New condemnation facility and loan programme targeting short sea shipping and the fishing fleet

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Published 02 September 2020
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The Norwegian government has a stated goal to reduce CO2 emissions from the commercial shipping fleet and the fishing fleet by up to 50% by 2050. As a tool to achieve that goal, the Department of Trade, Industry and Fisheries, recently launched a condemnation facility for the commercial shipping fleet and a loan programme targeting both the commercial shipping fleet and the fishing fleet. The overall purpose is that the facilities shall stimulate "green" fleet investments and thereby reduce greenhouse gas emissions.

It is anticipated that the facilities may be of interest to many ship owners, particularly in the current market, where a range of segments within shipping are negatively affected by the Covid-19 virus and the various actions imposed by regulatory bodies. There is also a strong environmental focus in international shipping, driven by the International Maritime Organization (IMO) stating a vision of reducing CO2 emissions per transport work (carbon intensity), as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008. In a little longer perspective, the IMO is calling for efforts towards phasing out greenhouse gas emissions, for achieving CO2 emissions reduction consistent with the Paris Agreement goals.

Against this backdrop, we are in this brief article outlining the main characteristics of the measures and the basic requirements for grants under the facilities.

2. THE CONDEMNATION FACILITY

2.1 Target group

The condemnation facility is targeting Norwegian entities with cargo ships in the commercial shipping fleet, trading in Norway or between Norwegian or European ports. There are no requirements with respect to which flag (ship registry) the new vessel or the condemnation vessel is or was flying.

2.2 The investment

Grants under the facility can be given to entities buying or intending to buy low or zero emission vessels, and to entities planning to convert a second hand vessel for reducing emissions. It is a requirement for assessment of the application, that an older vessel within the same entity is scrapped. Worth noting is that applications for grants, must be filed prior to the applicant entering into binding agreements for scrapping and prior to making investments in the new vessel.

The eligible amount is calculated to the additional cost of an environmentally friendly investment, and therefore the climate and the environmental impact of the investment is essential in assessing the application.

2.3 Requirements for the new or converted vessel

Grants under the facility is only given to Norwegian entities. It is also a requirement that the new vessels continues to be registered with a Norwegian entity for a period of five years after the grant has been given.

The new vessels must be utilized for carriage of industrial cargoes and/or consumer goods on vessels such as bulker vessels, tanker vessels, chemical vessels, general cargo vessels, freezer vessels and container vessels, for the prescribed period of at least five years. The relevant vessels must be more environmentally friendly than the current requirements dictate.

The new vessels must be trading in Norway or between Norwegian or European ports, but there are no requirements with respect to which flag (ship registry) the new vessels are flying.

If the new vessel, during the prescribed period of five years counting from the grant is given, does not fulfil the mentioned requirements, the whole or part of the grant may be withdrawn.

2.4 Requirements for the condemnation vessel

The condemnation vessels must be registered with a Norwegian entity for a period of 12 months prior to filing an application under the condemnation facility. The vessel must be an older vessel, and as a main rule older than 20 years.

Further requirements are that the vessels must be cargo vessels that satisfies the standards of a new or converted vessel within the same segment. In addition to this, the vessels must in fact have been trading in Norway or between Norway and European ports in the last 12 months before applying for a grant. However, and as for the new or converted vessels funded under the facility, there are no requirements with respect to the flag (ship registry) of the condemnation vessel.

The grant recipient is obliged to arrange for the dismantling or other destruction of the condemnation vessel in accordance with the principles of sustainable destruction. This must be documented before the grant can be paid out. It must be confirmed that approved workshops operating in accordance with current regulations (the EU Ship Recycling Regulation or the EU Waste Shipment Regulation), are used.

3. THE LOAN PROGRAMME

The loan programme was launched in May 2020 as part of the government's Covid-19 measures, and is is targeting ship owners within commercial shipping and fishing wanting to invest in zero or low emission vessels, and ship owners wanting to convert a vessel to reduce emissions.

The starting point is that a loans under the programme forms part of a comprehensive financing solution, including both self-financing and part-financing from a financial institution (bank). Alternatively, loan(s) under the programme may be included as a financial contribution together with other types of low risk loans.

4. THE AID AMOUNTS AVAILABLE AND THE APPLICATION PROCEDURE – CONCLUDING REMARKS

Grants under the condemnation facility are awarded in accordance with the state aid regulations, subject to the requirement that the applications for grants are filed prior to the applicant entering into binding agreements for scrapping and prior to making investments in the new vessel.

The maximum aid amount available under the condemnation facility is limited to NOK 8 million each vessel. However, normally the state aid regulations for investments in measures for environmental protection beyond EU standards (GBER art. 36), are used. This implies that the aid amounts as a main rule may not exceed 40% of the eligible costs for large businesses, 50% for medium sized-businesses and 60% for small businesses.

Grants may also be awarded in accordance with the regulations for de-minimis aid (no: "bagatellmessig støtte"), limited to a maximum amount of NOK 2 million.

If other forms of public support are awarded in connection with the new vessel, the cumulus rules in state aid regulations apply (GBER art. 8).

The maximum loan amount under the loan programme is NOK 50 million. The deduction period may be customized, depending on project type, but is normally 15 years. The loans are normally paid after the project has been completed and after incurred costs have been confirmed by an auditor. Part payment at agreed milestones and/or advance payments may however be separately agreed.

Applications under both the condemnation facility and the loan programme are sent to Innovation Norway, which makes a concrete assessment of each application.

The government's expectation is that the facilities will help ensure that short sea shipping has a good financial offer that contributes to older vessels being replaced by more environmentally and climate-friendly vessels.

The government's newsletter regarding the facilities is available here.