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