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The Maritime Industry Authority (Marina) is finalizing the roadmap for the Philippines’ implementation of the global 0.50% sulfur cap on marine fuel oil, the mandatory low-sulfur fuel oil policy the International Maritime Organization (IMO) will enforce come 2020.

Marina Shipbuilding and Ship Repair director Engr. Ramon Hernandez, in a chance interview with PortCalls on June 19, said the authority already has a draft roadmap to be sent to concerned stakeholders for comments.

Hernandez declined to provide more details, but said the roadmap will push for a phased implementation of the IMO policy, as several factors would affect compliance, such as the availability of compliant fuel and the readiness of ships. Hernandez noted that compliant fuel is not yet available in the country, and refineries would need two to three years to construct the needed storage facilities for such fuel.

While Marina is still working on the direction of local shipping in line with complying with IMO 2020, Hernandez noted that foreign ships should already be compliant by 2020.

Annex VI of the International Convention for the Prevention of Pollution from Ships, or MARPOL Convention, which the Philippines ratified in 2018, requires all ships in non-emission control area zones to set a limit on the sulfur content of fuels from 3.50% to 0.50% by January 1, 2020. The policy aims to reduce the amount of sulfur oxides emanating from ships in order to gain health and environmental benefits for the world, particularly for populations living close to ports and coasts.

The Philippines is a state party to all annexes of the MARPOL Convention.

Marina, in an earlier statement, said that together with the Department of Energy (DOE), it is identifying alternative sources of eco-friendly and affordable fuels, among others, as an alternative to comply with IMO 2020.

Hernandez, also in an earlier statement, said Marina has acknowledged stakeholders’ concerns, such as the need for existing Philippine-registered vessels to undergo retrofitting to be able to utilize sustainable and eco-friendly fuels.

The Philippine Inter-island Shipping Association (PISA), in a letter to Marina last May, has requested for domestic ships to be exempted from the implementation of the IMO 2020, saying all available options for compliance would entail additional costs for them.

PISA executive director Atty. Pedro Aguilar said that as the country’s flag administration, the maritime authority “is not precluded from exempting ships exclusively for domestic operation from the coverage of IMO 2020.”

Aguilar said that according to a DOE  presentation at a stakeholders’ consultation last March 28, all options available for implementing the IMO policy would entail additional costs for domestic shipowners, and these added expenses would ultimately be passed on to consumers.

Exploring options

One option, according to DOE, is to comply by using marine fuel with 0.5% sulfur content, but the agency noted that there would be issues with availability, compatibility and safety as no standard has been developed yet for refining the properties of such fuel.

Petron Corp and Pilipinas Shell Petroleum Corp, the only oil refiners in the country, said during the consultation that they currently do not produce fuel with 0.5% sulfur content. Aguilar said Shell noted that apart from some technical problems to be addressed in its refinery to enable it to produce low-sulfur fuel oil (LSFO), it has to construct separate storage facilities, the undertaking seen to take at least two years.

Phoenix Petroleum Philippines, Inc. would also need separate storage facilities, assuming it can import this fuel.

Aguilar noted that immediate supply of LSFO in 2020 by petroleum traders would depend on its availability in the international market. He, however, noted that no oil company could give a ballpark figure on the additional cost per liter from using imported LSFO.

Another option is to use the existing marine fuel available in the local market and install equipment exhaust gas cleaning systems called “scrubbers” on the vessels in order to limit air pollutants. Aguilar noted that this option, however, would require huge capital, estimated at US$4 million including installation. There are also issues with waste water discharge of scrubbers, and compatibility issues with old ships, which are prevalent in the domestic shipping industry.

Another option is the use of alternative fuels such as liquefied natural gas and methanol, which are clean and comply with the sulfur content limit. But DOE noted that these fuels are not readily available at all major ports, and the infrastructure needed for them may also be lacking.

Marine gasoil and diesel-blended marine fuel oil, which DOE predicts would be the preferred alternative fuels of international ships, may also be an option for domestic ships. Aguilar, however, noted that the increase in demand for these types of fuel could jack up the price of diesel as domestic ships would also be competing for the supply with international vessels.

Impact on freight cost

DOE cited three consulting companies that have estimated the increase in the price of diesel based on increased demand. McKinsey & Company predicts a domestic price impact of $10/barrel (bbl) x P52.67/159 liters equivalent to P3.31/liter, or $20/bbl x P52.67/159 liters equivalent to P6.62/liter. The Macquarie Group estimates the increase in domestic price to likely be P9.93/liter. S&P Global Platts said the high demand for gasoil and drop in high-sulfur fuel oil prices would lead to premium gasoil/diesel prices soaring by about $18/bbl, equivalent to P6 per liter.

Taking the lowest estimated increase of diesel at P6.00 per liter, PISA estimates an increase of 7% to 10% in freight cost for a 20-foot containerized cargo and 12% to 20% hike in the freight cost of tankers that haul bulk petroleum products.

“Considering that more than 90% of cargoes in the country are transported via ships, the cost impact of implementing the LSFO requirement is clearly inflationary,” Aguilar said.

He also noted that the last tranche of the excise tax for fuel oil under the Tax Reform for Acceleration and Inclusion law will likewise be implemented by January 1, 2020, which will again pad up costs. – Roumina Pablo

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