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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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Thursday, 05 March 20
INDONESIA'S BUKIT ASAM 2019 OUTPUT RISES 10.2% Y/Y - REUTERS
PT Bukit Asam, Indonesia’s state-owned coal miner, said on Wednesday its output in 2019 rose 10.2% to 29.1 million tonnes.
Coa ...
Thursday, 05 March 20
SEEING REMOTELY - IN SAFETY: BUREAU VERITAS PERFORMS FIRST SURVEY BY DRONE - BUREAU VERITAS
Bureau Veritas Marine & Offshore (BV), a world leader in testing, inspection and certification (TIC) services has completed its first survey by ...
Wednesday, 04 March 20
AN EPIDEMIC OF UNCERTAINTY - THE CORONAVIRUS AND FORCE MAJEURE - WFW
KNOWLEDGE TO ELEVATE
Do the effects of the coronavirus give rise to legitimate force majeure claims in connection with shipbuilding contracts ...
Wednesday, 04 March 20
CHINA IMPORTED 76.8 MLN TONNES OF CRUDE OIL FOR JANUARY & FEBRUARY 2020; UP 3.4% YOY - REFINITIV | BC
The COVID-19 crisis has been gripping China already for almost two months now. It’s having a huge negative impact on the economy, and this is ...
Wednesday, 04 March 20
MARKET INSIGHT - INTERMODAL
As it was expected, the whole world has been focusing on the spread of the Coronavirus, with the fast outbreak being primarily a massive humanitari ...
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- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- Bangladesh Power Developement Board
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Chettinad Cement Corporation Ltd - India
- Coalindo Energy - Indonesia
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
- Grasim Industreis Ltd - India
- Ind-Barath Power Infra Limited - India
- Central Java Power - Indonesia
- Manunggal Multi Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- Jaiprakash Power Ventures ltd
- Baramulti Group, Indonesia
- Interocean Group of Companies - India
- The University of Queensland
- AsiaOL BioFuels Corp., Philippines
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- Riau Bara Harum - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Mintek Dendrill Indonesia
- Alfred C Toepfer International GmbH - Germany
- Antam Resourcindo - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Globalindo Alam Lestari - Indonesia
- Eastern Energy - Thailand
- Kartika Selabumi Mining - Indonesia
- Malabar Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- Trasteel International SA, Italy
- Pendopo Energi Batubara - Indonesia
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Commonwealth Bank - Australia
- Bukit Makmur.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- Indogreen Group - Indonesia
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- Parry Sugars Refinery, India
- Economic Council, Georgia
- Rio Tinto Coal - Australia
- Mercator Lines Limited - India
- LBH Netherlands Bv - Netherlands
- Miang Besar Coal Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Planning Commission, India
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Essar Steel Hazira Ltd - India
- Aditya Birla Group - India
- Singapore Mercantile Exchange
- Electricity Authority, New Zealand
- Jindal Steel & Power Ltd - India
- ICICI Bank Limited - India
- PNOC Exploration Corporation - Philippines
- Georgia Ports Authority, United States
- Goldman Sachs - Singapore
- Sinarmas Energy and Mining - Indonesia
- Latin American Coal - Colombia
- Anglo American - United Kingdom
- Minerals Council of Australia
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- PowerSource Philippines DevCo
- Kapuas Tunggal Persada - Indonesia
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Karaikal Port Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Cigading International Bulk Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Maheswari Brothers Coal Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Chamber of Mines of South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wilmar Investment Holdings
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- Metalloyd Limited - United Kingdom
- Borneo Indobara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Deloitte Consulting - India
- GAC Shipping (India) Pvt Ltd
- Semirara Mining and Power Corporation, Philippines
- CNBM International Corporation - China
- The State Trading Corporation of India Ltd
- San Jose City I Power Corp, Philippines
- Heidelberg Cement - Germany
- Medco Energi Mining Internasional
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Cement Manufacturers Association - India
- Electricity Generating Authority of Thailand
- Siam City Cement - Thailand
- Indian Energy Exchange, India
- Uttam Galva Steels Limited - India
- Altura Mining Limited, Indonesia
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- Oldendorff Carriers - Singapore
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Marubeni Corporation - India
- PTC India Limited - India
- Therma Luzon, Inc, Philippines
- SMC Global Power, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sindya Power Generating Company Private Ltd
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- IEA Clean Coal Centre - UK
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Bharathi Cement Corporation - India
- Ministry of Transport, Egypt
- Energy Development Corp, Philippines
- MS Steel International - UAE
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Bhoruka Overseas - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Makarim & Taira - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Edison Trading Spa - Italy
- Star Paper Mills Limited - India
- Coastal Gujarat Power Limited - India
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Bhatia International Limited - India
- TeaM Sual Corporation - Philippines
- Ministry of Mines - Canada
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- Banpu Public Company Limited - Thailand
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Coal and Oil Company - UAE
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Renaissance Capital - South Africa
- Neyveli Lignite Corporation Ltd, - India
- IHS Mccloskey Coal Group - USA
- Africa Commodities Group - South Africa
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Directorate Of Revenue Intelligence - India
- Pipit Mutiara Jaya. PT, Indonesia
- International Coal Ventures Pvt Ltd - India
- Videocon Industries ltd - India
- Sojitz Corporation - Japan
- PetroVietnam Power Coal Import and Supply Company
- New Zealand Coal & Carbon
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- White Energy Company Limited
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- India Bulls Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Dalmia Cement Bharat India
- Toyota Tsusho Corporation, Japan
- Lanco Infratech Ltd - India
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- Energy Link Ltd, New Zealand
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- Madhucon Powers Ltd - India
- The Treasury - Australian Government
- Kalimantan Lumbung Energi - Indonesia
- Bayan Resources Tbk. - Indonesia
- Sarangani Energy Corporation, Philippines
- Romanian Commodities Exchange
- Kepco SPC Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Krishnapatnam Port Company Ltd. - India
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- Simpson Spence & Young - Indonesia
- Eastern Coal Council - USA
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