Financing options will be needed for Ballast Water Treatment systems

Malcolm Latarche
Malcolm Latarche

14 June 2018


When the time comes for shipowners to fit systems, finance as much as yard capacity will be an obstacle that will need to be overcome. System prices have probably fallen somewhat from the high levels of early days on account of the increased competition in the market and improved technologies. Even so the cost to comply will be high and at a time when fuel prices are increasing and with the cost of meeting the 2020 sulphur cap also looming.

Although owners have no options but to comply unless they can take advantage of a same risk areas exemption – none of which have yet been established – or a port treatment facility some of which could be established before the final deadline passes, many will need assistance with finance. Finance for any purpose has been difficult to come by for all but a few owners in recent years and perhaps the best hope will be for schemes offered by manufacturers themselves backed up by export credit guarantees.

An alternative could be a leasing arrangement such as that offered by US-based FloLease. Thomas Lillig of LTK Maritime Consultancies and agent for FloLease told ShipInsight that an owner which could provide appropriate references could possibly benefit from a lease of up to 10 years. A shorter lease option is available for older vessels allowing them to operate to end of life.

With a five to ten-year lease, it would be the owner’s decision on how to structure the lease. Usually this involves a partnership between shipowner, manufacturer and FloLease, with each partner making commitments and having responsibilities; The shipowner agrees to operate and maintain the equipment as recommended by the vendor and according to regulatory bodies and the system supplier, supports the equipment throughout the term of the lease by a service agreement guaranteeing to promptly resolve any issues.

As well as providing the necessary finance, FloLease will constantly monitor the system throughout the leasing term, via its Satellite Data Hub, which transfers all system inconsistencies, alerts and alarms to a remote monitoring centre and instantly reports any issue to both the owner and supplier of the system.

Waiting for approvals

The change to the G8 type-approval process aimed at making it more robust is almost certainly a reason why owners are reluctant to commit to new systems leaving aside all of the financial considerations. True or not there is plenty of anecdotal evidence of systems not performing as anticipated so shipowners’ preference to hang fire until the systems are re-evaluated to the new rules. As things stand, just two manufacturers – Alfa Laval and Sunrui have achieved type approval according to the new rules.

Almost certainly the number of systems approved to the new standards will grow. The early approvals will have an advantage over existing systems as they will likely be perceived as being more robust. No doubt shipowners also have concerns over how system limitations will be dealt with by port states. The IMO accepts that the next few years will be experience building and there is no guarantee that port states will be lenient in dealing with discharges that do not meet the D2 standard.

One reason often advanced by shipowners to justify delaying installation is the lack of systems with US type-approval. Almost 70 systems have so far been approved under the IMO’s original G8 process but only six have achieved US type-approval. There are another seven systems that have applied type-approval and several more system makers have intimated that they will be making applications this year.

Operators of large vessels such as tankers and bulkers have argued that the rate of ballasting needed for their ships limits the systems available. Of those currently type approved by the USCG, only the Ecochlor system has a capacity above 10,000m3/h. Its 16,200m3/h should satisfy most demands but the next in capacity terms are the Sunrui BalClor system of 8,500m3/h and the TeamTec OceanSaver with 7,200m3/h which may fall short for the very largest vessels. For the systems awaiting USCG type-approval, Techcross’ Electro-Cleen (12,000m3/h), Samsung’s Purimar (10,000m3/h) and De Nora’s Balpure (7.500m3/h) are the largest.

US changes may add new challenges

One of the reasons why the original IMO type approval process was considered flawed was that it did not appear to be as robust as the USCG version. That was evidenced by the fact that the first US type approvals were granted as recently as December 2016 when the IMO process had already seen more than 60 systems approved. The IMO approved systems were eligible to apply for the temporary AMS status and the majority did do this.

Now changes in USCG policy may introduce new challenges in aligning compliance between US and IMO regulations, according to Evon Li, Senior Engineer, Advisory Services, ABS.

After many years of delays, ballast water discharge regulations globally and in the US are finally becoming real for shipowners. While the IMO has agreed to some limited delays in entry into force of the 2004 convention, USCG policy is evolving from implementation of its discharge requirements to enforcement.

Shipowners trading in US waters have until recently been able to defer installation of a system on existing vessels by obtaining a USCG extension. Vessels with dry docking in 2016 or 2017 were previously able to obtain an extension to the next scheduled dry docking in five years’ time due to insufficient availability of USCG type-approved systems.

However, based on the recently-published USCG NVIC 01-18 circular, shipowners can no longer rely on this system of extensions to delay implementation. The USCG has indicated that the six systems already approved should be able to cover nearly all classes of vessels and are compatible with a broad range of operational requirements.

The timescale has become very limited – with a duration of a year or less from the date of an upcoming drydock – unless there are extraordinary circumstances justifying more than 12 months’ extension. For vessels with dry dock in 2018, the extension period has been reduced to 30 months from five years due to the increasing number of USCG approved systems available.

These changes could become problematic for shipowners and operators of ‘mid-life’ vessels who are trying to align USCG compliance with the later IMO D-2 compliance date for commercial reasons. Vessels drydocked in 2016, as well as those with scheduled drydocking through 2018, with extensions, are in a better position to align US and IMO compliance dates. Vessels with scheduled drydocking in 2019 onwards are unlikely to align the two, meaning they would need to opt for earlier installation of a system.

These points should be taken into account when planning for the installation and execution of retrofit projects. In addition to selecting the right system, owners are faced with making decisions on their retrofit plan which can also include developing compliance timelines, extension requests, crew training and other necessary steps to meet the requirements.

To help clients understand their options and obligations for compliance with IMO and USCG regulations, since 2015 ABS has offered a BWMS Technology Evaluation service, supporting shipowners during the transition and in the evaluation of a system that is suitable for their vessels.

The ABS service covers two key aspects; pre-selection or shortlisting of suitable system and support for requesting USCG extensions. For the former, an interactive, multi-phase process uses an extensive database of systems including technologies, design capabilities/limitations, installation requirements, power requirements, operating considerations and restrictions on equipment use.

The USCG extension support service aims to assist clients in understanding their current situation and provides guidance for applying for a USCG extension.