(www.MaritimeCyprus.com) Selling or buying ships under FuelEU Maritime introduces challenges for both buyers and sellers. The regulation adds complexity to the process, from managing compliance balances to ensuring compliance responsibility between both parties. This article explores the regulatory requirements for ship sales, highlights potential risks, and includes a practical example.
The ISM company that sells or transfers responsibility for the ship to another party must report the data relevant under FuelEU Maritime (defined under Article 15(1)) to its verifier, this is stated in Article 15(4)(a):
“the transferring company shall notify to the verifier the information referred to in paragraph 1 of this Article for the time during which it had responsibility for the operation of the ship”
“as close as practical to the day of completion of the transfer and no later than one month thereafter, the information referred to in point (a) shall be verified and recorded in the FuelEU database in accordance with Article 16 by the verifier that performed verification activities for the ship under the transferring company”
The ISM company that buys the ship must update the ship’s monitoring plan after the takeover as per Article 9(2)(a).
Ensure timely submission of compliance data up to the sale date to your verifier
Clarify compliance responsibilities in the sales contract
Clarify surplus ownership in the sales contract
Receive access to compliance data (preferably validated, at best verified) before purchase
Address potential liabilities related to prior non-compliance in the sales contract
Clarify surplus ownership in the sales contract and potential existing pooling obligations
Clarify any banked or borrowed surplus from previous compliance periods
To illustrate these challenges, let’s consider a scenario where a ship is sold after four months of a reporting period under FuelEU Maritime. The seller must calculate and report its compliance balance, and the buyer must determine the steps to ensure compliance for the remainder of the year.
Required Pre-Sale Details for Assessment:
Fuel consumption Pre-Sale: 3,000 t HFO
Reporting Period Pre-Sale: 4 months
Banked compliance surplus: 0 g CO2e
Borrowed compliance surplus: 0 g CO2e
GHG Intensity Pre-Sale: 91.601 g CO2e/MJ
Compliance Balance Pre-Sale: -275,100,300.00 g CO2e
Biofuel required for compliance Pre-Sale: 125.98 t
Projected EOY GHG Intensity: 91.422 g CO2e/MJ
Projected EOY Compliance Balance: -724,858,260.00 g CO2e
Projected EOY Biofuel required for compliance: 331.94 t
The ship will generate a deficit, leaving the buyer with three main options for compliance: (a) paying the penalty, (b) bunkering alternative fuel, or (c) pooling. Omitting option (a) due to its commercial implications, the buyer is left with (b) and (c). In both cases, several questions and considerations must be made:
For alternative fuel:
Does the vessel have the technical ability to bunker a certain alternative fuel?
Is FuelEU-compliant alternative fuel accessible on the vessel’s future route?
If so, how do I price the current deficit in the purchase?
For pooling:
Who has the pooling rights for the vessel?
Is the vessel already part of a pooling agreement for the current compliance period?
If so, how do I price the current deficit in the purchase?
Due Diligence: Buyers should request detailed compliance data before finalizing the purchase, including at least the data points provided in the above example case. Verified or, at minimum, validated data is to be preferred.
Contractual Terms: To prevent disputes, sales contracts should address surplus ownership, compliance responsibilities, and liabilities.
Pooling: Buyers must have visibility into potentially existing pooling commitments and ensure contractual provisions regarding pooling rights.
Source: BetterSea
