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