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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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Friday, 06 March 20
SOLID BACKING FOR LNG AS A MARINE FUEL - BALTIC EXCHANGE
When it comes to choosing the best fuel on the near horizon to help the international shipping industry shrink its carbon intensity by 2050, DNV GL ...
Friday, 06 March 20
INDONESIA COAL PRICE REFERENCE UP AGAIN THIS MONTH
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised up the benchmark price of Indonesian thermal co ...
Thursday, 05 March 20
PANAMAX: SHIP-OWNERS HAVE MOSTLY BEEN GETTING HIGHER RATES THAN THE LAST DONE - FEARNLEYS
Cape
There is still limited amount of positive news around, with the effects of Corona virus hurting world economy. However, overall average in ...
Thursday, 05 March 20
COAL IMPORTS DOWN IN MAJOR ASIAN MARKETS, AND CORONAVIRUS NOT THE DRIVING FORCE - CLYDE RUSSELL
Asia’s seaborne coal markets stumbled in February and it appears the coronavirus outbreak in China may dodge most of the blame, with the weak ...
Thursday, 05 March 20
SEABORNE COAL'S STRUGGLES IN ASIA ARE MORE THAN JUST CHINA CORONAVIRUS - REUTERS
Asia’s seaborne coal markets stumbled in February and it appears the coronavirus outbreak in China may dodge most of the blame, with the weak ...
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- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- Kalimantan Lumbung Energi - Indonesia
- Orica Australia Pty. Ltd.
- Posco Energy - South Korea
- Petron Corporation, Philippines
- Coalindo Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Kideco Jaya Agung - Indonesia
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Georgia Ports Authority, United States
- AsiaOL BioFuels Corp., Philippines
- ICICI Bank Limited - India
- Anglo American - United Kingdom
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Karbindo Abesyapradhi - Indoneisa
- Jindal Steel & Power Ltd - India
- Goldman Sachs - Singapore
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GAC Shipping (India) Pvt Ltd
- Wilmar Investment Holdings
- PNOC Exploration Corporation - Philippines
- Renaissance Capital - South Africa
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- VISA Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Bharathi Cement Corporation - India
- Baramulti Group, Indonesia
- Latin American Coal - Colombia
- McConnell Dowell - Australia
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Minerals Council of Australia
- Kartika Selabumi Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Bangladesh Power Developement Board
- Bhoruka Overseas - Indonesia
- New Zealand Coal & Carbon
- Sojitz Corporation - Japan
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Straits Asia Resources Limited - Singapore
- Videocon Industries ltd - India
- Mjunction Services Limited - India
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Bayan Resources Tbk. - Indonesia
- International Coal Ventures Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Eastern Energy - Thailand
- Oldendorff Carriers - Singapore
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Makarim & Taira - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Interocean Group of Companies - India
- ASAPP Information Group - India
- Carbofer General Trading SA - India
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Chamber of Mines of South Africa
- MS Steel International - UAE
- Energy Link Ltd, New Zealand
- Indian Oil Corporation Limited
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maheswari Brothers Coal Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Vedanta Resources Plc - India
- Borneo Indobara - Indonesia
- LBH Netherlands Bv - Netherlands
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Mercuria Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- The Treasury - Australian Government
- Eastern Coal Council - USA
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- Banpu Public Company Limited - Thailand
- Meenaskhi Energy Private Limited - India
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- White Energy Company Limited
- Marubeni Corporation - India
- Bhatia International Limited - India
- Heidelberg Cement - Germany
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Economic Council, Georgia
- Kapuas Tunggal Persada - Indonesia
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
- PowerSource Philippines DevCo
- Siam City Cement - Thailand
- Aditya Birla Group - India
- Antam Resourcindo - Indonesia
- Dalmia Cement Bharat India
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Orica Mining Services - Indonesia
- Sarangani Energy Corporation, Philippines
- Ministry of Finance - Indonesia
- Thai Mozambique Logistica
- Larsen & Toubro Limited - India
- Indian Energy Exchange, India
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Mintek Dendrill Indonesia
- Medco Energi Mining Internasional
- Power Finance Corporation Ltd., India
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Directorate General of MIneral and Coal - Indonesia
- Kaltim Prima Coal - Indonesia
- Semirara Mining Corp, Philippines
- London Commodity Brokers - England
- Port Waratah Coal Services - Australia
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Ambuja Cements Ltd - India
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- Bhushan Steel Limited - India
- Sindya Power Generating Company Private Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- The University of Queensland
- Thiess Contractors Indonesia
- Karaikal Port Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Barasentosa Lestari - Indonesia
- Merrill Lynch Commodities Europe
- CNBM International Corporation - China
- Romanian Commodities Exchange
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Maharashtra Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- Xindia Steels Limited - India
- Kumho Petrochemical, South Korea
- Singapore Mercantile Exchange
- Central Java Power - Indonesia
- Indogreen Group - Indonesia
- Kobexindo Tractors - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Vizag Seaport Private Limited - India
- Mercator Lines Limited - India
- Planning Commission, India
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- Global Coal Blending Company Limited - Australia
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- GMR Energy Limited - India
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
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