friday, october 30, 2018, world trade centre, cuffe parade ...€¦ · world trade centre, cuffe...

Presented by

Shardul J. Thacker

Partner

Mulla House, 51 M.G . Road, Fort, Mumbai 400 001, India. Tel: (+91 22) 2204 4960 / Fax: (+91 22) 2204 0246

Email: [email protected]; [email protected]

Mulla & Mulla & Craigie Blunt & Caroe Advocates, Solicitors and Notaries

Shardul Thacker©

“Sulphur Cap Ahead - Regulatory" Friday, October 30, 2018,

World Trade Centre, Cuffe Parade, Mumbai at

India Bunkering and Marine Lubes Conference

Firm’s Founder Sir Dinshah Mulla’s statue

Front lawns Bombay High Court

mailto:[email protected]

mailto:[email protected]


• The International Maritime Organization (IMO) has

set a limit of 0.50% m/m (mass by mass) for sulphur

in fuel oil used on board ships operating outside

designated Emission Control Areas (ECAs)

(Regulation 14 of MARPOL Annex VI) with effect

from 1st January 2020. with benefits for the

environment and human health.

• The marine sector, which consumed 3.8 million

barrels a day of fuel oil in 2017, is responsible for half

of global fuel oil demand. This fuel has a sulphur

content upto 3.5 wt% making it a high-sulphur fuel.

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Implementation of Sulphur 2020 limit under IMO’s MARPOL - 397 days from now

Sulphur Cap - 2020

Shardul Thacker©


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ECAs: The Baltic sea area, the North sea area, the north-American area (covering

designated coastal areas off the USA and Canada) and the US-Caribbean sea area

(around Puerto Rico and the United States Virgin Islands)

Shardul Thacker©


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Outside an ECA established to

limit SOx and particulate matter

emissions

Inside an ECA established to limit

SOx and particulate matter emissions

4.50% m/m prior to 1 January

2012

1.50% m/m prior to 1 July 2010

3.50% m/m on and after 1

January 2012

1.00% m/m on and after 1 July 2010

0.50% m/m on or after 1 January

2020

0.10% m/m on and after 1 January

2015

• The new compliance would require reduction of the sulphur

emissions of over 80% i.e. 3.5 wt% to 0.5 wt% making it

the largest reduction in sulphur content of transportation

fuel at one time.

• Below table provides the implementation schedule to limit

Sulphur content in fuel oil used on board ships. Sulphur Cap - 2020


Shardul Thacker©


• The 1 January 2020 implementation date was adopted

in 2008 and confirmed by IMO in October 2016, giving

certainty to refineries, bunkering and shipping sectors.

• Enforcement, compliance with and monitoring of the

new sulphur limit is the right and responsibility of

States Party to MARPOL Annex VI.

• The Marine Environment Protection Committee

(MEPC) adopted a complementary MARPOL

amendment, which will prohibit the carriage of non-

compliant fuel oil - unless the ship has an exhaust gas

cleaning system (“scrubber”) fitted.

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Sulphur Cap - 2020


Shardul Thacker©


• The effective date of the requirement (1st January

2020) was adopted at the 70th session of MEPC on

28th October 2016 vide Resolution MEPC.280 (70).

• Subsequently during the last session of the IMO’s

Sub-Committee on Pollution Prevention and

Response (PPR) in February 2018, it was brought to

the attention of all Member States that the set

effective date when sulphur limit in fuel oil must not

exceed 0.50% will remain unchanged and that there

should be no “transitional period” that could

postpone this implementation either.

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Sulphur Cap - 2020


Shardul Thacker©

• Under the new global limit, ships will have to use

fuel oil on board with a sulphur content of no

more than 0.50% m/m, against the current limit of

3.50%, which has been in effect since 1st

January 2012.

• The interpretation of “fuel oil used on board”

includes use in main and auxiliary engines and

boilers. Exemptions are provided for situations

involving the safety of the ship or saving life at

sea, or if a ship or its equipment is damaged.


Sulphur Cap - 2020

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Indian Regulations - DG Shipping’s Circular No.5 of 2018, dated 3/10/18


Purpose of circular is to provide guidance to Indian

shipowners for the ships to demonstrate

compliance with MARPOL Annex, Regulation

14.1.3.

Circular is applicable to

(i) seagoing ships registered under MS Act, 1958

– all Indian flag vessels.

(ii) All Indian control tonnage.

(iii) all bunker suppliers registered with GOI in

accordance with Regulation 18 of MARPOL

Annexure VI.

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Sulphur Cap - 2020

Shardul Thacker©


• Regulation 14 of MARPOL Annex VI sets a 0.50%

max limit of the sulphur content in respect of all

fuel oils used by any type of combustion

machinery outside Emission Control Areas

(ECAs) from 1st January 2020, down from 3.50%

m/m currently.

• In ECAs the limit remains, as it has been since 1st

January 2015, i.e. 0.10% m/m max limit of the

sulphur content.

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Sulphur Cap - 2020

Shardul Thacker©


• The 0.50% requirement will be enforced globally by Port

State Control (PSC) authorities and locally by Indian

Administration surveyors. The PSC authorities will be

assisted by special enforcement provisions.

• Prohibition on the carriage of non compliant fuels, Fuel

Oil Non Availability Reporting & sulphur verification

procedures- IMO-MEPC73 – 22-26 October 2018.

• The interpretation of “fuel oil used on board” includes use

in main and auxiliary engines and boilers.

• The Circular also deals with ships fitted with scrubbers

and its maintenance.

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Sulphur Cap - 2020

Shardul Thacker©


Responsibility of Ship Owner

• ISM Code requires Companies to assess all identified risks

to its ships, personnel and the environment and establish

appropriate safeguards.

• To meet this requirement all shipping companies are

required to develop a ship specific implementation plan

based on a risk assessment and guidance developed by

IMO.

• For non-ISM ships, the companies to develop the plan and

same to be verified by RO, in the next due date of Annual

survey falling on or after 09/2019.

• A suitable Memo to the above effect to be inserted in

the Class status by relevant Classification Societies.

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Sulphur Cap - 2020

Shardul Thacker©


Responsibility of approved Bunker Suppliers

• The Bunker supplier should ensure that fuel

supplied to ships apart from meeting the

requirements of Regulation 18 of MARPOL Annex

VI has a sulphur content not exceeding 0.5% m/m.

• In case of ships fitted with Exhaust Gas Scrubbers

(EGS), the bunker supplier can supply fuel with

sulphur content more than 0.5% m/m only after

ensuring fitment of EGS from “Supplement to

International Air Pollution Prevention Certificate”

issued by vessel Flag or RO. A copy of the same

has to be retained in records.

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Sulphur Cap - 2020

Shardul Thacker©


• The Azura, perhaps the largest P&O cruise ship,

with a passenger capacity of 3100 and 1250 crew

members, had purchased 900 tonnes of Bunker

fuel in Barcelona in March 2018 before sailing to

Marseille, France’s biggest port.

• After a spot check, by the Port State Control

Inspection of the Azura, at Marseille, possibly the

busiest cruise destination port in the

Mediterranean, it was reported that bunker fuel

containing 1.68% Sulphur above the European

limit of 1.5%, an Eu regulation which became

effective in 2015.

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French court fines P&O American cruise ship captain on 26/11/18

for breaching pollution limits in landmark ruling

Shardul Thacker©


• Capt. Evans Hoyt was prosecuted on 9th July,

2018 on the basis of his knowledge that the fuel

was illegal as it breached the EU limits.

• According to the EU Sulfur Directive

(http://www.emsa.europa.eu/main/air-

pollution/sulphur-directive.html 'passenger ships

operating on regular services to or from any EU

port shall not use marine fuels if their sulphur

content exceeds 1.5% in sea areas outside the

SECAs’.

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Shardul Thacker©

http://www.emsa.europa.eu/main/air-pollution/sulphur-directive.html
















• Prosecutor Franck Legier submitted that P&O

“wanted to save money at the expense of

everyone’s lungs” he calculated that the P&O

had saved Euros 21,000 by buying higher

sulphur diesel, Bunker fuel also known as

heavy fuel oil, one of the most polluting

transportation fuels, high in sulphur, which

when burnt causes respiratory problems and

acid rain.

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Shardul Thacker©

P&O’s defence –

• EU rules unfairly distinguished between cruise

ships and cargo vessels.

• Azura was not operating regular services to and

from Marseille as EU Regulations apply only to

regular services.

• French Environmental Ministry had explicitly

informed the cruise industry that regulations would

not apply to cruise ships.

• Captain was using fuel in good faith.




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Shardul Thacker©

• The judge handed Mr Hoyt, a fine of €100,000 on 26th

November, 2018, but specified that P&O's parent

company, US-based cruise giant Carnival, pay €80,000 of

the sum.

• The prosecution was intended by authorities to signal a

new intent to tackle pollution from cruise ships and has

shone a spotlight on practices in the multi-billion-euro

cruse industry.

--------------

• Interestingly, no action is yet taken against the Bunker

supplier at Barcelona by the Spanish Authorities even

though same EU regulations applicable to Bunker

suppliers.




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Shardul Thacker©


• Risks emerging out of the following points in

cases of non-compliance need to be assessed:

Contractual liabilities under charterparties vis-

à-vis different claim heads;

Sanctions and fines;

Insurance

Trade flows

Enforcement

• Similarly, cost implications vis-à-vis availability

of compliant fuels and enforcement options are

to be taken into consideration.

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Risk & Cost Analysis

Shardul Thacker©

Impact on Charterparties


• Time Charterparties, especially long term

Charterparties that extend beyond 1st January

2020 would have to timely reviewed and

renegotiated.

• Not only Bunker clauses would have to be

reviewed, even other clauses, since method

of compliance would have to be streamlined.

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Shardul Thacker©


• The issues that could impact in a Charterparties:

(i) DEFINITION OF COMPLIANT FUEL.

Between now and 2020 and post 2020 in a

long term charter.

(ii) Definition of “the term” LOW SULPHUR to

be in sinc with “within and outside the ECA”.

(iii) Carriage of non compliant fuel on delivery of

vessel:

(a) Removal – who will remove? Who will

pay?

(b) Logistical problems of removal.

(c) Re-sale value. Who will own the non

compliant fuel?

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(iv) Bunkers on redelivery:

BOR clause specifically to be defined for adjusting

High Sulphur fuel, if vessel not fitted with scrubbers.

(v) Can charterer redeliver vessel validly with non

compliant fuel on board to reach a Bunker port?

(vi) Bunker quality clause:

(a) Owners should ensure that the charterer is obliged

to provide fuel of correct specification, safe and

suitable for vessel and MARPOL compliant.

(b) Existing standard form clauses – BIMCO Bunker

Quality and Liability Clause and ISO 8217 are not

suitable, does not cover all fuels (hybrids)

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Shardul Thacker©


• Fuel Availability - Fuel may not be available where

vessel is or can trade

• Review trading limit clauses.

• CP should clarify who is liable: to pay for:

(a) Lost time and expense

(b) Bunker burnt while waiting to bunker during

switching from high fuel to hybrid/ blends/ low

sulphur fuel

(c) Cleaning costs and time lost during cleaning etc.

(d) Procedure for disposal of cleaning material and

cost relating thereto.


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Shardul Thacker©

Performance Warranties:

• Performance could be affected as various

calligraphy values and energy densities could

affect speed of vessel and consumption

Scrubber particulars to be set out in CP:

• Existing CPs unlikely to say who will pay for

scrubber installation.

Voyage Charters:

• Delay or deviation due to bunkering of compliant

bunkers would give rise to damages – who is

liable.



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Shardul Thacker©

Selection of Compliant Fuel: A commercial decision and

factors impacting the same

Compliant Fuel options available post Jan 2020

Residual Distillate Blended

It is anticipated that 0.50% Smax blended fuel oil and 0.10% distillate (as currently used in

ECAs) would be the predominant compliant products initially available.

Ship owner and bunker supplier need to consider the following parameters while determining the

most compliant fuel as per the Sulphur cap 2010:

Local availability of the fuel;

Demand;

Type, time of the voyage;

Are of operation of the ship;

Size of the ship; and

Type of the fuel – critical factors stability, compatibility, viscosity, Sulphur content, acid

number, flashpoint, cat fines, etc.


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Shardul Thacker©

Two different grades of fuel oil should never be bunkered into the same bunker tank;

• If fuels of more than one SOx grade are to be loaded through the same bunker, fuel grade with the

lowest SOx content be loaded first followed by other grades in ascending order of SOx content;

• After delivery of each grade of fuel oil, the bunker hose and lines to be properly blown through.

Care to be taken to avoid any spills during blow through;

• As per the Guidelines for the Sampling of Fuel Oil adopted by IMO (MEPC.96(47)), the MARPOL

sample is always drawn from the receiving ship’s bunker inlet manifold. If a bunker supplier refuses

this arrangement, then a letter of protest should be issued to the supplier and the ship should

independently take and store its own MARPOL sample drawn from the ship’s manifold. Copies of

the letter of protest should be sent to the Port State Control authority and the ship’s flag State. A

copy of the letter of protest should also be kept on board for potential inspections; and

• Where possible, it is recommended that a bunkered fuel oil should not be used until its laboratory

analysis is completed and the results are known and confirmed to be in order.

Best Bunkering Practices

to comply with the SOx cap limit


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Shardul Thacker©

Enforcement challenges

The intended Sulphur emission reductions pose certain important challenges which include:

Legal lacuna

Applicability v. territorial prosecution

Applicability is global (all seas and oceans) whereas the PSCs can prosecute only within their jurisdictions.

Monitoring measures

Alternative measures might be needed – big-data solutions, on-board monitoring equipment and satellites.

Sanctions/fines

There should be uniformity in implementation between PSC and the flag State control.

Imposition of heavier/exemplary fines against all stakeholders – owners, bunker suppliers, charters, etc.

Burden of proof

Onus to be reversed from PSCs/Surveyors to individual stakeholders - owners, bunker suppliers, charters, etc.


25 Shardul Thacker©

India: Indian Refiners to profit from IMO 2020


“As a result of our robust and flexible

configuration, we are also uniquely positioned

to take advantage of emerging opportunities

in view of IMO 2020,” Mukesh Ambani,

chairman and managing director of RIL, said

at the Company’s 41st AGM - LiveMint.

Indian Oil Corp, Bharat Petroleum Corp and

Hindustan Petroleum Corp have also

commenced production of Low Sulphur Fuel

and will equally benefit from IMO 2020.

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Shardul Thacker©

THANK YOU

friday, october 30, 2018, world trade centre, cuffe parade ...€¦ · world trade centre, cuffe...

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