TORM plc (TORM) has established a joint venture with ME Production, a leading scrubber manufacturer, and Guangzhou Shipyard International (GSI), which is part of the China State Shipbuilding Corporation group. The joint venture, ME Production China, will manufacture and install scrubbers in China and deliver them to a range of maritime industry customers for both newbuildings and retrofitted vessels. TORM holds an ownership stake of 27.5% in the new joint venture.
“Our long-standing relationships with GSI and ME Production helped to facilitate this unique joint venture at a time when demand for scrubbers is expected to increase significantly. This strategic move provides us with a substantial economic interest in a venture that has the potential to be a large-scale international scrubber manufacturer. It will also result in TORM obtaining attractive prices for the scrubber investments that already have a short payback time,” says Executive Director of TORM Jacob Meldgaard.
TORM has ordered a total of 16 scrubbers with ME Production China and signed a letter of intent for additional 18 scrubbers with the new joint venture. With these orders, TORM has committed to install scrubbers on 21 vessels and potentially up to 39 vessels or roughly half of TORM’s fleet. The CAPEX related to the confirmed scrubber orders is on average estimated below USD 2m per scrubber including installation costs. TORM expects to be able to obtain financing for a significant portion of this investment.
“We are very pleased to enter into a joint venture that will leverage the synergies of a leading scrubber manufacturer, one of the world’s largest shipyards and TORM, one of the world’s largest product tanker companies. In addition to the economic potential of the joint venture, it allows us to secure availability of high-quality scrubbers, which could pose a challenge to some owners as we approach the 2020 deadline for sulfur compliance set by IMO,” says Head of Technical Division at TORM Jesper S. Jensen.
IMO 2020 sulfur regulations
From 1 January 2020, the limit for sulfur emissions from fuel oil used on board vessels operating outside designated emission control areas will be reduced to 0.50%. This will significantly reduce the amount of sulfur oxides emanating from vessels and should have major health and environmental benefits for the world.
By installing exhaust gas cleaning systems, also known as “scrubbers”, air pollutants can be limited. These scrubbers are designed to remove sulfur oxides from a vessel’s engine and boiler exhaust gases. A vessel fitted with a scrubber can continue to use cheaper heavy fuel oil, as the sulfur oxides emissions will be reduced by the scrubber.
Based on the current market expectations for the future price spread between high and low sulfur fuel, TORM expects the installation of scrubbers to be an environmentally and commercially positive business case with a short payback time.