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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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Saturday, 21 March 20
PANAMAX: 82,000DWT SHIP AGREED $4,250 FOR A COAL TRIP VIA INDONESIA REDELIVERY SOUTH CHINA - BALTIC BRIEFING
Capesize
The Capesize market made some headway this past week despite being buffeted by the global pandemic storm. With the market in a constan ...
Friday, 20 March 20
VOLATILITY TO INCREASE IN TANKER MARKET FOLLOWING OIL PRICE WAR - DREWRY
Crude oil prices plunged by more than a third in the past week after OPEC+ failed to agree on production cut as demand softened in the aftermath of ...
Friday, 20 March 20
CHINA'S BENCHMARK POWER COAL PRICE DROPS SLIGHTLY - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
Friday, 20 March 20
OIL PRICES COULD FALL BELOW ZERO: ANALYST - FOX BUSINESS
Plunging oil prices could be headed a lot lower – possibly below zero, according to one Wall Street analyst.
West Texas Interm ...
Friday, 20 March 20
84% OF FEBRUARY BUNKER SALES IN SINGAPORE ARE LOW-SULPHUR FUELS - BIMCO
Low-sulphur fuels accounted for 84% of total February sales in Singapore, slightly up from 83% in January. The sale of low-sulphur fuel oil (LSFO) ...
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Showing 1056 to 1060 news of total 6871 |
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- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Directorate General of MIneral and Coal - Indonesia
- GMR Energy Limited - India
- Renaissance Capital - South Africa
- Ambuja Cements Ltd - India
- Orica Mining Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- Billiton Holdings Pty Ltd - Australia
- Sical Logistics Limited - India
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- Singapore Mercantile Exchange
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- Dalmia Cement Bharat India
- SMG Consultants - Indonesia
- Thai Mozambique Logistica
- LBH Netherlands Bv - Netherlands
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Electricity Generating Authority of Thailand
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- Ministry of Finance - Indonesia
- Essar Steel Hazira Ltd - India
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- The Treasury - Australian Government
- Electricity Authority, New Zealand
- Global Coal Blending Company Limited - Australia
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Leighton Contractors Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Rashtriya Ispat Nigam Limited - India
- Krishnapatnam Port Company Ltd. - India
- Formosa Plastics Group - Taiwan
- Siam City Cement - Thailand
- Petron Corporation, Philippines
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Tamil Nadu electricity Board
- Mjunction Services Limited - India
- SN Aboitiz Power Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Malabar Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Aditya Birla Group - India
- Minerals Council of Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Trasteel International SA, Italy
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bhoruka Overseas - Indonesia
- The State Trading Corporation of India Ltd
- Indika Energy - Indonesia
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- Eastern Energy - Thailand
- Deloitte Consulting - India
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- McConnell Dowell - Australia
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Merrill Lynch Commodities Europe
- Medco Energi Mining Internasional
- Coastal Gujarat Power Limited - India
- Mintek Dendrill Indonesia
- Kobexindo Tractors - Indoneisa
- Bhatia International Limited - India
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- Central Electricity Authority - India
- Interocean Group of Companies - India
- Mercuria Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Meenaskhi Energy Private Limited - India
- Borneo Indobara - Indonesia
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Sidhee Cement - India
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- Toyota Tsusho Corporation, Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Indonesian Coal Mining Association
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- GVK Power & Infra Limited - India
- Indo Tambangraya Megah - Indonesia
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Romanian Commodities Exchange
- Ministry of Mines - Canada
- Salva Resources Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Marubeni Corporation - India
- Manunggal Multi Energi - Indonesia
- Port Waratah Coal Services - Australia
- Star Paper Mills Limited - India
- CNBM International Corporation - China
- Banpu Public Company Limited - Thailand
- Georgia Ports Authority, United States
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Sree Jayajothi Cements Limited - India
- PTC India Limited - India
- Simpson Spence & Young - Indonesia
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Africa Commodities Group - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Therma Luzon, Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Bukit Makmur.PT - Indonesia
- Australian Coal Association
- Coalindo Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Anglo American - United Kingdom
- MS Steel International - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Cement Manufacturers Association - India
- Altura Mining Limited, Indonesia
- Parliament of New Zealand
- Sinarmas Energy and Mining - Indonesia
- CIMB Investment Bank - Malaysia
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- GN Power Mariveles Coal Plant, Philippines
- Miang Besar Coal Terminal - Indonesia
- New Zealand Coal & Carbon
- Carbofer General Trading SA - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- International Coal Ventures Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- San Jose City I Power Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- The University of Queensland
- India Bulls Power Limited - India
- IEA Clean Coal Centre - UK
- Kartika Selabumi Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Bulk Trading Sa - Switzerland
- White Energy Company Limited
- Central Java Power - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Sarangani Energy Corporation, Philippines
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Latin American Coal - Colombia
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kumho Petrochemical, South Korea
- Wood Mackenzie - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Aboitiz Power Corporation - Philippines
- Bangladesh Power Developement Board
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Kepco SPC Power Corporation, Philippines
- Thiess Contractors Indonesia
- Mercator Lines Limited - India
- Bharathi Cement Corporation - India
- Edison Trading Spa - Italy
- Bukit Asam (Persero) Tbk - Indonesia
- SMC Global Power, Philippines
- ASAPP Information Group - India
- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- VISA Power Limited - India
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- Standard Chartered Bank - UAE
- Vizag Seaport Private Limited - India
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
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