Guarantees for deep-sea vessels: sales agreements signed, dispatch on supplementary budget issued

Bern, 18.05.2017 - On 16 May 2017 the Federal Council issued a dispatch on a supplementary budget of CHF 215 million francs to the finance committees of the two parliamentary chambers. On 18 and 19 May, the head of the Federal Department of Economic Affairs, Education and Research EAER will inform the finance committees of the National Council and Council of States on this matter. The supplementary budget covers the Confederation’s potential losses resulting from guarantees issued in respect of twelve ships owned by the SCL and SCT groups, and for a further ship that formerly belonged to the SCL group. Sales contracts for ships currently owned by the SCL and SCT groups were signed this week, and a solution has potentially emerged for the formerly owned by the SCL group.

Deep-sea shipping is suffering a major crisis worldwide. As the EAER reported on 27 January of this year, it and the Federal Finance Administration FFA had tried since mid 2015 to avoid or minimise losses to the Confederation resulting from guarantees it had provided. Since autumn 2016, the federal government has supported the shipowners in their search for investors and buyers. Taking account of the sales proceeds, the Federal Council is requesting a supplementary budget of CHF 215 million. Back in May 2016, the head of the EAER requested the Swiss Federal Audit Office SFAO to conduct an administrative enquiry into the way in which the Federal Office for National Economic Supply FONES provides and monitors guarantees. A resulting package of measures is currently being implemented, a process which will largely be completed by the middle of the year.

Global crisis in deep-sea shipping
Since 1959 the Confederation has provided guarantees to owners of deep-sea vessels under the National Economic Supply Act. This allows deep-sea vessels to be made available for national economic supply purposes in the event of a crisis, thereby ensuring that the country receives adequate supplies. From 2002 the framework budget for this was CHF 600 million; in 2008 this was increased to CHF 1.1 billion. The Confederation provided guarantees from this budget which now amount to around CHF 770 million.

Since 2008 the global deep-sea shipping industry has been experiencing a severe crisis. Foreign shipowners and banks have lost millions. In late January 2017 the EAER informed the public of the severe problems experienced by Swiss shipowners and classed the risks of providing guarantees as high.

Difficult sales process leading to losses on SCL and SCT vessels
The problems concern the SCL and SCT group, which has twelve vessels. Despite the restructuring requirements set by the Confederation, by autumn 2016 the shipowners had not managed to find an economically viable investment solution or a buyer. It became increasingly clear that the Confederation, as guarantor, would have to agree to the vessels being sold at a heavy loss.

The process of selling the ships, supported by the Confederation since November 2016, with the alternative of implementing a viable investment solution, if need be with the prospect of debts being repaid when the situation improves, has proved difficult. It has highlighted the limits and problems that the Confederation has as guarantor in influencing the sales process.

This week binding sales contracts were signed in respect of the ships owned by SCL and SCT, and the sales should be completed within three months. The Confederation is unable to provide further details on the sales, such as the identity of the purchasers.

In the course of the aforementioned process, it became apparent that one ship sold by SCL to an investor in 2011 can no longer be operated in an economically viable manner. Although a potential solution has emerged for this ship, this will also lead to losses for the Confederation, which has a stake in the related supplementary credit.

The thirteen ships involved were the subject of federal guarantees amounting to a total of CHF 254 million. However, this figure does not correspond to the Confederation’s potential losses. The cost of bridging loans provided by a bank in recent months and further liabilities, primarily maritime, incurred in order to secure the unencumbered sale of the vessels must be added. Conversely, the proceeds from the sale of the ships and loan repayments already made can be deducted. The maximum total loss to the Confederation, allowing for a substantial safety margin, is estimated at CHF 215 million.

No renewal of the framework credit for guarantees
In December 2016, the Federal Council decided against requesting Parliament to renew the framework credit for guarantees, which expires in mid-2017. The decision was taken as a result of the high risk associated with guarantees for the funding of deep-sea vessels, the substantial decline in the importance of deep-sea shipping for the national economic supply and the sizable Swiss deep-sea fleet, even after the sale.

Notwithstanding the global crisis in deep-sea shipping, the FONES‘ practices in providing and monitoring guarantees have also increased the risk of losses to the Confederation. In October 2016, the SFAO confirmed significant shortcomings after conducting an administrative enquiry commissioned in May 2016 by the head of the EAER. Based on a package of measures introduced at the end of 2016, the Department has been working with the Office to systematically overcome these shortcomings, a process which should largely be completed by summer 2017.

Regular updates for those responsible
The Federal Council, SFAO and the Federal Assembly Finance Delegation (FinDel) have been regularly and fully updated on the situation and the latest developments, and this will continue to be the case.

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