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