The revised and tougher climate targets set by the International Maritime Organisation (IMO) on cutting harmful greenhouse gas (GHG) emissions from ships will likely impact the vessels on Shipping Corporation of India’s 59 strong fleet and, in turn, the valuation of the company during the ongoing privatisation exercise, industry sources said.
The revised GHG strategy, adopted by the IMO’s Marine Environment Protection Committee (MEPC) meeting last week, includes an enhanced common ambition to reach net-zero GHG emissions from international shipping close to 2050 and a commitment to ensure an uptake of alternative zero and near-zero GHG fuels by 2030.
The revised strategy also includes indicative checkpoints to reduce the total annual GHG emissions from international shipping by at least 20 percent, striving for 30 percent, by 2030, compared to 2008; and further by at least 70 percent, striving for 80 percent, by 2040, compared to 2008.
The IMO is the United Nations agency tasked with regulating global shipping.
The IMO’s previous climate targets sought to only halve emissions from the global shipping industry – a giant 1 billion tonnes a year emitter – by 2050.
“Ships owned by the Shipping Corporation of India will be commercially disadvantaged in meeting the climate goals set by the IMO,” said an industry source.
Explaining his views, the source said that the average age of Shipping Corporation’s fleet is 13 years.
“These vessels are not technologically advanced as they were ordered some 16 years ago when climate goals were not in sight. Further, many of the vessels of SCI are not compatible for putting additional equipment on board to reduce harmful emissions, posing challenges in meeting the IMO targets,” he stated.
Faced with limited options, the Shipping Corporation of India will have to resort to slow steaming of ships to lower GHG emissions.
“But this will hurt the employability and earnings of SCI ships. For example, if a voyage is agreed for 12 days but is covered in 15 days by reducing the ship’s speed, SCI will be paid charter hire for only 12 days. While SCI will incur operational expenses for 15 days, it will receive rent for only 12 days. Overall, it will impact the valuation of SCI ships,” he said, noting that potential bidders will have concerns on investing further capital to upgrade the ships and transition to low carbon shipping on top of spending money to buy SCI.
With SCI unable to undertake transitional actions to lower emissions due to lack of funds, its ships will end up paying a higher carbon levy being proposed by the IMO. The planned levy will be linked to the carbon emitted by a ship.
“SCI vessels will therefore face the prospect of earning lower charter hire due to its emission levels,” a second industry source said, adding that all these will have an impact on SCI’s valuation.
The government is in the final stages of selling its 63.75 percent stake in India’s biggest ocean carrier to a strategic buyer.
