasury - Australian Government
- Vizag Seaport Private Limited - India
- Independent Power Producers Association of India
- Global Business Power Corporation, Philippines
- ICICI Bank Limited - India
- Ministry of Transport, Egypt
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- Anglo American - United Kingdom
- Minerals Council of Australia
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- GMR Energy Limited - India
- Oldendorff Carriers - Singapore
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Miang Besar Coal Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Africa Commodities Group - South Africa
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Sical Logistics Limited - India
- Vedanta Resources Plc - India
- Metalloyd Limited - United Kingdom
- Salva Resources Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Parliament of New Zealand
- Semirara Mining and Power Corporation, Philippines
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- New Zealand Coal & Carbon
- Aboitiz Power Corporation - Philippines
- Sojitz Corporation - Japan
- Global Coal Blending Company Limited - Australia
- Eastern Energy - Thailand
- Krishnapatnam Port Company Ltd. - India
- Manunggal Multi Energi - Indonesia
- Thai Mozambique Logistica
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Renaissance Capital - South Africa
- Gujarat Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Bhushan Steel Limited - India
- Bharathi Cement Corporation - India
- Sree Jayajothi Cements Limited - India
- Leighton Contractors Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Power Finance Corporation Ltd., India
- Dalmia Cement Bharat India
- Samtan Co., Ltd - South Korea
- Bukit Baiduri Energy - Indonesia
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Kartika Selabumi Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Cigading International Bulk Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Larsen & Toubro Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- MS Steel International - UAE
- Holcim Trading Pte Ltd - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Intertek Mineral Services - Indonesia
- Grasim Industreis Ltd - India
- Deloitte Consulting - India
- Madhucon Powers Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- SN Aboitiz Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Commonwealth Bank - Australia
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Siam City Cement PLC, Thailand
- Jaiprakash Power Ventures ltd
- The University of Queensland
- Economic Council, Georgia
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Wilmar Investment Holdings
- Banpu Public Company Limited - Thailand
- Karaikal Port Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Ambuja Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- GVK Power & Infra Limited - India
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- AsiaOL BioFuels Corp., Philippines
- Maheswari Brothers Coal Limited - India
- Heidelberg Cement - Germany
- Mjunction Services Limited - India
- Indonesian Coal Mining Association
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- Indian Energy Exchange, India
- Mercuria Energy - Indonesia
- Energy Link Ltd, New Zealand
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- International Coal Ventures Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Orica Mining Services - Indonesia
- Tata Chemicals Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Offshore Bulk Terminal Pte Ltd, Singapore
- GAC Shipping (India) Pvt Ltd
- Uttam Galva Steels Limited - India
- Xindia Steels Limited - India
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Directorate Of Revenue Intelligence - India
- CNBM International Corporation - China
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Coal Council - USA
- Ministry of Mines - Canada
- Coastal Gujarat Power Limited - India
- Mercator Lines Limited - India
- Makarim & Taira - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Romanian Commodities Exchange
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Indika Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Bulk Trading Sa - Switzerland
- PNOC Exploration Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Sinarmas Energy and Mining - Indonesia
- Coalindo Energy - Indonesia
- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Singapore Mercantile Exchange
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Kaltim Prima Coal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Electricity Authority, New Zealand
- India Bulls Power Limited - India
- Georgia Ports Authority, United States
- Borneo Indobara - Indonesia
- ASAPP Information Group - India
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- Thiess Contractors Indonesia
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
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