More financing options for BWMS installations are becoming available as banks and lease-finance providers enter the market
When last year’s issue of BWTT was published, financing options for ballast water management systems (BWMSs) were limited. ‘Don’t bank on the bank’ was the message at that time, based on remarks by a financial consultant who had spoken to a few banks about their views on funding BWMS investments and found none that were “even thinking of doing it.”
This year, the situation is a little more positive. Within days of BWTT’s publication last year, Dutch bank ABN Amro concluded what it said was the world’s first financing for BWMS installations on several vessels for a Danish client, Celsius Shipping. In a statement in early May 2017, ABN Amro associate director, transportation, for north Europe Bart van Veen described the loan as “a creative financing solution” that matched the bank’s commitment to support sustainable shipping.
Little information was available at the time, but the bank provided more insights about its backing for ballast water management projects during a September 2017 seminar organised by the Royal Association of Netherlands Shipowners (KVNR) to explore financing for sustainable shipping. The bank is a founder-member of the Sustainable Shipping Initiative and has developed its own “vision for a sustainable shipping industry in 2040,” its presentation reported. Financing BWMSs in both construction and operational projects forms part of that strategy, delegates heard.
Another bank to indicate that it was considering the merits of bank financing for BWMS projects at that seminar was ING. In February 2018 it signed an agreement with the European Investment Bank (EIB) to support green investments for the European shipping market worth €300M (US$370M), with each partner contributing half that figure over a period of three years. According to a statement issued by the EIB to mark the agreement, the funds will be used “for projects with a green innovation element covering the construction of new vessels or retrofitting of existing vessels.”
Export credit agencies can be valuable partners in securing finance. Export Credit Norway has a particular focus on the maritime sector and has created a dedicated team to offer finance to international vessel owners that purchase retrofit equipment from Norwegian suppliers, which include BWMS manufacturers.
Its director of lending, ocean industries, Olav Einar Rygg, told BWTT that there are three people in the team who proactively look for projects to support with a funding arrangement developed specifically for this sector. Mr Rygg described it as a framework loan agreement “where we add up all Norwegian retrofit supplies to a shipowner and make annual disbursements [covering] the whole retrofit programme, typically during a period of three to five years.”
Most equipment suppliers contacted by BWTT mentioned export credit schemes when asked about financing options, as has been the case in previous editions of this guide. For example, the chief executive of Danish BWMS maker Bawat, Kim Diederichsen, said that the company could offer financial support through the Danish Export Credit Agency. But he added that, “as the Bawat BWMS is probably the most sustainable BWMS on the market, the Danish Green Investment Fund also offers funding to Danish customers.”
A new topic that cropped up in BWTT’s research this year was lease financing. Hyde Marine is one manufacturer exploring this source of funding. Senior market manager Mark Riggio told BWTT that the company is “exploring a partnership with a leasing company” that he said will “eliminate the capital costs associated with system installation.”
At Wärtsilä, BWMS sales director Craig Patrick made a similar comment, reporting that “we continue to explore” an equipment leasing model. This would allow owners “effectively to lease and pay for the BWMS over a term period,” he explained, which could extend to a payment-per-treatment model in the future.
Ecochlor chief executive Tom Perlich also mentioned lease finance as a possible future option. Although the company does not currently offer financial support for installations, “we have had some brief discussions with several lenders and leasing companies, but we are still researching opportunities,” he said.
Manufacturers were also more optimistic about support from financial institutions for BWMS projects. For example, Coldharbour chief executive Andrew Marshall reported that financial institutions are more willing to fund ballast treatment than they were a year ago.
Mr Perlich suggested a reason for that. “With the BWMS market opening up, financial institutions will become more willing to provide support to shipowners for installations,” he said.
What does a BWMS installation cost?
Any discussion about finance would be incomplete without an assessment of the sums required to cover the cost of a ballast water management system (BWMS) installation. There is little definite information in the public domain, but two tanker operators have published figures over the past year that provide some perspective on the cash involved.
In July, tanker operator Euronav presented some figures that included an estimate of US$1.8M per ship to fit a system (http://bit.ly/BWTT-Euronav, page 25). A month earlier, the Kuwait Oil Tanker Co (KOTC) had put some figures on its website (http://bit.ly/BWTT-KOTC) that made public the precise results of an invitation to tender for ballast water treatment systems (see table).
KOTC did not spell out its criteria for awarding the contract, but Alfa Laval was the lowest quote. Nor did KOTC say how many ships or systems this tender was for. But Alfa Laval had earlier issued a statement saying it was going to supply 45 of its PureBallast treatment systems to a “Middle East-based tanker operator,” and Alfa Laval’s vice president responsible for its PureBallast project Anders Lindmark confirmed to BWTT that the KOTC tender was the contract its release referred to.
So that gives a figure of US$348,552.20 per treatment system. There will be multiple systems in each of 22 ships, making the average price US$712,947.67 per ship. That price includes commissioning the equipment – which does not include installation but does cover crew training. Once installation costs are factored in, KOTC’s costs come to around US$1M per ship.
Alfa Laval Middle East, Dubai
Calgon Carbon Corp, USA
Wärtsilä Water Systems, UK
Desmi Danmark, Denmark
Did not purchase tender documents
Leasing “could be less expensive than purchasing”
Complying with environmental regulations “presents a difficult challenge as shipowners are cash strapped and the industry is still recovering from the last economic downturn,” said Thomas Lillig, principal of LTK Maritime Consultancies. He believes that lease financing offers a solution to this dilemma and said that, once its tax advantages are taken into account, “financing could often be less expensive than purchasing.”
He has been appointed as the lead agent for a Texas-based lease-finance company, FloLease. Mr Lillig told BWTT that it can be very hard for shipowners, in particular smaller ones, to find lending options with suitable conditions and restrictions. “Quite often, financial lending options require the equipment to originate from the same country as the lending,” he said.
But leasing removes the heavy upfront equipment costs and the FloLease scheme allows shipowners to choose a suitable ballast water management system (BWMS) independently of the technology’s country of origin, he said.
A short-term lease of 36-60 months can help older vessels avoid premature scrapping and, as there is no upfront capital investment, lease payments could be considered operational expenses, he said.
Long-term leases of 60-120 months are also available, based on a lease-to-own model. This could be structured so that the owner pays the equipment’s fair market value at the end of the lease or just US$1 to fully own the equipment.
This arrangement treats the lessee as the owner of the asset or lease, which means that the lease is considered a loan and interest payments are considered operating expenses. The asset can then be reported on the balance sheet and be depreciated, he said.
There are also operating benefits from this arrangement. The scheme that Mr Lillig promotes creates a partnership between shipowner, manufacturer and FloLease, he said. The owner agrees to operate and maintain the equipment following the vendor’s recommendations and complying with regulations, while the vendor supports the equipment through the term of the lease and resolves any problems with it.
Meanwhile, FloLease will monitor the system 24/7 via its proprietary satellite data hub, which transfers all system inconsistencies, alerts and alarms to a monitoring centre and instantly reports any issues to the owner and manufacturer.