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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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Wednesday, 18 March 20
SHIPPING MARKET INSIGHT - INTERMODAL
Despite we all knew about the Covid-19 weeks ago, few could realize the size of the thread until the last few days. The examples of China and Italy ...
Tuesday, 17 March 20
IT IS NOW UNQUESTIONABLE THAT 2020 WILL BE A MILESTONE YEAR FOR THE OIL MARKET, AS WELL AS THE WHOLE GLOBAL ECONOMY - ALLIED
It is now unquestionable that 2020 will be a milestone year for the oil market, as well as the whole global economy. The impact from the COVID-19 o ...
Tuesday, 17 March 20
PRELIMINARY FIELD EXPERIENCES ON THE EFFECTS OF LSFO AND VLSFO ON CYLINDER CONDITION - HANS JENSEN LUBRICATORS
It is now more than two months since the 0.5% sulphur cap entered into force, which have affected the operation of more than 70,000 vessels. As ant ...
Monday, 16 March 20
ULTRAMAX: S8 INDONESIA-INDIA AND S10 INDONESIA-CHINA ROUTES BOTH POSTED GAINS OF $1,412, AND $1,289 ON THE WEEK, TO CLOSE AT $5,575, AND $6,089 RESPECTIVELY - BALTIC BRIEFING
Capesize
The Capesize market came to work on Monday, with little expectation, or confidence, that the days ahead were going to bring anything o ...
Sunday, 15 March 20
CAPTIVE COAL OUTPUT RISES 19% IN APRIL-FEBRUARY - FINANCIAL EXPRESS
Coal production from captive mines in the first eleven months of the ongoing fiscal have increased by 18.8% year-on-year (y-o-y) to 51.7 million to ...
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Showing 1066 to 1070 news of total 6871 |
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- Marubeni Corporation - India
- Sarangani Energy Corporation, Philippines
- Makarim & Taira - Indonesia
- Semirara Mining and Power Corporation, Philippines
- White Energy Company Limited
- PowerSource Philippines DevCo
- European Bulk Services B.V. - Netherlands
- LBH Netherlands Bv - Netherlands
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Mercator Lines Limited - India
- Siam City Cement - Thailand
- Economic Council, Georgia
- Petron Corporation, Philippines
- Interocean Group of Companies - India
- Electricity Authority, New Zealand
- Sojitz Corporation - Japan
- Wilmar Investment Holdings
- Sakthi Sugars Limited - India
- McConnell Dowell - Australia
- Borneo Indobara - Indonesia
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- OPG Power Generation Pvt Ltd - India
- Commonwealth Bank - Australia
- Holcim Trading Pte Ltd - Singapore
- Kepco SPC Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- Thai Mozambique Logistica
- Bharathi Cement Corporation - India
- Thiess Contractors Indonesia
- Baramulti Group, Indonesia
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Orica Mining Services - Indonesia
- Eastern Coal Council - USA
- Power Finance Corporation Ltd., India
- Energy Development Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Mintek Dendrill Indonesia
- Asmin Koalindo Tuhup - Indonesia
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Miang Besar Coal Terminal - Indonesia
- Videocon Industries ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Attock Cement Pakistan Limited
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- Port Waratah Coal Services - Australia
- Xindia Steels Limited - India
- Singapore Mercantile Exchange
- Global Coal Blending Company Limited - Australia
- Bhushan Steel Limited - India
- Price Waterhouse Coopers - Russia
- Mercuria Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Electricity Generating Authority of Thailand
- Heidelberg Cement - Germany
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Bulk Trading Sa - Switzerland
- Agrawal Coal Company - India
- Kartika Selabumi Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- CNBM International Corporation - China
- Banpu Public Company Limited - Thailand
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Chamber of Mines of South Africa
- PNOC Exploration Corporation - Philippines
- Romanian Commodities Exchange
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Mineral Development Corp Ltd - India
- Formosa Plastics Group - Taiwan
- Altura Mining Limited, Indonesia
- Medco Energi Mining Internasional
- Orica Australia Pty. Ltd.
- Bayan Resources Tbk. - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Aditya Birla Group - India
- Coastal Gujarat Power Limited - India
- London Commodity Brokers - England
- PetroVietnam Power Coal Import and Supply Company
- Cement Manufacturers Association - India
- CIMB Investment Bank - Malaysia
- Kideco Jaya Agung - Indonesia
- Goldman Sachs - Singapore
- Karaikal Port Pvt Ltd - India
- Posco Energy - South Korea
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ASAPP Information Group - India
- Simpson Spence & Young - Indonesia
- ICICI Bank Limited - India
- Tamil Nadu electricity Board
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Coalindo Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Eastern Energy - Thailand
- Parliament of New Zealand
- Latin American Coal - Colombia
- Rio Tinto Coal - Australia
- Kobexindo Tractors - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Indian Oil Corporation Limited
- Minerals Council of Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Salva Resources Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Coal and Oil Company - UAE
- Bangladesh Power Developement Board
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- SMC Global Power, Philippines
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Pipit Mutiara Jaya. PT, Indonesia
- AsiaOL BioFuels Corp., Philippines
- PTC India Limited - India
- Star Paper Mills Limited - India
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- The State Trading Corporation of India Ltd
- Semirara Mining Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Barasentosa Lestari - Indonesia
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
- Meralco Power Generation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Manunggal Multi Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Madhucon Powers Ltd - India
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Riau Bara Harum - Indonesia
- Timah Investasi Mineral - Indoneisa
- Oldendorff Carriers - Singapore
- Directorate Of Revenue Intelligence - India
- Cigading International Bulk Terminal - Indonesia
- Australian Coal Association
- Alfred C Toepfer International GmbH - Germany
- New Zealand Coal & Carbon
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ministry of Mines - Canada
- Kapuas Tunggal Persada - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indonesian Coal Mining Association
- Indo Tambangraya Megah - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- Indian Energy Exchange, India
- Uttam Galva Steels Limited - India
- Wood Mackenzie - Singapore
- India Bulls Power Limited - India
- Sindya Power Generating Company Private Ltd
- Bukit Baiduri Energy - Indonesia
- Independent Power Producers Association of India
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jorong Barutama Greston.PT - Indonesia
- Mjunction Services Limited - India
- Globalindo Alam Lestari - Indonesia
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Vizag Seaport Private Limited - India
- Ministry of Transport, Egypt
- Antam Resourcindo - Indonesia
- Kumho Petrochemical, South Korea
- International Coal Ventures Pvt Ltd - India
- GMR Energy Limited - India
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Planning Commission, India
- Standard Chartered Bank - UAE
- Jindal Steel & Power Ltd - India
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