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Law firm Reed Smith tackles critical questions on EU ETS in maritime sector

Nick Austin of Reed Smith addresses issues regarding EU ETS including which party is responsible for the cost of this scheme in a chartering contract and the recent list published showing which shipping companies have been allocated to which Member State’s Administering Authority within the EU ETS.

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RESIZED Shaah Shahidh on Unsplash

Nick Austin, transportation partner at global law firm Reed Smith, on Thursday (15 February) shared with bunkering publication Manifold Times his view on how the maritime operator holding account works which is required to submit allowances under the EU Emissions Trading System (EU ETS), which party is responsible for the cost of this scheme in a chartering contract, and a list published showing which shipping companies have been allocated to which Member State’s Administering Authority within the EU ETS:

It’s a brave new world for the maritime sector. Obviously, the EU ETS has been around for many years in other industries but it’s new to shipping from this year, with the recent inclusion of shipping in the EU ETS since 1 January. This is bringing with it significant implications as the EU continues to unveil new details, rules, and regulations on a regular basis.

Presently, the EU ETS covers ships of over 5000 tons, placing obligations on entities known as 'shipping companies’ – In the coming weeks, these companies will need to set up a Maritime Operator Holding Account (MOHA) to comply with the evolving framework. The key responsibility lies in surrendering allowances corresponding to carbon emissions by September 30 each year, with verification required in the preceding March.

There are no free allowances being made available but instead a phase-in has been offered on the allowances that need to be surrendered. For 2024, it is 40% only of those emissions from intra EU voyages, and 20% from an EU port to a non-EU port or vice versa. Over time, these percentages will increase to 100% of emissions.

The scheme will also start tightening in terms of the vessels covered, including to offshore vessels. And the commercial consequences are significant – there are various estimates flying around of the additional cost to the industry of ETS - some have said it could be up to USD 100,000 for a US Gulf Coast to EU round trip in the tanker sector. Cruise ships will be hit particularly hard because their energy consumption needs tend to mean higher emissions.

There are significant implications for the chartering market – how does it all work in the complex contractual structures and who is going to pay?

A maritime publication recently reported that no owner or registered manager has been able to open a MOHA thus far.

An important question is how do you allocate the cost of this scheme in a chartering contract?

The starting point is the rules – the ‘shipping company’ is defined as the registered owner, or another company that has essentially assumed the running of the ship. That is going to be the bareboat charterer or a ship manager, either of whom can be the ‘shipping company’. 

It was originally thought this would happen automatically, in other words that if you were the bareboat charterer or the ship manager you could just set up an account – and that was the accepted view. However, it is now clear that the registered owner needs to produce a written mandate to the bareboat charterer or ship manager authorising it as the “shipping company” responsible for EU ETS compliance. So, in order to open a MOHA, the delegate will need a document that says ‘I am mandating the bareboat charterer or the ship manager to comply with these obligations’.

The second layer to this is the cost of compliance. It will vary from ship to ship, and place to place. Who is paying? The rules again tell you what happens, to an extent. 

The Member State associated with the “shipping company”, and where it must open a MOHA, must be identified. This Member State is required to enact legislation enabling the shipping company to recover the costs associated with surrendering EU ETS allowances from the party effectively directing the ship, purchasing the fuel or determining the cargo carried. This will include time and voyage charterers.

What I am seeing a great deal of is work and active discussion around the clauses in time charter parties, and to a lesser extent voyage charters where the contractual scheme is different and usually shorter in time. This means thinking about, through appropriate clauses, the allocation and mechanics of getting the charterer to pay the owner back for the cost of the allowances that they will have to submit every 30 September. And those clauses come in different shapes and sizes. They’re more complex in time charters because of the nature of that contractual arrangement.

Essentially, a time charterer must pay the shipping company for the cost of the allowances, either by opening its own account and transferring allowances in time for the shipping company to surrender them, or through an equivalent payment with hire, which means less administration for the charterers.

On 31 January 2024, the European Commission published a list showing which shipping companies have been allocated to which Member State’s Administering Authority within the EU ETS and in which the shipping companies must register to open a MOHA.  

However, the list has been described by some as “a mess”. It was created by an algorithm using a database of companies who were already reporting emissions in the EU under different rules. But the list lacks a consistent approach and contains owners, operators and managers with, in many cases, no obvious connection to the Member State assigned to them, creating several uncertainties and more questions.

The EU’s approach to producing the list has led to some countries accumulating a substantial number of companies assigned to them, notably Spain. But there may be a pressing need for those on the list to act swiftly, given that within 40 working days from 31 January, a crucial deadline for the registration of a MOHA looms – the clock is ticking.

However, challenges to the opening of a MOHA remain in Member States that are not as digitally advanced as others, adding another layer of intricacy to an already complex situation.”

 

Photo credit: Shaah Shahidh on Unsplash
Published: 20 February, 2024

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Winding up

Singapore: Annual general meetings scheduled for Xihe Holdings subsidiary

Annual general meetings will be held on 26 April for Xin Bo Shipping to receive an update on firm’s liquidation, according to Government Gazette notice.

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RESIZED Jo_Johnston from Pixabay

A notice was published on the Government Gazette on Thursday (11 April) regarding the annual general meetings to be held on 26 April for Xihe Holdings subsidiary Xin Bo Shipping (Pte) Ltd.

Annual general meetings for Xin Bo Shipping are to be held at the following times:

For the company: 2pm
For the creditors: 3pm

The agenda for all the meetings are:

  1. To receive an update on the liquidation.
  2. To receive an account of the Liquidators’ acts and dealings, and of the conduct of the winding up.

The following are the details of the liquidator:

Ho May Kee
Liquidator
c/o 8 Marina View
#40-04/05 Asia Square Tower 1
Singapore 018960

Xihe Holdings Pte Ltd and its subsidiaries are owned by the Lim family, who are also the owners of the embattled Hin Leong Trading.

Related: Singapore: Xihe Holdings subsidiaries Xin Bo Shipping, An Guang Shipping to be wound up
Related: Singapore: Creditors to file debt claims for Xin Bo Shipping by 14 June
Related: Xihe Holdings subsidiary Xin Bo Shipping placed under judicial management
Related: JMs of An Guang Shipping and other Xihe subsidiaries call for creditors meeting

 

Photo credit: Jo_Johnston from Pixabay
Published: 12 April 2024

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Crime

Malaysia: MMEA seizes tugboat and tanker lorry for illegal fuel transfer

MMEA successfully apprehended a Myanmar national who was captain of ship and four crew members comprising two Indonesians, one Myanmar national and a local citizen, as well as a tanker lorry driver.

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Malaysia: MMEA seizes tugboat and tanker lorry for illegal fuel transfer

The Tawau Malaysian Maritime Enforcement Agency (MMEA) on Tuesday (9 April) detained a tugboat and a tanker lorry that were found to be carrying out an illegal fuel transfer in the waters of Tanjung Batu, Tawau.

MMEA Tawau Zone Director Shahrizan Raman said patrol boats received information from Tawau Maritime Zone intelligence unit regarding the operation at Komsa Tanjung Batu jetty at around 2.10 am.

Patrol boats that arrived at the scene found a tanker lorry on the jetty transferring about 10,000 litres of fuel to a tugboat.

Malaysia: MMEA seizes tugboat and tanker lorry for illegal fuel transfer

During the raid, MMEA successfully apprehended a Myanmar national who was the ship captain and four crew members comprising two Indonesians, one Myanmar national and a local citizen. The tanker lorry driver, a local, was also arrested in the operation.

All suspects were men and aged 32 to 57 years. MMEA added an inspection of their documents found no authorisation permits related to the fuel transfer activity.

MMEA said the boat and tanker lorry were seized with their fuel cargo before being escorted to the Tawau Maritime Zone Jetty for further investigation.

Malaysia: MMEA seizes tugboat and tanker lorry for illegal fuel transfer

The value of the seized items and fuel was estimated to be almost MYR 250,000.

This case is being investigated under the Customs Act 1967, Control of Supplies Act 1961 and Petroleum Development Act 1974. 

 

Photo credit: Malaysian Maritime Enforcement Agency
Published: 15 April 2024

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Winding up

Singapore: White Flag Ventures XXXIII to undergo voluntary wind up

A liquidator was appointed for the company at an extraordinary general meeting held on 28 March, according to Government Government notice.

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RESIZED Drew Beamer

Several resolutions for White Flag Ventures XXXIII Pte Ltd were made during an extraordinary meeting held on 28 March, according to a post in the Government Gazette on Thursday (4 April).

The meeting was held at 10 Collyer Quay, #29-01/05 Ocean Financial Centre, Singapore 049315.

The duly passed resolutions were:

As Special Resolutions

  • That the Company be wound up voluntarily pursuant to Section 160(1)(b) of the Insolvency, Restructuring and Dissolution Act 2018.That pursuant to Sections 177(1)(a) and 177(1)(b) of the Insolvency, Restructuring and Dissolution Act 2018, the Liquidator be and is hereby authorised to exercise any or all of the powers given to a Liquidator by Sections 144(1)(b), (c), (d), (e), (f), (g) and 144(2) of the Insolvency, Restructuring and Dissolution Act 2018.
  • That the appointed Liquidator be and is hereby authorised to divide all or such part of the surplus assets of the Company as he shall think fit among the shareholders of the Company in specie or otherwise, in accordance with their existing rights and interests.

As Ordinary Resolutions

  • That Mr Ng Hoe Kiat Keith c/o 7500A Beach Road, #05-303/304 The Plaza, Singapore 199591 be and is hereby appointed as Liquidator for the purpose of winding-up.
  • That the remuneration of the Liquidator be based on his normal scale of professional fees plus disbursements and that the Liquidator’s fees be paid out of the assets of the Company.

 

Photo credit: Drew Beamer
Published: 9 April 2024

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