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