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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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Monday, 09 March 20
OPEC+ 'NO DEAL' A BLOW TO THE MARKET - WOOD MACKENZIE
Speaking after today’s OPEC+ meeting broke up, Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said: “Today’s o ...
Monday, 09 March 20
KOREA EAST-WEST POWER INVITED BIDS FOR 150,000 MT OF MIN 4,400 - MAX 5,499 NAR COAL
COALspot.com: KOREA EAST-WEST POWER CO. LTD. of South Korea has issued an international tender for total 150,000 MT of LCV coal for May – Jun ...
Sunday, 08 March 20
SUPRAMAX: A 55,000DWT VESSEL FIXING DELIVERY FROM EAST KALIMANTAN FOR A TRIP TO VIETNAM AT $9,100 - BALTIC BRIEFING
SUPRAMAX/ULTRAMAX - A 56,000DWT VESSEL FIXED DELIVERY SOUTH CHINA TRIP VIA INDONESIA, REDELIVERY EAST COAST INDIA, IN THE $6,000S
SUPRAMAX/U ...
Friday, 06 March 20
CHINA RESUMES 83.4 PCT COAL PRODUCTION CAPACITY AMID EPIDEMIC - XINHUA
China has resumed 83.4 percent of its coal production capacity amid the fight against the novel coronavirus outbreak, the National Energy Administr ...
Friday, 06 March 20
COLOMBIAN COAL OUTPUT FELL 2% IN 2019 - REUTERS
Coal production in Colombia, the fifth-largest coal exporter in the world, fell 2% to 82.2 million tonnes in 2019 after output at one of the princi ...
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- Star Paper Mills Limited - India
- Altura Mining Limited, Indonesia
- Salva Resources Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Parliament of New Zealand
- Indian Energy Exchange, India
- Latin American Coal - Colombia
- TeaM Sual Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Chamber of Mines of South Africa
- Barasentosa Lestari - Indonesia
- Ministry of Finance - Indonesia
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Singapore Mercantile Exchange
- Romanian Commodities Exchange
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- Ceylon Electricity Board - Sri Lanka
- European Bulk Services B.V. - Netherlands
- Bhatia International Limited - India
- Vedanta Resources Plc - India
- Sindya Power Generating Company Private Ltd
- ICICI Bank Limited - India
- Directorate Of Revenue Intelligence - India
- ASAPP Information Group - India
- Malabar Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- London Commodity Brokers - England
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Siam City Cement - Thailand
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- Bharathi Cement Corporation - India
- Indogreen Group - Indonesia
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Transport, Egypt
- Anglo American - United Kingdom
- Banpu Public Company Limited - Thailand
- Tamil Nadu electricity Board
- Bukit Baiduri Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Maharashtra Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- PowerSource Philippines DevCo
- Straits Asia Resources Limited - Singapore
- Marubeni Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Rio Tinto Coal - Australia
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Australian Commodity Traders Exchange
- Iligan Light & Power Inc, Philippines
- Australian Coal Association
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Sojitz Corporation - Japan
- IEA Clean Coal Centre - UK
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- VISA Power Limited - India
- Therma Luzon, Inc, Philippines
- Antam Resourcindo - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Georgia Ports Authority, United States
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cement Manufacturers Association - India
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Borneo Indobara - Indonesia
- Coalindo Energy - Indonesia
- White Energy Company Limited
- Renaissance Capital - South Africa
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- GMR Energy Limited - India
- Aboitiz Power Corporation - Philippines
- Ministry of Mines - Canada
- Semirara Mining Corp, Philippines
- Orica Mining Services - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PTC India Limited - India
- Energy Link Ltd, New Zealand
- Larsen & Toubro Limited - India
- Leighton Contractors Pty Ltd - Australia
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- India Bulls Power Limited - India
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- Bayan Resources Tbk. - Indonesia
- Price Waterhouse Coopers - Russia
- Bulk Trading Sa - Switzerland
- Neyveli Lignite Corporation Ltd, - India
- Simpson Spence & Young - Indonesia
- Bukit Makmur.PT - Indonesia
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Minerals Council of Australia
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Sical Logistics Limited - India
- Agrawal Coal Company - India
- Standard Chartered Bank - UAE
- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Interocean Group of Companies - India
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Bhushan Steel Limited - India
- Samtan Co., Ltd - South Korea
- Thiess Contractors Indonesia
- IHS Mccloskey Coal Group - USA
- SMC Global Power, Philippines
- MS Steel International - UAE
- Jorong Barutama Greston.PT - Indonesia
- Edison Trading Spa - Italy
- Aditya Birla Group - India
- Holcim Trading Pte Ltd - Singapore
- Electricity Authority, New Zealand
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- International Coal Ventures Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rashtriya Ispat Nigam Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Meralco Power Generation, Philippines
- GVK Power & Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- Eastern Energy - Thailand
- Indian Oil Corporation Limited
- Mercator Lines Limited - India
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- Tata Chemicals Ltd - India
- Ambuja Cements Ltd - India
- Power Finance Corporation Ltd., India
- Pendopo Energi Batubara - Indonesia
- Central Java Power - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- LBH Netherlands Bv - Netherlands
- Toyota Tsusho Corporation, Japan
- Makarim & Taira - Indonesia
- South Luzon Thermal Energy Corporation
- CIMB Investment Bank - Malaysia
- Uttam Galva Steels Limited - India
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Manunggal Multi Energi - Indonesia
- Independent Power Producers Association of India
- The University of Queensland
- Energy Development Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Coastal Gujarat Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Global Coal Blending Company Limited - Australia
- Electricity Generating Authority of Thailand
- SN Aboitiz Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Trasteel International SA, Italy
- Kartika Selabumi Mining - Indonesia
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
- Deloitte Consulting - India
- Asmin Koalindo Tuhup - Indonesia
- Vizag Seaport Private Limited - India
- Mercuria Energy - Indonesia
- Videocon Industries ltd - India
- Kapuas Tunggal Persada - Indonesia
- Kepco SPC Power Corporation, Philippines
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Essar Steel Hazira Ltd - India
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- Eastern Coal Council - USA
- Kaltim Prima Coal - Indonesia
- SMG Consultants - Indonesia
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