Lim Writes to E.U. Criticizing Emissions System, by Marex

Kitack Lim, IMO Secretary-General.

By MarEx 2017-01-09 17:07:11

IMO Secretary-General Kitack Lim has written to senior European officials expressing his concern that including shipping in the European Union’s emission trading system could undermine efforts to reduce greenhouse gas emissions from shipping on a global basis.

In a letter to Martin Schulz (President of the European Parliament), Jean-Claude Juncker (President of the European Commission) and Donald Tusk (President of the European Council), Lim acknowledged that the E.U. had an ambitious policy for addressing emissions and recognized that Member States might wish to enhance the progress made to date. However, he cautioned against extending the E.U. emissions trading system to include ships.

 “I am concerned that a final decision to extend the E.U. emissions trading system to shipping emissions would not only be premature but would seriously impact on the work of IMO to address greenhouse gas emissions from international shipping,” said Lim. “Inclusion of emissions from ships in the E.U. emissions trading system significantly risks undermining efforts on a global level.”

The letter follows an agreement on December 16, 2016, by the European Parliament’s Environment Committee that emissions from ships should be included in the system from 2023 if the IMO does not deliver a further global measure to reduce GHG emissions for international shipping by 2021.

Lim says the IMO’s efforts to address greenhouse gas emissions from shipping have reached an advanced stage. In 2011, IMO became the first international body to adopt mandatory energy-efficiency measures for an entire industry sector with a suite of technical and operational requirements for new and existing vessels that entered into force in 2013. 

In October 2016, the IMO adopted a system for collecting data on ships’ fuel-oil consumption which will be mandatory and will apply globally. This will be the first in a three-step approach leading to an informed decision on whether any further measures are needed to enhance energy efficiency and address greenhouse gas emissions from international shipping. If so, policy options would then be considered.

IMO also approved a roadmap for developing a comprehensive strategy on reduction of greenhouse gas emissions from ships, which foresees an initial greenhouse gas strategy being adopted in 2018.

These measures were agreed, by consensus by IMO Member States, including E.U. Member States. In his letter, Lim said this not only demonstrates the IMO’s leadership and role as the global body for developing and implementing requirements for international shipping, but also reaffirms that the IMO is the only appropriate body to take this work forward and achieve the necessary political cooperation of all governments represented at the IMO, including E.U. Member States. He added, “Such political cooperation is important to ensure that all countries act together to ensure that no one is left behind.”

Lim said that, in his view, unilateral or regional action that conflicts with or undermines actions that have been carefully considered and deliberated by the global community at the IMO threatens world-wide confidence in the consistent, uniform system of regulation developed by the IMO. Regional or unilateral action, he said, would harm the goals of the wider international community to mitigate global greenhouse gas emissions from ships and be at odds with the overarching objectives of the Paris Agreement.   The 2015 Paris Agreement makes no reference to emissions from international shipping, due to the global nature of the sector and the difficulty in allocating emissions from a ship to a single state. However, Lim stresses, the IMO’s work on the control of greenhouse gas emissions shows that strong action is being taken. 

A decision by the IMO Council at the beginning of December 2016 to authorize two additional meetings of a special MEPC Working Group on reduction of greenhouse gas emissions from ships during 2017 (the first to be held 26-30 June) will enable further progress, and illustrates the importance and urgency that the IMO attaches to the issue. 

In parallel, the IMO will continue its efforts to provide related assistance to developing countries through major capacity-building projects on energy efficiency in ship operations.

USS Mahan Fires Warning Shots at Iranian Boats, by Marex

Live-fire test with a .50 caliber machine gun (file image courtesy USN)

By MarEx 2017-01-09 14:30:29

On Sunday, the U.S. Navy destroyer USS Mahan fired three warning shots with a .50 caliber machine gun to ward off a group of Iranian attack boats. The incident is the latest and most dramatic confrontation between Iranian and U.S. forces near the Strait of Hormuz, and it follows an established pattern of high-speed approaches by Iran’s patrol craft. 

U.S. Navy officials said in statements to media that the Islamic Revolutionary Guard Corps (IRGC) boats approached to within 900 yards and did not respond to the Mahan’s attempts to make radio contact. The Mahan responded with a progressive set of warnings including the ship’s siren, ship’s whistle, flares and a helicopter-launched smoke float. 

“Disregarding the warnings, the IRGCN vessels continued to directly approach Mahan at a high rate of speed. Mahan then fired three warning shots with a crew-served .50 caliber machine gun, and the IRGCN vessels arrested their high-speed approach,” a Navy official told CBS News. “Naval Forces Central Command assesses this interaction as unsafe and unprofessional.” The official also alleged that the Iranian vessels had approached with their crew-served weapons manned. 

At the time of the incident, the Mahan was escorting two other naval vessels, the Wasp-class amphibious assault ship USS Makin Island and the civilian-crewed fleet oiler USNS Walter S. Diehl. 

Iranian state media had not yet published a statement regarding the incident as of Monday morning, but Iran’s Press TV reported separately that the nation’s parliament would be boosting military acquisition programs, including the purchase of fast attack craft. 

U.S. president-elect Donald Trump said last year that the Navy’s rules of engagement should favor the use of force during confrontations with Iranian patrol craft. “And by the way, with Iran, when they circle our beautiful destroyers with their little boats and they make gestures that our people – that they shouldn’t be allowed to make, they will be shot out of the water,” he said at a rally in Pensacola last September. 

Ballast Water Treatment: What Will the IMO Do?, by Marex

By InBallast 2017-01-08 00:34:54

The IMO’s Ballast Water Management Convention, adopted in 2004, reached its criteria for ratification on September 8, 2016, and will enter into force following 12 months. Somewhat simplistically, this means that all vessels must comply with its provisions and eventually meet the Ballast Water discharge standard (as defined by Regulation D-2).

Shipowners are now approaching flag states and requesting a de-coupling of the renewal of the international oil pollution prevention certificate (IOPPC) from scheduled docking in order to achieve potentially five years extension from complying with the D-2 standard and thus postponing the costs of procuring and installing a ballast water management system likewise.

However, the IOPPC implementation reference is currently not referred to in the implementation schedule of the Ballast Water Management Convention, and it may very well be that it never will. It is assumed that MEPC 71 will decide on the final D-2 compliance phase-in mechanism and that the Convention will be changed accordingly after its ratification following the legal procedure that applies.

At MEPC 70, a majority of states argued for postponing the D-2 phase-in program by another two years and still using the IOPP certificate as reference point due to lacking docking capacity and also allowing vendors to “upgrade” their current certificates to also comply with the additional requirements of the revised G8 test-protocol. 

If this becomes the case and shipowners continue to follow the extension route made available for them by flag states accepting de-coupling of the IOPP certificate, we will potentially end up with a pile-up in 2024! This will be most unacceptable to the IMO as well as to most of its member states. More realistic outcomes of MEPC 71 are:

  1. The IOPPC remains as the implementation reference and entry into force of the D-2 standard of the Convention remains September 2017.
  2. The IOPPC remains as the implementation reference and entry into force of the D-2 standard of the Convention is delayed one or two years to September 2018 or 2019.
  3. The implementation reference is changed to first scheduled dry-docking and entry into force of the D-2 standard of the Convention remains September 2017.
  4. The implementation reference is changed to first scheduled dry-docking and entry into force of the D-2 standard of the Convention is delayed one or two years to September 2018 or 2019.

Why is postponement required, or not?

The industries arguments for postponing D-2 compliance implementation are a lack of docking capacity and a lack of availability of treatment systems approved using the revised G8 protocol.

Vessels operate subject to numerous surveys required for renewal of certificates, and these are vital for the vessel to be allowed to operate. A vast number of them take place during the scheduled docking which takes place most usually every five years. The introduction of the Convention does not in any way increase the necessity of docking. It does require time available during docking for the integration of the system to be installed. 

Most vendors will claim that this can be done in parallel with other activities without interfering with them in any way, so the number of dockings will not increase nor will the duration of the docking period. Consequently, the integration of a treatment system will not challenge the global docking capacity. 

Preparatory work can be undertaken prior to docking, reducing the associated work-scope during docking, and final commissioning of a system may take place immediately following the docking. Thus, a revision of the implementation reference if using scheduled docking as such, should take this into account.

At present, it is correct that there are no systems certified in accordance to the newly revised G8 protocol. On the other hand, the shipping industry has previously stated, without prejudice, that they will accept U.S. Coast Guard type approved systems being installed onboard their ships. They have also stated that they consider revised G8 systems as equivalent to U.S. Coast Guard. 

In early December, we saw the first treatment system being granted U.S. Coast Guard type approval. There are two more systems in the approval pipeline, and we expect these to qualify shortly. Before the end of the second quarter of 2017, another four or even five systems are expected to be qualified by the U.S. Coast Guard – leaving us with a potential of seven to eight systems available before entry into force on September 8, 2017. 

In addition, the shipping community has already been granted life-long grandfathering inclusive of compliance for vessels equipped with systems approved under the earlier G8 instrument under the “roadmap” ensuring that “early movers” should not be penalized.

There seems little substance for delaying D-2 compliance implementation. A further delay now, will no doubt hit the treatment system suppliers hard, penalizing them even further, and also penalizing those of them who were early movers. 

Our best guess as to the outcome of MEPC 71 is that the IMO will come back to its senses, reject the current arguments for delay and remove the IOPPC reference, as this is now clearly misused by a number of flag-states to allow de-coupling, and revert to docking intervals as the triggering mechanism. 

As a change to the convention itself will take time, it is likely that a postponement of the implementation date may be required. However, there should be no need to expand this for more than one year. 

Thus, all vessels might have to install a type approved ballast water management system, either an initial G8 approved or a revised G8 approved system, at the first scheduled docking after September 8, 2018. 

Realizing the timeline for assessing and preparing for treatment system integration – it’s time to get moving.   InBallast is an independent consulting/ engineering firm. 

The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive or Marigons Nautical Consultant Pte LTD.

This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.

Greek Shipowners Retain Top Spot in 2016, by Marex

By MarEx 2017-01-07 21:47:30

Greece has remained the top shipowning nation in 2016, according to shipping analyst VesselsValue. However, they have lost around 12 percent of their fleet value, and the Japanese come ever closer to stealing the lead, with the value of the Japanese fleet falling less than one percent in value.

In sixth place, down from fourth, the German cargo fleet has lost close to 30 percent of its value primarily due to the compressed container shipping market.

Bulkers have had a deceptively good 2016 following the record lows at the start of the year. The top three bulker owning nations; Greece, Japan and China, have seen their fleets rise by over $4 billion each. This growth has been supported by strong acquisitions following some of the lowest asset prices seen since the 1980s.

The German container fleet shrunk by nearly $11 billion throughout 2016 after large losses in the sector. The largest softening was experienced in the Panamax and post-Panamax sectors with some vessels losing up to 60 percent of their value. German losses are fuelled by this as 59 percent of their fleet consists of Panamax and post-Panamax vessels.

Greek tanker owners started 2016 earning more than $100,000 /day on their vessels. However, the rest of the year has been predominantly bearish. By the end of 2016, the Greek fleet had shrunk by close to $11 billion. Coming in second was the U.S. whose fleet lost $4 billion, less than half of the Greek losses.


New Sri Lankan Trade Zone Runs Into Local Opposition, by Marex

The port at Hambantota (file image)

By MarEx 2017-01-02 18:23:14

Officials in charge of finding land for a new Chinese industrial zone at Hambantota, Sri Lanka have run into difficulties with the current tenants. Rice farmers in Medilla, Hambantota say that development officials have been surveying the area without their permission, and that residents have forced the authorities to leave. 

“All the residents in Hambantota banded together to protest against this land grab. Unfortunately, the politicians are lying to us on this issue,” said villager H.E. Yasaratne, speak to Sri Lanka’s Sunday Leader. 

A spokesman for a residents’ organization said that after deducting land that had been set aside already for housing projects, conservation and other uses, only villages and farmland were left for officials to take for the 15,000 acre free trade zone. Residents told the paper that they would not relocate under any circumstances. 

Under a recently agreed deal with China Merchants Port Holdings Company, the Sri Lankan government has agreed to a debt-for-equity swap which will give the Chinese firm an 80 percent stake in the port at Hambantota for 99 years – an unheard-of duration for a port operations lease – plus all revenues from port operations until the facility reaches “a mutually-agreed level of performance.” Sri Lankan media report that the Chinese also requested the massive 15,000 acre industrial park. In return for these concessions, China Merchants will convert more than $1 billion in government debt into equity. Sri Lanka is set to sign the final agreement on January 7. 

Opposition gathers steam

The protest at Medilla was not the first linked to the port deal. In mid-December, dockworkers went on strike to protest the lease agreement and to call for employment guarantees from the port’s new management. Longshoremen reportedly interfered with the departure of two vessels, and the Navy intervened to break up the demonstration. Naval servicemembers filled in to provide linehandling and longshore assistance to keep port operations running. 

The opposition party, led by former president Mahinda Rajapaksa, has threatened continued public unrest if the industrial park goes forward. “These are people’s agricultural lands. We are not against Chinese or Indians or Americans coming here for investment. But we are against the land being given to them and the privatisation they are doing,” Rajapaksa told the Foreign Correspondents’ Association at his official residence in Colombo.

The warning represents a reversal of Rajapaksa’s position: during his tenure, he began the Chinese partnership behind the port and the related infrastructure projects in Hambantota. These projects have put Sri Lanka heavily in debt, which is the primary reason for the government’s agreement with China Merchants. “If we don’t convert the loan into investment there is no alternative to handle the debt we have taken,” trade minister Malik Samarawickrama told Pakistan Press last month.

China’s New Strategic Port Faces Water Shortage, by Marex



Courtesy Gwadar Port Authority

By MarEx 2017-01-02 13:54:46

The brand-new port of Gwadar, Pakistan holds great promise for its Chinese investors: it is handling millions of tonnes of supplies for the $50 billion China-Pakistan Economic Corridor (CPEC), and in future years it will host a 2,000 acre free trade zone, an oil terminal and an LNG export plant.

However, its developers will have to overcome one major hurdle in order to keep the port growing. Gwadar is in the middle of a desert, with average annual rainfall of 3.5 inches – about one third the amount found in San Diego. With increased economic activity from the port’s construction, Gwadar’s population has increased by a factor of 20 over the past 15 years, and its water supply is under severe pressure. To make matters worse, its existing reservoir has silted up, reducing its storage capacity by two thirds, and it no longer provides the full 15 million gallons per day that the city needs. 

The Pakistani government is attempting to address the problem through costly, energy-intensive desalination systems. A two million gallon per day desalination plant for Gwadar’s new industrial zone was completed in 2015, after nearly a decade of delays. However, government officials diverted its water into the municipal water supply due to the general shortage, and as of early 2016 it was only working intermittently. 

Pakistani development officials blame the supply problem on a long-running insurgency in Balochistan: The completion of two new dams has been delayed for years due to a series of kidnappings, but now that the Pakistani government has assigned a special security force for CPEC projects, authorities say that these new reservoirs could be ready as early as 2018. In addition, the government recently approved a second, five million gallon per day desalination plant, which would provide for about one third of the city’s current demand. 

In the interim, port officials say that visitors and investors are bringing their own bottled water, and that locals subsist on a combination of trucked-in supplies, hand-carried well water and home-distilled seawater. Local journalist Behram Maloch told the Pakistan Tribune that the government provides water tankers only intermittently, and for those who can afford the investment, private water deliveries may sometimes be purchased for about $100-150 – well out of reach for most residents.