Newsletter 11-22

19th December 2022

Introduction

A coalition of the European Union, United Kingdom, United States, Australia, Canada,and Japan (the “Price Cap Coalition”) have passed new regulations in their respectivejurisdictions capping the price of Russian crude oil at USD 60 per barrel effective from 5thDecember 2022. A further cap on other Russian petroleum products will take effect from5th February 2023.

The goal of this scheme is to maintain market access to Russian crude oil and otherpetroleum products whilst limiting Russia’s earnings from these exports. It also aims toreduce upward pressure on global oil prices.

Variations in Regulations

Within the Price Cap Coalition, there is significant variation between regulations:

• The European Union Price Cap period is longer than the same regulations inother Price Cap Coalition countries (i.e. the price cap must apply for longer inorder for one to benefit). The EU scheme also requires that the price cap apply if,after being transferred to any third country destination, it becomes seaborne againwithout being refined (“substantially transformed”).
• United Kingdom regulations require the price of the relevant cargo to remain at orbelow the Price Cap from the receipt of the cargo until it either passes throughcustoms controls in any third country or is substantially transformed (refined) intoa different good.
• The United States legislation is pertinent in that there are entities within the P&Iindustry (a Club being the most notable) that fall under the United Statesjurisdiction. The United States regulations apply from the point at which the crudeoil is sold by a Russian entity for transport until the first landed sale after passingcustoms clearance in a jurisdiction other than the Russian Federation.

Across all regulations, the Price Cap only applies to the transportation of crude oil to“Third Countries” defined as all countries not party to the Price Cap Coalition. There isalso no distinction between flag or domicile, meaning that all vessels may perform suchvoyages, so long as it is in compliance with these provisions.

Duties of Shipowners, Charterers, and Insurers

Coverage by P&I Clubs is subject to the member complying with the regulations set out inthe Price Cap scheme. Members are required to provide appropriate attestation to clubsthat they have not violated the scheme’s stipulations and have conducted appropriatedue diligence. The regulations require P&I Clubs to withdraw cover in circumstanceswhere there are reasonable grounds to suspect that attestations provided to a Shipowneror Charterer are false, and/or where the cargo is sold after the voyage has commenced ata price greater than the price cap.

Ships that were carrying Russian crude oil on board on 5th December 2022 may lawfullycontinue and complete their voyages even if the cargo has been sold at a price above thePrice Cap if the voyage will be completed and the cargo offloaded by 19th January 2023.Affected shipowners must complete a Wind Down Attestation.

A Shipowner or Charterer intending to transport Russian crude oil cargoes will now berequired to provide its P&I Club with an attestation that it will not carry Russian crude oilcargoes sold at a price that, for the duration it is on the vessel, is higher than the PriceCap. This attestation requires Shipowners to agree to follow the above terms for theduration of the period of insurance.

Even if an owner or charterer does not break any law and conducts appropriate duediligence, providers of maritime services and technical assistance are obligated towithdraw their services in the event they have reasonable grounds to suspect that thePrice Cap has not been complied with.

Tier Structure

For the purposes of measuring distance and responsibility under the Price Cap scheme,the Price Cap Coalition regulations refer to a tier structure for entities engaged directly orindirectly with the Russian oil trade. More extensive checks are required of Tier 1 actorsthan those of Tier 2 or Tier 3 actors. Tier 3 actors are those without direct access toinformation on the price of cargo and will include P&I clubs and Shipowners. Charterersmay also be considered a Tier 3 actor but could be a Tier 2 or Tier 1 actor depending onproximity and knowledge of the sale contract.

• Tier 3 actors, including Shipowners, must obtain contractual commitments (PriceCap Attestation) from their contractual counter party (typically the Charterer) thatcommits not to purchase crude oil or petroleum products above the Price Caplimit. Other groups that fall into the Tier 3 actor category are P&I Clubs, insurancebrokers, and cargo/hull & machinery insurers.
• Tier 2 actors directly interact with Tier 1 parties but do not have direct access toprice information themselves. They may sometimes be able to request andreceive this information from customers in the ordinary course of business. Thiscategory may therefore include Charterers. Tier 2 actors are required to obtaindetails of the price under the contract and make it available to other parties uponrequest. If that information is not available, commitments (Price Cap Attestation)not to purchase oil above the price cap must be obtained.
• Tier 1 actors have direct access to price information. This may include Charterers.As such, Tier 1 actors are obligated to retain and provide price information orattestations to Tier 2 and Tier 3 parties. This category would generally includecommodity brokers and importers or refiners.

Record Keeping

Parties participating in the Price Cap Scheme are obligated to keep records relating tothe transportation of Russian oil. The UK regulations require such documents to be keptfor four years; the EU and US regulations require them to be kept for five years.

Provisions for Maritime Emergencies

There is, to varying degrees, a recognized need and ability to respond to maritimeemergencies within the Price Cap Coalition regulations. The specifics of what eachcountry’s legislation permits can be found in the relevant guidance from Price CapCoalition governments.

Attached you will find the circular letter issued by your P&I Club with encloseddraft of the Attestation that you are kindly requested to submit to the below P.L.Ferrari contact for collection and submission to ensure no disruption to the cover.

Monica Trusendi Monica.Trusendi@plferrari.com

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This newsletter, and our information archive, can also be accessed at

www.plferrari.com

P.L. FERRARI & CO. S.r.l.

P.L.Ferrari – A Member of the Lockton Group of Companies

This newsletter is intended solely as an overview of the marine market and does not constitute any form of advice. It is based on sources believed to be accurate at the time of printing andwe cannot be held liable for the omission of any information within the newsletter.