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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, 11 March 20
SHIPPING MARKET INSIGHT - INTERMODAL
On the 4th of September the Baltic Dry Index marked its highest level for 2019, reaching 2,518 points, while the rest of the dry indices also recor ...
Tuesday, 10 March 20
SHIPPING MARKET ANALYSIS
It might be already overstated, but it seems to be important to point out once again how peculiar the current circumstances are.
Before the st ...
Tuesday, 10 March 20
EIA FORECASTS U.S ELECTRIC POWER SECTOR DEMAND FOR COAL WILL FALL BY 81 MMST (15%) IN 2020
EIA forecasts that U.S. coal production will total 595 million short tons (MMst) in 2020, down 95 MMst (14%) from 2019. According to EIA's Shor ...
Tuesday, 10 March 20
CORONAVIRUS: DEMAND DOWNGRADES FOR BULK COMMODITIES - WOOD MACKENZIE
The coronavirus outbreak is a rapidly evolving news story – and a real wildcard for bulks demand. Our global experts are monitoring the impac ...
Tuesday, 10 March 20
CHINA'S COAL-RICH PROVINCE ENSURES ENERGY SUPPLY AMID EPIDEMIC - XINHUA
China’s coal-rich province of Shanxi has seen more than 500 coal mines resume production in February, which ensured energy supply amid the ou ...
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- Sree Jayajothi Cements Limited - India
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Trasteel International SA, Italy
- Kumho Petrochemical, South Korea
- Wood Mackenzie - Singapore
- Gujarat Electricity Regulatory Commission - India
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- Samtan Co., Ltd - South Korea
- PNOC Exploration Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petron Corporation, Philippines
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Simpson Spence & Young - Indonesia
- Parliament of New Zealand
- Tamil Nadu electricity Board
- London Commodity Brokers - England
- Indian Oil Corporation Limited
- AsiaOL BioFuels Corp., Philippines
- Bulk Trading Sa - Switzerland
- Therma Luzon, Inc, Philippines
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- GMR Energy Limited - India
- Wilmar Investment Holdings
- Bayan Resources Tbk. - Indonesia
- Standard Chartered Bank - UAE
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ambuja Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Barasentosa Lestari - Indonesia
- Energy Development Corp, Philippines
- Indian Energy Exchange, India
- Orica Mining Services - Indonesia
- McConnell Dowell - Australia
- Globalindo Alam Lestari - Indonesia
- Borneo Indobara - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Indika Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement - Thailand
- Meenaskhi Energy Private Limited - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Coastal Gujarat Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- White Energy Company Limited
- Neyveli Lignite Corporation Ltd, - India
- Parry Sugars Refinery, India
- Karbindo Abesyapradhi - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Global Business Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- MS Steel International - UAE
- Indogreen Group - Indonesia
- Iligan Light & Power Inc, Philippines
- Romanian Commodities Exchange
- Goldman Sachs - Singapore
- Riau Bara Harum - Indonesia
- CIMB Investment Bank - Malaysia
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Bhushan Steel Limited - India
- Star Paper Mills Limited - India
- Ministry of Transport, Egypt
- Alfred C Toepfer International GmbH - Germany
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- Kobexindo Tractors - Indoneisa
- Antam Resourcindo - Indonesia
- Kideco Jaya Agung - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PowerSource Philippines DevCo
- TeaM Sual Corporation - Philippines
- Mercuria Energy - Indonesia
- Malabar Cements Ltd - India
- Medco Energi Mining Internasional
- Gujarat Sidhee Cement - India
- IHS Mccloskey Coal Group - USA
- Kepco SPC Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Renaissance Capital - South Africa
- Meralco Power Generation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Rashtriya Ispat Nigam Limited - India
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Eastern Energy - Thailand
- Minerals Council of Australia
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Tata Chemicals Ltd - India
- Jaiprakash Power Ventures ltd
- Uttam Galva Steels Limited - India
- Coal and Oil Company - UAE
- Australian Coal Association
- Thai Mozambique Logistica
- Pendopo Energi Batubara - Indonesia
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Agrawal Coal Company - India
- Leighton Contractors Pty Ltd - Australia
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Formosa Plastics Group - Taiwan
- Aboitiz Power Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Directorate Of Revenue Intelligence - India
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- Ministry of Finance - Indonesia
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- Bangladesh Power Developement Board
- Coalindo Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kartika Selabumi Mining - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Price Waterhouse Coopers - Russia
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Electricity Generating Authority of Thailand
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Altura Mining Limited, Indonesia
- Bhatia International Limited - India
- Directorate General of MIneral and Coal - Indonesia
- PTC India Limited - India
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Xindia Steels Limited - India
- Australian Commodity Traders Exchange
- Essar Steel Hazira Ltd - India
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- Chamber of Mines of South Africa
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- International Coal Ventures Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Georgia Ports Authority, United States
- Independent Power Producers Association of India
- Bahari Cakrawala Sebuku - Indonesia
- Latin American Coal - Colombia
- Semirara Mining and Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Singapore Mercantile Exchange
- Videocon Industries ltd - India
- Thiess Contractors Indonesia
- Planning Commission, India
- Interocean Group of Companies - India
- Posco Energy - South Korea
- Straits Asia Resources Limited - Singapore
- Eastern Coal Council - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Mjunction Services Limited - India
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Bharathi Cement Corporation - India
- India Bulls Power Limited - India
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- OPG Power Generation Pvt Ltd - India
- Larsen & Toubro Limited - India
- Banpu Public Company Limited - Thailand
- Baramulti Group, Indonesia
- Port Waratah Coal Services - Australia
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Makarim & Taira - Indonesia
- Economic Council, Georgia
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