SAFETY4SEA Conference & Awards
2017
Learn More
SAFETY4SEA Conference & Awards
2017
Learn More

ESSF Smart Financing Tools

EFSS
The GSFT product concept - The GSFT instrument would allow financing of new investments and conversion of existing fleets

Panos Yannoulis, President, Oceanking introduced to the audience the ‘’ESSF Smart Financing Tools’’ during the 2016 SMART4SEA Forum. He explained that the European Sustainable Shipping Forum (ESSF) was created by the European Commission in 2013 with the aim to foster sustainable maritime transport. Its work is divided in sub- groups such as the Sub-group on Financing Aspects which is currently in the process of “calibrating” an innovative Green Shipping Financing Tool (GSFT). The main idea of the GSFT is to find “smart” ways to overcome main existing barriers for commercial banks to finance the introduction of “green” technologies which are required to meet challenging international and European environmental regulations.

We are navigating in very trouble waters as far as it concerns the economic situation in general, shipping in particular and shipping financing even more particular. However, some smart ideas developed can help this very difficult environment. They have been created in the frame of the works of the European Sustainable Shipping Forum. The ESSF is a platform, which was created at the end of 2013 by the European Commission in order to assist fostering sustainable maritime transport including fuel efficiency. It provides a platform for structural dialogue, exchange of technical knowledge, cooperation and coordination between the Commission, EU Member States, EFTA countries and relevant maritime industry’s stakeholders. The forum consists of the representatives of EU Member States’ maritime authorities, EFTA countries, in this case Norway and public and / or private organizations active in maritime transport related areas. There are representatives from Port Operators, Ship Owners Associations, like INTERTANKO, INTERFERRY and SPC Greece, as well as manufacturers of equipment of advanced technology.

This forum has been subdivided to various groups. Actually, there are seven groups. One of them is on financing, which made the following diagnosis: Nowadays, ship values and freight rates are drastically being reduced whereas ship owners and ship operators have to face high extra costs for technologies, which have to be introduced into their vessels for meeting the environmental standards for the shipping industry and ferry operations in particular. In addition, there is a big dilemma for  making the right technology balancing and  the trade off between CAPEX and OPEX. Some technologies have high investing cost, but lower operating cost. Sometimes, they have payback period in of less than one year. In other cases, you spend almost nothing, but you have high operating cost. Finally, there is lack of specific private financing instruments for retrofitting.

Retrofitting is the big challenge as we need to introduce technologies of several million dollars in ships that they have commercial value very low, close to the cost of the technology. Another need is the support of smaller projects, which makes the financing non attractive for the commercial banks and therefore there is need for innovative financing. There is a need for innovative financing instruments able to address market failures and associated risks, the sub-optimal investment situations. We have companies with old vessels and low value vessels, mortgaged and there is a high risk of investing in retrofitting. Thus, there is a necessity to combine support at all levels, at EU level, at Member States level and grants, which take advantage of co-funding rates.

The instruments, which are used for this case, were located at the sub-group on financing aspects. First of all is the Connecting Europe Facility (CEF) and there was a second call for proposals last November. Secondly is the European Fund for Strategic Investments (EFSI), the so called Juncker Plan, which allows 16bn € in the frame of the Infrastructure and Innovation Window and 5bn € from the Small and Medium Enterprises (SME) Window. The above amounts in 21bn €, which with various leveraging mechanisms can be multiplied by 15 and we come up with 315bn €, a big part of which can be used for shipping. So, this is where the Green Shipping Financial Tool comes.

What is this Shipping financial Tool and why it is so smart? The smartness is based on the fact that there is the realization that the challenge is not linked with the lack of liquidity. There is liquidity in banks. However this is connected with the risks associated with the sector. So, there is a need for mitigants.

The basic mitigant is the portfolio approach. This means that if instead of taking money from one bank and giving to a ship owner for retrofitting one vessel, by creating a pool loan it could result in reducing risk exposure for lenders and increasing size of operations, allowing economies of scale and intervention of international financial institutions like the EIB, National Development Banks (NDBs), investors and Export Credit Agencies (ECAs). The mentioned institutions can come up and support the structure in order to cover the first loss guarantee. In this case, the first loss guarantee can be given by the EIB, pumping money by the pool of the 315bn € or part of it. And also, the Member States can provide the second loss guarantee. And tax incentives, if available.

There must be a fund or a special purpose company to be created in each member state; in particular, in the member state which is interested. This entity goes to the commercial banks to take the loan, which is addressed and sub-divided to the interested operators. And there is guarantee provided by EIB up to a certain amount 20-30%, now this is brought up to 40-50%. And, also there can be a second loss guarantee by the member state. In this case, the risks are minimized and the necessity for the mortgage is covered for the first loss guarantee.

The entity, which is between the banks and the operators, must have a direct knowledge of the market. Therefore, it must establish which are the eligible technologies to be applied. In new buildings, the guarantee and the financing can cover 100% of the green technology incorporated (LNG, scrubbers etc), up to 50% of the value of the value of vessel. In case of retrofitting, the guarantee covers up to 100% of the green technology incorporated, including installation.

Next steps have to be undertaken, regarding the technologies involved, the geographical areas, the criteria of eligibility, the limits and the barriers, the types of partners and the level of investments required. Therefore, a specific EC workshop will be organized. A pilot scheme is recommended to validate the structure, prior to expand at pan-European scale. It was indicated that talks are in progress with Netherlands, Sweden, France and Finland. Relative initiative in Greece, the “Europa Ship” Plan, is promoted by the Hellenic Short Sea Ship-owners Association. This program was launched last November in Greece with the support of EU.

The Agenda for GSFT involves:

  • Calibration of tool with banks
  • MS involvement
  • COM/EIB/MS approval
  • Agreement with banks
  • Up-scaling/replicating the scheme

This is foreseen to be concluded by mid of this year. The calibration will be completed by March and the Tool will be presented in April 2016.

 

Above article is an edited version of Mr Panos Yannoulis presentation during the 2016 SMART4SEA Forum

Please click here to view his video presentation

 

The views presented hereabove are only those of the author and not necessarily those of  SAFETY4SEA and are for information sharing and discussion  purposes only.

About Panos Yannoulis

Yannoulis_2Mr. Yannoulis is a naval architect and marine engineer. He has graduated from the University of Genoa, Italy, in 1970. His professional experience covers ship research, ship design, shipbuilding and project management.

During his career, he was in charge, as designer, project manager or divisional director, of multimillion dollar projects for a variety of ship types, such as cruise vessels, high speed motor yachts, bulk carriers, tankers, reefer vessels, patrol boats, etc. He is presently Partner and President of Oceanking S.A.

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