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Historic marine-fuel switch looms, but key countries aren't ready

Even among those backing the rules, aggressive enforcement looks unlikely

London

HISTORIC rules to clean up pollution in the shipping industry are two weeks from taking effect, but there are signs that enforcing the new legislation will prove tricky.

The International Maritime Organisation (IMO), part of the United Nations, is trying to curb the release of sulphur oxides that it says are bad for human health and contribute to acid rain.

Shipowners and oil companies have spent billions of dollars getting ready. However, countries home to around 15 per cent of the world's oil-refining capacity have so far failed to sign up to the pact that's designed to slash emissions of the pollutant starting in January.

And even among the nations that back the rules, some important ones don't look likely to start with an aggressive implementation.

For its part, the IMO says that any country that ratified the rules made a commitment to implement them from Jan 1.

While the IMO sets the regulations, it's down to individual states to put them into practice, inspecting vessels and having a legal framework in place to punish those that aren't compliant.

But what that will look like in reality is still unclear in several locations. "Most states are keeping their cards really close to their chest," said Alessio Sbraga, a partner in the shipping team at Holman Fenwick Willanin London. "There's a general lack of transparency. That's concerning because, in the first place, robust and consistent enforcement will be important for a level playing field."

South Africa has agreed, along with 95 other IMO member states, to enforce the rules in its waters. But legislation to make that possible won't be ready in time.

"That bill is not going to see the light of day until sometime next year," said Edmund Greiner, a maritime lawyer for Shepstone & Wylie's Cape Town office, who advises the South African Maritime Safety Authority (SAMSA) on issues relating to marine pollution.

"Without that bill coming into force of law as an act of parliament, we can't do anything in South Africa to enforce the provisions."

Fewer than half of the 20 member states of the Caribbean memorandum of understanding have laws to enforce IMO 2020, according to the organisation's secretary General Jodi Barrow.

Shipping companies fear that lax enforcement might tempt some to cheat. That's crucial because fuel is normally the industry's single biggest cost, so non-compliant firms could glean a competitive edge.

The legislation is supposed to mean that ships either consume fuel with 0.5 per cent sulphur - down from a 3.5 per cent limit in most parts of the world today - or that they need on-board equipment called scrubbers to prevent the sulphur from being released into the atmosphere.

Strict implementation is "extremely important, because if you use high sulphur fuel oil you can save immensely on costs and there is a very high potential for fraud", said a spokesman of Hapag-Lloyd, a Hamburg-based container shipping giant.

Other countries are simply heeding calls from the shipping industry to take a pragmatic stance on enforcement, at least to start with.

The United Arab Emirates, for example, is anticipating that it won't begin by penalising non-compliant ships, according to the head of the nation's Federal Transport Authority. That's a potentially vital stance given the country is home to the port of Fujairah, which provides fuel for thousands of ships each year as they come and go from the Persian Gulf.

There are also significant differences in terms of fines and penalties that companies can expect to pay if they breach the rules, according to Carol Holness, a Durban-based transport lawyer for Norton Rose Fulbright who has looked into the largest maximum fines in countries' legislation.

If South Africa's bill from September passes into law unchanged, rule-breakers would risk a fine of 3.2 million rand (S$301,000), or five years' imprisonment, or both.

In Belgium, penalties for burning overly sulphurous fuel rise to more than US$8.9 million. That doubles for re-offenders.

When South Africa's laws do come into play, SAMSA may also struggle to check ships enough to manage cheating. In 2018, around 2 per cent of the ships that called at its ports were inspected, according to data from the Abuja MOU, a port-state control organisation.

A more common figure for inspections in Europe and Asia is roughly 20 per cent, according to Chris Cote, an analyst at ESAI Energy.

Singapore, one of the most important maritime hubs globally, inspected 7 per cent of vessels in 2018, according to the Tokyo MOU.

In practice, sulphur checks may differ from other inspections. Some ports are deploying drones that can identify those vessels that need a closer look.

Even if all the countries that have ratified the rules do their best to enforce them, though, some regions around the world will have to play catch up. Around 100 nations haven't signed up to the IMO agreement yet. These countries include Argentina, Colombia, Ecuador, Israel, Iraq, Mexico, Pakistan and Egypt, according to the latest IMO data available.

All together, the combined oil-refining capacity of the non-signatories is 15 million barrels a day, according to a report by Opec.

When the standards do kick in, up to 20 per cent of vessels could initially be breaking the rules, said Richard Chatterton, an oil analyst for BloombergNEF in Singapore. But the international pressure to comply means that "it would be folly for a shipping company to ignore the reality of the markets".

"Because everyone who's invested in a scrubber, everyone who invested in updating a refinery, everyone who's invested in rejigging their supply infrastructure - it's just going to be an absolute mockery if they don't enforce compliance of the rules that have precipitated billions of dollars of investment," he said. BLOOMBERG