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