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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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Wednesday, 18 March 20
SHIPPING MARKET INSIGHT - INTERMODAL
Despite we all knew about the Covid-19 weeks ago, few could realize the size of the thread until the last few days. The examples of China and Italy ...
Tuesday, 17 March 20
IT IS NOW UNQUESTIONABLE THAT 2020 WILL BE A MILESTONE YEAR FOR THE OIL MARKET, AS WELL AS THE WHOLE GLOBAL ECONOMY - ALLIED
It is now unquestionable that 2020 will be a milestone year for the oil market, as well as the whole global economy. The impact from the COVID-19 o ...
Tuesday, 17 March 20
PRELIMINARY FIELD EXPERIENCES ON THE EFFECTS OF LSFO AND VLSFO ON CYLINDER CONDITION - HANS JENSEN LUBRICATORS
It is now more than two months since the 0.5% sulphur cap entered into force, which have affected the operation of more than 70,000 vessels. As ant ...
Monday, 16 March 20
ULTRAMAX: S8 INDONESIA-INDIA AND S10 INDONESIA-CHINA ROUTES BOTH POSTED GAINS OF $1,412, AND $1,289 ON THE WEEK, TO CLOSE AT $5,575, AND $6,089 RESPECTIVELY - BALTIC BRIEFING
Capesize
The Capesize market came to work on Monday, with little expectation, or confidence, that the days ahead were going to bring anything o ...
Sunday, 15 March 20
CAPTIVE COAL OUTPUT RISES 19% IN APRIL-FEBRUARY - FINANCIAL EXPRESS
Coal production from captive mines in the first eleven months of the ongoing fiscal have increased by 18.8% year-on-year (y-o-y) to 51.7 million to ...
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Showing 1066 to 1070 news of total 6871 |
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- Petron Corporation, Philippines
- Anglo American - United Kingdom
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Parliament of New Zealand
- Vedanta Resources Plc - India
- Bulk Trading Sa - Switzerland
- Kideco Jaya Agung - Indonesia
- Jindal Steel & Power Ltd - India
- Wilmar Investment Holdings
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Maheswari Brothers Coal Limited - India
- The University of Queensland
- Singapore Mercantile Exchange
- Attock Cement Pakistan Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Sree Jayajothi Cements Limited - India
- London Commodity Brokers - England
- Borneo Indobara - Indonesia
- Karaikal Port Pvt Ltd - India
- Wood Mackenzie - Singapore
- Gujarat Sidhee Cement - India
- Barasentosa Lestari - Indonesia
- PTC India Limited - India
- Samtan Co., Ltd - South Korea
- IHS Mccloskey Coal Group - USA
- Africa Commodities Group - South Africa
- Bangladesh Power Developement Board
- Kapuas Tunggal Persada - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Formosa Plastics Group - Taiwan
- Globalindo Alam Lestari - Indonesia
- New Zealand Coal & Carbon
- Lanco Infratech Ltd - India
- PNOC Exploration Corporation - Philippines
- Chamber of Mines of South Africa
- Global Green Power PLC Corporation, Philippines
- TeaM Sual Corporation - Philippines
- ASAPP Information Group - India
- GN Power Mariveles Coal Plant, Philippines
- Makarim & Taira - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Indian Energy Exchange, India
- Petrochimia International Co. Ltd.- Taiwan
- Heidelberg Cement - Germany
- Timah Investasi Mineral - Indoneisa
- Meenaskhi Energy Private Limited - India
- Bhushan Steel Limited - India
- European Bulk Services B.V. - Netherlands
- Goldman Sachs - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- Indo Tambangraya Megah - Indonesia
- Grasim Industreis Ltd - India
- Thiess Contractors Indonesia
- Banpu Public Company Limited - Thailand
- Sical Logistics Limited - India
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
- GVK Power & Infra Limited - India
- Therma Luzon, Inc, Philippines
- Eastern Coal Council - USA
- Parry Sugars Refinery, India
- Sinarmas Energy and Mining - Indonesia
- Medco Energi Mining Internasional
- PetroVietnam Power Coal Import and Supply Company
- Straits Asia Resources Limited - Singapore
- Coastal Gujarat Power Limited - India
- Meralco Power Generation, Philippines
- Salva Resources Pvt Ltd - India
- PowerSource Philippines DevCo
- Power Finance Corporation Ltd., India
- Directorate Of Revenue Intelligence - India
- Uttam Galva Steels Limited - India
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- CNBM International Corporation - China
- Metalloyd Limited - United Kingdom
- Rio Tinto Coal - Australia
- Bukit Makmur.PT - Indonesia
- Sojitz Corporation - Japan
- TNB Fuel Sdn Bhd - Malaysia
- The State Trading Corporation of India Ltd
- Siam City Cement - Thailand
- Intertek Mineral Services - Indonesia
- Baramulti Group, Indonesia
- Latin American Coal - Colombia
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Binh Thuan Hamico - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- Mjunction Services Limited - India
- Coal and Oil Company - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- LBH Netherlands Bv - Netherlands
- Deloitte Consulting - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Altura Mining Limited, Indonesia
- Essar Steel Hazira Ltd - India
- Edison Trading Spa - Italy
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- Commonwealth Bank - Australia
- Electricity Generating Authority of Thailand
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- Alfred C Toepfer International GmbH - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- VISA Power Limited - India
- Indogreen Group - Indonesia
- Bharathi Cement Corporation - India
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Global Coal Blending Company Limited - Australia
- Standard Chartered Bank - UAE
- Gujarat Mineral Development Corp Ltd - India
- Planning Commission, India
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Mercator Lines Limited - India
- Pendopo Energi Batubara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Indonesian Coal Mining Association
- Holcim Trading Pte Ltd - Singapore
- South Luzon Thermal Energy Corporation
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- The Treasury - Australian Government
- ICICI Bank Limited - India
- Ind-Barath Power Infra Limited - India
- Antam Resourcindo - Indonesia
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Bhatia International Limited - India
- Madhucon Powers Ltd - India
- Electricity Authority, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Carbofer General Trading SA - India
- Economic Council, Georgia
- Bahari Cakrawala Sebuku - Indonesia
- Price Waterhouse Coopers - Russia
- Ministry of Mines - Canada
- Posco Energy - South Korea
- Interocean Group of Companies - India
- CIMB Investment Bank - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chettinad Cement Corporation Ltd - India
- SN Aboitiz Power Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Xindia Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Energy Link Ltd, New Zealand
- Star Paper Mills Limited - India
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- Australian Coal Association
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- India Bulls Power Limited - India
- Toyota Tsusho Corporation, Japan
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- GMR Energy Limited - India
- Oldendorff Carriers - Singapore
- Dalmia Cement Bharat India
- Miang Besar Coal Terminal - Indonesia
- Aditya Birla Group - India
- International Coal Ventures Pvt Ltd - India
- Central Electricity Authority - India
- Ambuja Cements Ltd - India
- Renaissance Capital - South Africa
- McConnell Dowell - Australia
- Iligan Light & Power Inc, Philippines
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