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