Reversing out of its commitment to accident-prone converted tankers has proved costly for Brazilian mining giant Vale.
Discontinuation of the chartering of tankers converted into ore carriers last year cost it $128m in payouts and penalties for early terminations of charters and amendments to contracts.
Vale disclosed the accounting in its recently released 2020 annual report.
The world fleet of VLOCs converted from tankers — largely by or at the behest of Vale — had long been the subject of controversy before the miner bit the bullet last year and took the expensive measure of terminating its long-term contracts.
TradeWinds reported last October that, as a result, around half the bulkers scrapped by that point in 2020 were converted VLOCs.
Vale's renunciation of its converts followed disasters such as the 2017 loss of the Polaris-owned, Vale-chartered 266,100-dwt VLOC Stellar Daisy (built 1993), in which progressive flooding of cargo holds after ingress of water led to a rapid sinking of the ship with the loss of 22 of 24 crew members.
TradeWinds reported in April 2020 that Vale's discontinuation of converted VLOCs would affect 25 vessels.
Polaris alone has sold 14 VLOCs for scrapping since then, according to VesselsValue. All were originally 1990s-built VLCCs, and almost all were previously owned by Vale itself, which bought a tanker fleet from Vela International in 2010 and converted them to ore carriers, later selling them on to Polaris.
Supersizing was Vale's long-term approach to making its long-haul ore competitive against Australia, but the multibillion-dollar building and chartering commitment had a series of unexpected outcomes.
The 2010 tanker conversion campaign was a step on the way to its huge Valemax programme, which also proved costly in the end when China blocked the ships from its ports until they were sold to Chinese companies.
But even the new generation of VLOCs that were built following the Stellar Daisy disaster have proved vulnerable.
Brazilian state prosecutors have now raised a claim in an unknown amount over the loss last June of a non-convert, the 300,000-dwt Stellar Banner (built 2016), owned by South Korea's Polaris.
The Stella Banner was deliberately grounded by its master in February 2020 in an incident after leaving Vale’s Ponta de Madeira terminal. Polaris has contended that there is no evidence that any structural weakness led to the grounding.
Months of efforts to save the ship and its cargo ensued, but in the end it was scuttled after a joint decision by Brazilian authorities, Polaris, class society the Korean Register of Shipping, salvors Smit and Ardent and charterer Vale.
TradeWinds reported at the time that insurers were expecting to pay out a minimum of $60m in the constructive total loss.
Damage was too severe
Vale, in its annual report, described measures it took to help Polaris save the Stellar Banner.
"We supported the ship owner with technical-operational and preventive measures to safely remove the fuel and iron ore cargo from the vessel," Vale said.
"Despite all efforts during the salvage operation, the damage to the structure of the vessel was too severe and with the approval by the Brazilian Maritime Authority and the Federal Environmental Agency ... the bulk carrier was sunk in June 2020 together with a small part of the cargo that could not be removed from the ship."
Vale disclosed that Brazil's public prosecutor, the Ministerio Publico Federal (MPF), has filed a lawsuit for environmental damage as well as compensation to Brazilian authorities for the salvage bill. It does not know how big a claim to expect.
"Although the sinking of the vessel proceeded as planned, in December 2020 the MPF filed a public civil action against us..." Vale told investors. "We are currently waiting for summons to present our defence. As this proceeding is in an early stage, we cannot reasonably estimate its impact."
Vale officials did not immediately respond to a request for further comment.
Although the potential scale of the claim for the Stellar Banner remains unknown, all the VLOC losses are dwarfed by other liabilities.
As of February 2021, Vale had allocated BRL 13bn ($2.3bn) in compensation for the Corrego do Feijao dam failure at Brunadinho in Minas Gerais state, which claimed 270 lives in January 2019.
