IMO revisits fuel quality dilemma

The advent of the MARPOL Annex VI requirements for a maximum of 0.1% sulphur in fuel oil in ECAs has had a number of knock-on effects, including repercussions for the assessment of fuel oil quality. This issue was buried deep within a busy agenda for the IMO’s recent MEPC 68 and little progress was made, leaving many within the shipping industry, particularly shipowners and bunker suppliers, potentially exposed to legal disputes.

The crux of the issue is the divergence between standard market practices and MARPOL Annex VI requirements when assessing fuel oil quality. The international standard for marine fuels typically specified in bunker supply contracts is ISO 8217, which itself refers to a separate international standard, ISO 4259, with respect to how test results are to be interpreted. The incorporation of these standards into the bunker supply contract means that, in the case of a maximum specification limit given in that contract (such as 0.1% sulphur), compliance with that limit is deemed not to have occurred, with 95% confidence, if the test result is greater than the specified limit plus 0.59R [where R represents reproducibility, the potential difference between test results in different laboratories – Ed].

This means that, if the test result on which the shipowner is to rely under the bunker supply contract is above the specified limit but is no greater than “specified limit plus 0.59R”, the fuel oil supplied cannot (in the absence of other terms in the bunker supply contract that could assist the shipowner) be rejected on the basis of an off-spec test result.

Significant risk

Regulation 18 of MARPOL Annex VI, however, poses a significant risk for the shipowner in this situation. Regulation 18.8.1 requires a sample of the fuel oil to be sealed on completion of bunkering operations. This sample is known as “the MARPOL Sample”. Regulation 18.8.2 prescribes that, if the MARPOL Sample is to be analysed, the analysis shall be done in accordance with the verification procedure at Appendix VI to Annex VI.

Crucially, the Appendix VI procedure requires the nominated laboratory to undertake two tests on the MARPOL Sample, both of which are to be within the applicable repeatability margin. An average is taken of the two results, and it is that average that is compared against the limit set out in Regulation 14 (which, insofar as sulphur content for vessels operating in ECAs is concerned, is 0.1%).

Although the reproducibility margin of 0.59R features in the Appendix VI procedure, the averaging of two test results, rather than relying on a single test result (which remains standard practice in bunkering), means that a shipowner could face the possibility of having fuel oil that is compliant under their bunker supply contract, but non-compliant with MARPOL. Non-compliance with MARPOL could lead to fines and/or delays, but if the bunker supply contract has not been breached, the shipowner is unlikely to be able to claim damages from the bunker supplier for any losses sustained.

The increased push in recent months for greater enforcement of the 0.1% sulphur requirements in ECAs means that there are likely to be more inspections under MARPOL in future, and therefore a greater number of MARPOL Samples being analysed. The gap between MARPOL compliance and commercial expectations under ISO 8217 and ISO 4259 is consequently likely to become a more significant issue.

IBIA recommendation

Against the above backdrop, the International Bunker Industry Association (IBIA) has recently lobbied the IMO for alignment of the Appendix VI procedures with the commercially-favoured ISO 4259 procedures, culminating in a submission made to MEPC 68 in May. The IBIA’s campaign met opposition from several IMO member states, including many whose territorial waters fall within ECAs, such as the US, Belgium, Norway, Sweden, Germany, Poland and Latvia. On the basis of those numerous objections, the IMO rejected the IBIA’s submission.

Norway’s position on the IBIA’s submission focused on the large number of notes of protest issued against bunker suppliers for breaching MARPOL sulphur limits, which, according to Norway’s submission, evidenced the potentially substantial problem of off-spec bunkers being supplied. Norway concluded that applying a greater margin of error under MARPOL would only benefit bunker suppliers.

The current gap between the Appendix VI and ISO 4259 procedures means, however, that shipowners, as well as bunker suppliers, would likely benefit from an alignment of the two procedures.

To protect themselves against exposure under MARPOL in circumstances where no right to take action against the bunker supplier arises, the shipowner should take precautions to ensure that the fuel oil is of as high a quality as possible. The simplest way to achieve this would be to specify strict compliance with the Annex VI Regulation 14 sulphur limits when ordering fuel oil, rather than allowing a margin for error.

In practice, however, this is likely to significantly increase a shipowner’s fuel oil bill, and is therefore unlikely to be an attractive option. A shipowner could, however, insist upon fuel oil that is fully blended prior to delivery, to minimise the fluctuations in quality that can result from in-line blending (and therefore the variations in test results that may then occur).

Importantly, the IMO has not closed the door to revisions to the Appendix VI procedure. The IMO re-established its fuel oil quality correspondence group to “further examine the adequacy of the current legal framework in MARPOL Annex VI for assuring the quality of fuel oil”. The correspondence group is expected to submit its report to the IMO at MEPC 69, likely to take place in April 2016.

For the time being, however, shipowners and bunker suppliers should keep the differences between the applicable quality testing procedures well in mind.