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