Green retrofits held back by financing

Source Lloyd’s List vom 31.10.2011

With various new forms of green money-saving technology hitting the market, retrofitting can be an attractive option. However, many shipowners are finding financing modifications to a ship can be difficult. In response, new initiatives are springing up where third parties front the cash. Exhaust cleaning technology is the most common example of the financing problem at the moment. Many in the maritime industry see the large-scale retrofitting of scrubbers as inevitable as regulators become increasingly stringent about ships’ emissions. However, owners report that financing can be a hurdle to overcome before new scrubbers are installed on an old ship. According to Don Gregory, chairman of the Exhaust Gas Cleaning Association, some owners are holding off on investing in a scrubber altogether for want of funding. “There is definitely a group out there that would have it installed today if they could pay for it later,” Mr Gregory says. His comments were echoed by a spokesperson for the German Shipowners’ Association, speaking at a recent trade conference in London. “Members have told us this kept them from making the investment,” he said. Mr Gregory argues the business case for retrofitting scrubbers is clear-cut: a one-time investment pays itself back over time because the technology allows a shipowner to go on burning high-sulphur fuel, even in emissions control areas. According to Mr Gregory, even with the spread between high and low-sulphur fuel relatively low at the moment, scrubbers can pay for themselves this way in a matter of years. However, banks are often unwilling to accept a scrubber, or other retrofit technology, as collateral for a project-finance loan because the kit can be difficult to remove from the ship and has an unclear resale value. The problem is exacerbated by the fall that vessel values have taken in recent years. A shipowner who took out a mortgage on a newbuilding in 2008 could find himself owing more to the bank than his vessel is worth today, leaving him with no collateral left. Though scrubbers offer a case in point, the same obstacles need to be overcome when installing other retrofits with long-term  economic benefits, such as a dual-fuel engine or wind-assisted propulsion. However, bankers say that shipowners’ complaints about their reluctance to finance scrubbers — or other green technology — are exaggerated. “We have never denied a request to finance scrubbers,” says Gust Biesbroeck, head of transport at ABN Amro, although Mr Biesbroeck did make it clear that his bank had received very few request for scrubber financing so far. According to Mr Biesbroeck the shipping industry should look to itself when trying to explain lacklustre demand for scrubber technology. “We are very explicit about our desire to finance technical innovation in the sustainability department. That is not happening so far, mostly for lack of investment.” Mr Biesbroeck does admit a shipowner would have to bring some additional form of security to the table to receive a scrubber project loan, or financing for any other form of relatively unproven technology. “Uncertainty concerning value does make financing a product difficult. A lot of players find that hard to stomach,” Mr Biesbroeck says. He suggested shipowners look to their mortgage providers for additional financing. “We are willing to grant the benefit of a doubt regarding the economic value of a scrubber,” he says. “However, if the value of your fleet is less than your outstanding mortgage, off course we can’t help.” Because many underfunded owners could soon find themselves forced into the scrubber market, some are seeing business opportunities. Robin Meech, managing director of Marine and Energy Consulting, has launched a business initiative dubbed Abatement Technology and Finance, which arranges scrubber financing for shipowners. Mr Meech is currently working with banks to cut favourable deals, but his newest approach is a financial model in which bunker providers put up the cash for a scrubber, and in return get an exclusive bunkering contract with the buyers. Mr Meech is not the first to suggest alternative third-party financing. MAN Diesel Primeserv has been running a retrofit financing programme for products for two years, of which some 20 customers have taken advantage so far. Primeserv vice-president Per Ruud saysthe majority of the deals the company has signed had been for turbocharger cutouts, or other upgrades associated with slow steaming. Mr Ruud says the Danish engineering company is set to expand the range of products and services that its Trident financing solution will be able to cover, but admitted it will always depend on shipowner demand, which he believes is currently there. Some players have suggested other unconventional ways of financing scrubbers. Mr Gregory of EGCSA says a small-scale high-risk bond issue could also fund a scrubber retrofit for a group of companies in, say, a tanker pool. “The returns would definitely be better than those on, say, London real estate,” Mr Gregory says. However, according to Mr Gregory most investors tend to prefer the devil they know. “These are schemes that have a lot of legs,” Mr Gregory says. “But getting investors to spend time to evaluate them can be exceedingly difficult.”