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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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Saturday, 21 March 20
PANAMAX: 82,000DWT SHIP AGREED $4,250 FOR A COAL TRIP VIA INDONESIA REDELIVERY SOUTH CHINA - BALTIC BRIEFING
Capesize
The Capesize market made some headway this past week despite being buffeted by the global pandemic storm. With the market in a constan ...
Friday, 20 March 20
VOLATILITY TO INCREASE IN TANKER MARKET FOLLOWING OIL PRICE WAR - DREWRY
Crude oil prices plunged by more than a third in the past week after OPEC+ failed to agree on production cut as demand softened in the aftermath of ...
Friday, 20 March 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Friday, 20 March 20
OIL PRICES COULD FALL BELOW ZERO: ANALYST - FOX BUSINESS
Plunging oil prices could be headed a lot lower – possibly below zero, according to one Wall Street analyst.
West Texas Interm ...
Friday, 20 March 20
84% OF FEBRUARY BUNKER SALES IN SINGAPORE ARE LOW-SULPHUR FUELS - BIMCO
Low-sulphur fuels accounted for 84% of total February sales in Singapore, slightly up from 83% in January. The sale of low-sulphur fuel oil (LSFO) ...
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- Trasteel International SA, Italy
- Parliament of New Zealand
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Kaltim Prima Coal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Asmin Koalindo Tuhup - Indonesia
- Kepco SPC Power Corporation, Philippines
- Goldman Sachs - Singapore
- Thiess Contractors Indonesia
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Renaissance Capital - South Africa
- Global Coal Blending Company Limited - Australia
- Commonwealth Bank - Australia
- Bangladesh Power Developement Board
- Globalindo Alam Lestari - Indonesia
- Parry Sugars Refinery, India
- Aboitiz Power Corporation - Philippines
- Antam Resourcindo - Indonesia
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Sical Logistics Limited - India
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Bharathi Cement Corporation - India
- OPG Power Generation Pvt Ltd - India
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- Karaikal Port Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- White Energy Company Limited
- Dalmia Cement Bharat India
- Merrill Lynch Commodities Europe
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- Kobexindo Tractors - Indoneisa
- ICICI Bank Limited - India
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PowerSource Philippines DevCo
- Billiton Holdings Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Coal and Oil Company - UAE
- Leighton Contractors Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Attock Cement Pakistan Limited
- Intertek Mineral Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Makarim & Taira - Indonesia
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Price Waterhouse Coopers - Russia
- Simpson Spence & Young - Indonesia
- Australian Commodity Traders Exchange
- Karbindo Abesyapradhi - Indoneisa
- SMG Consultants - Indonesia
- TeaM Sual Corporation - Philippines
- Standard Chartered Bank - UAE
- Barasentosa Lestari - Indonesia
- Africa Commodities Group - South Africa
- Ministry of Mines - Canada
- Deloitte Consulting - India
- Jindal Steel & Power Ltd - India
- The University of Queensland
- Pipit Mutiara Jaya. PT, Indonesia
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Gujarat Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- San Jose City I Power Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Tamil Nadu electricity Board
- Directorate General of MIneral and Coal - Indonesia
- Chamber of Mines of South Africa
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Posco Energy - South Korea
- Coalindo Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Orica Mining Services - Indonesia
- Straits Asia Resources Limited - Singapore
- Mercator Lines Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Latin American Coal - Colombia
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indo Tambangraya Megah - Indonesia
- Metalloyd Limited - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Wood Mackenzie - Singapore
- LBH Netherlands Bv - Netherlands
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Jaiprakash Power Ventures ltd
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
- Bulk Trading Sa - Switzerland
- Sarangani Energy Corporation, Philippines
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Meenaskhi Energy Private Limited - India
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- VISA Power Limited - India
- Gujarat Sidhee Cement - India
- Rashtriya Ispat Nigam Limited - India
- Coastal Gujarat Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- India Bulls Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Medco Energi Mining Internasional
- Thai Mozambique Logistica
- Siam City Cement PLC, Thailand
- Indian Energy Exchange, India
- Iligan Light & Power Inc, Philippines
- ASAPP Information Group - India
- The State Trading Corporation of India Ltd
- Vedanta Resources Plc - India
- Carbofer General Trading SA - India
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Essar Steel Hazira Ltd - India
- MS Steel International - UAE
- Sojitz Corporation - Japan
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Star Paper Mills Limited - India
- Indogreen Group - Indonesia
- Meralco Power Generation, Philippines
- Siam City Cement - Thailand
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- Chettinad Cement Corporation Ltd - India
- Borneo Indobara - Indonesia
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- Romanian Commodities Exchange
- Maheswari Brothers Coal Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Agrawal Coal Company - India
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- SMC Global Power, Philippines
- Central Electricity Authority - India
- GMR Energy Limited - India
- Heidelberg Cement - Germany
- Independent Power Producers Association of India
- Therma Luzon, Inc, Philippines
- The Treasury - Australian Government
- IEA Clean Coal Centre - UK
- PTC India Limited - India
- Rio Tinto Coal - Australia
- SN Aboitiz Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- London Commodity Brokers - England
- CIMB Investment Bank - Malaysia
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Kumho Petrochemical, South Korea
- Australian Coal Association
- Videocon Industries ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Sinarmas Energy and Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Transport, Egypt
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Samtan Co., Ltd - South Korea
- Singapore Mercantile Exchange
- Power Finance Corporation Ltd., India
- Aditya Birla Group - India
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- Minerals Council of Australia
- Energy Development Corp, Philippines
- Orica Australia Pty. Ltd.
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
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