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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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Monday, 09 March 20
OPEC+ 'NO DEAL' A BLOW TO THE MARKET - WOOD MACKENZIE
Speaking after today’s OPEC+ meeting broke up, Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said: “Today’s o ...
Monday, 09 March 20
KOREA EAST-WEST POWER INVITED BIDS FOR 150,000 MT OF MIN 4,400 - MAX 5,499 NAR COAL
COALspot.com: KOREA EAST-WEST POWER CO. LTD. of South Korea has issued an international tender for total 150,000 MT of LCV coal for May – Jun ...
Sunday, 08 March 20
SUPRAMAX: A 55,000DWT VESSEL FIXING DELIVERY FROM EAST KALIMANTAN FOR A TRIP TO VIETNAM AT $9,100 - BALTIC BRIEFING
SUPRAMAX/ULTRAMAX - A 56,000DWT VESSEL FIXED DELIVERY SOUTH CHINA TRIP VIA INDONESIA, REDELIVERY EAST COAST INDIA, IN THE $6,000S
SUPRAMAX/U ...
Friday, 06 March 20
CHINA RESUMES 83.4 PCT COAL PRODUCTION CAPACITY AMID EPIDEMIC - XINHUA
China has resumed 83.4 percent of its coal production capacity amid the fight against the novel coronavirus outbreak, the National Energy Administr ...
Friday, 06 March 20
COLOMBIAN COAL OUTPUT FELL 2% IN 2019 - REUTERS
Coal production in Colombia, the fifth-largest coal exporter in the world, fell 2% to 82.2 million tonnes in 2019 after output at one of the princi ...
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- Alfred C Toepfer International GmbH - Germany
- Dalmia Cement Bharat India
- Iligan Light & Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Interocean Group of Companies - India
- Global Coal Blending Company Limited - Australia
- CNBM International Corporation - China
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- London Commodity Brokers - England
- OPG Power Generation Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- Maharashtra Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Intertek Mineral Services - Indonesia
- Kaltim Prima Coal - Indonesia
- Bhatia International Limited - India
- Rashtriya Ispat Nigam Limited - India
- Orica Australia Pty. Ltd.
- Pendopo Energi Batubara - Indonesia
- Parry Sugars Refinery, India
- San Jose City I Power Corp, Philippines
- Wood Mackenzie - Singapore
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Minerals Council of Australia
- Aboitiz Power Corporation - Philippines
- Indika Energy - Indonesia
- Heidelberg Cement - Germany
- Baramulti Group, Indonesia
- Ministry of Finance - Indonesia
- SMG Consultants - Indonesia
- Parliament of New Zealand
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- Georgia Ports Authority, United States
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Medco Energi Mining Internasional
- Simpson Spence & Young - Indonesia
- The University of Queensland
- Deloitte Consulting - India
- Essar Steel Hazira Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- Madhucon Powers Ltd - India
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Coalindo Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- Siam City Cement - Thailand
- Global Business Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- South Luzon Thermal Energy Corporation
- Kepco SPC Power Corporation, Philippines
- Tamil Nadu electricity Board
- Neyveli Lignite Corporation Ltd, - India
- Economic Council, Georgia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Borneo Indobara - Indonesia
- Maheswari Brothers Coal Limited - India
- Agrawal Coal Company - India
- The State Trading Corporation of India Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Jindal Steel & Power Ltd - India
- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- Energy Development Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Sakthi Sugars Limited - India
- Bayan Resources Tbk. - Indonesia
- Posco Energy - South Korea
- India Bulls Power Limited - India
- Price Waterhouse Coopers - Russia
- Eastern Energy - Thailand
- Banpu Public Company Limited - Thailand
- Directorate Of Revenue Intelligence - India
- Mjunction Services Limited - India
- Mintek Dendrill Indonesia
- Africa Commodities Group - South Africa
- Tata Chemicals Ltd - India
- Oldendorff Carriers - Singapore
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Straits Asia Resources Limited - Singapore
- Salva Resources Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- New Zealand Coal & Carbon
- Vizag Seaport Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Therma Luzon, Inc, Philippines
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- The Treasury - Australian Government
- Sinarmas Energy and Mining - Indonesia
- Makarim & Taira - Indonesia
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Power Finance Corporation Ltd., India
- Merrill Lynch Commodities Europe
- Petron Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Barasentosa Lestari - Indonesia
- Mercator Lines Limited - India
- GMR Energy Limited - India
- Binh Thuan Hamico - Vietnam
- PTC India Limited - India
- TeaM Sual Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Energy Exchange, India
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- Karbindo Abesyapradhi - Indoneisa
- Australian Commodity Traders Exchange
- Star Paper Mills Limited - India
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Gujarat Mineral Development Corp Ltd - India
- IHS Mccloskey Coal Group - USA
- Trasteel International SA, Italy
- Antam Resourcindo - Indonesia
- Altura Mining Limited, Indonesia
- Sical Logistics Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Indian Oil Corporation Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Independent Power Producers Association of India
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Bulk Trading Sa - Switzerland
- Central Electricity Authority - India
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- European Bulk Services B.V. - Netherlands
- Xindia Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- White Energy Company Limited
- Bharathi Cement Corporation - India
- Carbofer General Trading SA - India
- Latin American Coal - Colombia
- Global Green Power PLC Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Timah Investasi Mineral - Indoneisa
- Sarangani Energy Corporation, Philippines
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Australian Coal Association
- Mercuria Energy - Indonesia
- Coal and Oil Company - UAE
- Ministry of Transport, Egypt
- Chettinad Cement Corporation Ltd - India
- Gujarat Sidhee Cement - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- SN Aboitiz Power Inc, Philippines
- IEA Clean Coal Centre - UK
- Coastal Gujarat Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- Cement Manufacturers Association - India
- Asmin Koalindo Tuhup - Indonesia
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- Uttam Galva Steels Limited - India
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Lanco Infratech Ltd - India
- Anglo American - United Kingdom
- ICICI Bank Limited - India
- Thiess Contractors Indonesia
- International Coal Ventures Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Larsen & Toubro Limited - India
- Miang Besar Coal Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Marubeni Corporation - India
- LBH Netherlands Bv - Netherlands
- Planning Commission, India
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- GAC Shipping (India) Pvt Ltd
- Metalloyd Limited - United Kingdom
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Chamber of Mines of South Africa
- Ind-Barath Power Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
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