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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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Showing 1056 to 1060 news of total 6871 |
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- Eastern Energy - Thailand
- Heidelberg Cement - Germany
- The Treasury - Australian Government
- Price Waterhouse Coopers - Russia
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- ASAPP Information Group - India
- Bulk Trading Sa - Switzerland
- Cigading International Bulk Terminal - Indonesia
- Star Paper Mills Limited - India
- Ministry of Transport, Egypt
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- IEA Clean Coal Centre - UK
- Neyveli Lignite Corporation Ltd, - India
- Pipit Mutiara Jaya. PT, Indonesia
- Latin American Coal - Colombia
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Iligan Light & Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- AsiaOL BioFuels Corp., Philippines
- Coalindo Energy - Indonesia
- Interocean Group of Companies - India
- Petron Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Independent Power Producers Association of India
- PowerSource Philippines DevCo
- Bayan Resources Tbk. - Indonesia
- Global Business Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Coal and Oil Company - UAE
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Central Java Power - Indonesia
- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
- Essar Steel Hazira Ltd - India
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- Intertek Mineral Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- Thiess Contractors Indonesia
- Uttam Galva Steels Limited - India
- Miang Besar Coal Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Marubeni Corporation - India
- Siam City Cement PLC, Thailand
- Bharathi Cement Corporation - India
- Global Green Power PLC Corporation, Philippines
- McConnell Dowell - Australia
- Bahari Cakrawala Sebuku - Indonesia
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Chettinad Cement Corporation Ltd - India
- Anglo American - United Kingdom
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Indika Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Electricity Generating Authority of Thailand
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- Ceylon Electricity Board - Sri Lanka
- Indian Energy Exchange, India
- Globalindo Alam Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Trasteel International SA, Italy
- Planning Commission, India
- Indogreen Group - Indonesia
- Larsen & Toubro Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Parry Sugars Refinery, India
- GVK Power & Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Dalmia Cement Bharat India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Aditya Birla Group - India
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Metalloyd Limited - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- SMC Global Power, Philippines
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Jaiprakash Power Ventures ltd
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Krishnapatnam Port Company Ltd. - India
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Semirara Mining Corp, Philippines
- London Commodity Brokers - England
- CNBM International Corporation - China
- ICICI Bank Limited - India
- Attock Cement Pakistan Limited
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Kohat Cement Company Ltd. - Pakistan
- Directorate Of Revenue Intelligence - India
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Bhatia International Limited - India
- Agrawal Coal Company - India
- GMR Energy Limited - India
- PTC India Limited - India
- Videocon Industries ltd - India
- Australian Commodity Traders Exchange
- GAC Shipping (India) Pvt Ltd
- IHS Mccloskey Coal Group - USA
- Manunggal Multi Energi - Indonesia
- Indian Oil Corporation Limited
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Billiton Holdings Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- PetroVietnam Power Coal Import and Supply Company
- South Luzon Thermal Energy Corporation
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- Goldman Sachs - Singapore
- Mercuria Energy - Indonesia
- Bangladesh Power Developement Board
- Bukit Asam (Persero) Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Straits Asia Resources Limited - Singapore
- Meenaskhi Energy Private Limited - India
- Indo Tambangraya Megah - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Riau Bara Harum - Indonesia
- Barasentosa Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Mines - Canada
- Indonesian Coal Mining Association
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Lanco Infratech Ltd - India
- Carbofer General Trading SA - India
- Meralco Power Generation, Philippines
- Bukit Makmur.PT - Indonesia
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Jorong Barutama Greston.PT - Indonesia
- Jindal Steel & Power Ltd - India
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- Ministry of Finance - Indonesia
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- Standard Chartered Bank - UAE
- Orica Mining Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Karbindo Abesyapradhi - Indoneisa
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Xindia Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Rio Tinto Coal - Australia
- Energy Link Ltd, New Zealand
- The University of Queensland
- VISA Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- MS Steel International - UAE
- Medco Energi Mining Internasional
- Coastal Gujarat Power Limited - India
- Sakthi Sugars Limited - India
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