Selling or buying ships under FuelEU Maritime introduces challenges for both buyers and sellers. The regulation adds complexity to the process, from managing compliance balances to ensuring compliance responsibility between both parties. This week’s newsletter explores the regulatory requirements for ship sales, highlights potential risks, and includes a practical example.
Regulatory Requirements for Selling and Buying Ships under FuelEU Maritime
The FuelEU Maritime Regulation provides specific guidance on compliance obligations when a ship changes ownership or, to be precise, ISM (International Safety Management) company during a reporting period. Further, it clearly defines in Article 15(4)(c) that the company responsible for the ship on the 31st December of the respective reporting period is responsible for compliance under FuelEU Maritime, independent from any comparison regarding the length of responsibility within the reporting period.
Obligations of the ISM company selling the ship
The ISM company that sells or transfers responsibility for the ship to another party must report the data relevant under FuelEU Maritime (defined under Article 15(1)) to its verifier, this is stated in Article 15(4)(a):
“the transferring company shall notify to the verifier the information referred to in paragraph 1 of this Article for the time during which it had responsibility for the operation of the ship”
Obligations of the verifier of the ISM company selling the ship:
The verifier is obliged to verify the reported data and, afterward, forward it to the FuelEU database no later than 1 month after the sale, this is stated in Article 15(4)(b):
“as close as practical to the day of completion of the transfer and no later than one month thereafter, the information referred to in point (a) shall be verified and recorded in the FuelEU database in accordance with Article 16 by the verifier that performed verification activities for the ship under the transferring company”
Note that the delay in access to verified data poses a risk for the buyer as the procurement process might only rely on the non-verified data provided by the seller. This may lead to disputes or unexpected liabilities if the ship is later found to be non-compliant.
Obligations of the ISM company buying the ship:
The ISM company that buys the ship must update the ship’s monitoring plan after the takeover as per Article 9(2)(a).
Key Considerations for Buyers and Sellers
For Sellers:
Ensure timely submission of compliance data up to the sale date to your verifier
Clarify compliance responsibilities in the sales contract
Clarify surplus ownership in the sales contract
For Buyers:
Receive access to compliance data (preferably validated, at best verified) before purchase
Address potential liabilities related to prior non-compliance in the sales contract
Clarify surplus ownership in the sales contract and potential existing pooling obligations
Clarify any banked or borrowed surplus from previous compliance periods
Practical Example: Compliance Post-Sale
To illustrate these challenges, let’s consider a scenario where a ship is sold after four months of a reporting period under FuelEU Maritime. The seller must calculate and report its compliance balance, and the buyer must determine the steps to ensure compliance for the remainder of the year.
Required Pre-Sale Details for Assessment:
Fuel consumption Pre-Sale: 3,000 t HFO
Reporting Period Pre-Sale: 4 months
Banked compliance surplus: 0 g CO2e
Borrowed compliance surplus: 0 g CO2e
GHG Intensity Pre-Sale: 91.601 g CO2e/MJ
Compliance Balance Pre-Sale: -275,100,300.00 g CO2e
Biofuel required for compliance Pre-Sale: 125.98 t
Note that the above values have been calculated with BetterSea’s free online FuelEU Maritime Calculator & Strategizer.
The buyer purchases a ship that is currently non-compliant with the FuelEU Maritime Regulation. Based on the pre-sale performance, the buyer must make their own forecasts to estimate the end-of-year (EOY) compliance status. Assuming the buyer would forecast that the vessel operates on 4,000 t HFO and 1,500 MDO, the end-of-year values would be:
Projected EOY GHG Intensity: 91.422 g CO2e/MJ
Projected EOY Compliance Balance: -724,858,260.00 g CO2e
Projected EOY Biofuel required for compliance: 331.94 t
The ship will generate a deficit, leaving the buyer with three main options for compliance: (a) paying the penalty, (b) bunkering alternative fuel, or (c) pooling. Omitting option (a) due to its commercial implications, the buyer is left with (b) and (c). In both cases, several questions and considerations must be made:
For alternative fuel:
Does the vessel have the technical ability to bunker a certain alternative fuel?
Is FuelEU-compliant alternative fuel accessible on the vessel’s future route?
If so, how do I price the current deficit in the purchase?
For pooling:
Who has the pooling rights for the vessel?
Is the vessel already part of a pooling agreement for the current compliance period?
If so, how do I price the current deficit in the purchase?
Key Takeaways
Due Diligence: Buyers should request detailed compliance data before finalizing the purchase, including at least the data points provided in the above example case. Verified or, at minimum, validated data is to be preferred.
Contractual Terms: To prevent disputes, sales contracts should address surplus ownership, compliance responsibilities, and liabilities.
Pooling: Buyers must have visibility into potentially existing pooling commitments and ensure contractual provisions regarding pooling rights.
Conclusion
Ship sales under FuelEU Maritime introduce complexities that require careful coordination among buyers, sellers, and verifiers. Compliance data visibility specific to FuelEU Maritime throughout the full reporting year across different responsible entities and stakeholders is key to making the right decisions, maintaining compliance, and preventing surprises at the end of the year.
BetterSea’s FuelEU Maritime Compliance Platform provides exactly this to help you streamline your sales and procurement process and ensure that you have full visibility of the ship’s compliance status across all relevant counterparties. Book a product demo to explore BetterSea’s FuelEU Compliance Platform below!
Stay tuned for more insights on navigating these complex challenges in our upcoming newsletters. If you have any questions or need further guidance on selecting the right compliance model, feel free to reach out!
Best regards,
The BetterSea Team
Contact Us: info@bettersea.tech
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