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January 2010

News Letter - 16th January 2010

Here is the latest update on developments in the ME region with our take on the same:

  1. Egypt is seeking a US$2Bn loan to finance further oil exploration. How much has been spent over the years looking for this ‘’Eldorado’’ which has failed to materialize in any significant quantity within Egypt?
  2. It was recently reported that consumer faith in the economy of the UAE ‘nose dived’ in the 4th quarter 2009. Jobs and financial security continue to be of concern. Jobs are still being lost including in middle management although there is also some recruitment now taking place. The lack of transparency in the issue of the Dubai “Debt Mountain” is a major concern as no one really knows the extent of the debt although many people ‘in the know’ put it at in excess of US$100Bn. If there was transparency and everyone was fully aware of the true situation perhaps the markets would stabilise.
  3. The Dubai Financial Market (DFM) started the week with a slow decline falling 1.4%: the largest drops being again in real estate dropping 2.64%. These falls in the DFM continued throughout the week again (you’ve guessed it!) mainly in real estate sector with the addition of falls in utilities and transport. A further ‘’clean up’ of the real estate market was announced with a higher level of professionalism and transparency expected after a deal was signed between the RERA (Real Estate Regulating Authority) and the Ministry of Labour. Let us see if this results in some positive action!
  4. Dubai Ports World (DP World) the worlds’ fourth-largest container terminal operator is seeking a stock listing in London after continual poor performance in its home market of Dubai. DP World is part of Dubai World group of essentially state owned companies but is not in the troubled property sector. The decision will bring back to the London market most of the former businesses of P&O, the container ports and ferries operator that D.P. World bought in 2007. DP World came onto the Dubai Market in November 2007 at US$1.30 a share, which valued the company at US$21.6bn. Senior executives of the Company have made no secret of their frustration with the poor performance, given DP World’s continuing strong profitability. The company announced pre-tax profits of US$188m on revenues of US$1.38bn for the first-half of 2009 which is extremely good considering the state of the shipping industry over the last 18 months. Essentially the Dubai market is too small for such a Company, more especially because of its pre-occupation with its troubled property sector which is likely to continue so for the foreseeable future. A Company of the caliber needs access to appropriate capital and it cannot get such in Dubai for the present and unlikely to be available for some time! The Company plans to retain a presence on the Dubai Nasdaq even though listed on the London market.
  5. According to the business news on the BBC real estate values in Dubai have dropped by 50% during 2009 and are expected to drop further in 2010 when another 50,000 housing units are due to come onto an already over-supplied market. These figures would appear to be reasonably accurate as these are the sort of figures that have been discussed by many people in the UAE over the past several months. Although the 50,000 additional units may turn out to be somewhat less due to deliberate delays in completions. The big question being asked by many people is when the real estate market will really start turning around. Few experts are willing to put a date on this. Note we are talking about Dubai these comments are not necessary applicable to the rest of the UAE. The first foreclosure on property has taken place in Dubai and the case went in favour of the bank and is said to be an indication that the Dubai property market is maturing. The bank that won the case indicated they will work together with the unfortunate people who find themselves in repayment difficulties provided they are willing to meet their financial obligations. This is all very well but as indicated in the last newsletter update ’bouncing cheques’ here is treated as a criminal offence and results in the person being jailed. This latter point needs to be changed and better responses can then be expected in such cases. Without such it is likely many expats facing difficulties will continue to ‘do a runner’. That said steps appear to be moving in the right direction on this issue.
  6. Gulf banks made provisions worth $9.4Bn in 2009 to protect assets and cover credit loss. This is a 40% rise above the provisions in 2008.
  7. Dubai Electricity and Water Authority (DEWA) some aspects of its waste management and electricity production. Power generator and water desalination are areas being considered for privatization.
  8. A large Dubai property developer, Union Properties, is considering asset sales in order to boost liquidity after a poor performance in 2009. They have a large number of debt free assets for sale and want to generate capital in order to pursue other projects not yet completed.
  9. The price per barrel of crude oil continued at a level above US$80 throughout the week.

ESPECIALLY FOR SHIP OWNERS & SHIP OPERATORS!

Many ocean going vessels over ten years old are fitted with incinerators with an operating temperature of 750°C whilst latest MARPOL requirements need a minimum operating temperature of 850°C ( MARPOL legislation of 1997 (Resolution MEPC. 76(40) ) This is the sort of operating temperature needed if the ever increasing burden of plastic is to be incinerated on board. Some statistics:

  • Of a world fleet of approximately 53,000 vessels (as of 1st July 2009) approximately 54% are over 10 years old.
  • Of this total number of vessels approximately 26% are over 20 years old. There are therefore approximately 14,500 vessels between the age of 10 and 20 years old. If we assume only vessels in this 10-20 year old bracket would be considered for renewing incinerators: a reasonable assumption for the tanker fleet since oil majors will not charter a VLCC over 20 years except under exceptional circumstances (oil majors words not the authors)! With life expectancy of bulkers of 25 years and container vessels of 30 years this assumption must be considered conservative.
  • If we assume therefore 33% of all ocean going vessels between 10-20 years old renew their incinerators to meet the 850°C operating temperatures in order to burn plastic – we are looking at approximately 4800 incinerators required for the refit market alone. Let’s hope the makers of incinerators are aware of any likely requirement and can meet it.
With the ever more stringent legislation on waste disposal on board it could be expected that ocean going cargo vessels (including container vessels) and tankers will move towards fitting of a full waste management system on board new tonnage in the near future. This needs to be reliable, compact, easy to use and supplied at a reason cost. Is the marine equipment supply industry thinking along these lines and are they prepared to meet the challenge from ever  stricter MARPOL V requirements?