Costs Estimate

Prof. Manuel Ventura Ship Design I MSc in Marine Engineering and Naval Architecture

Summary
Ship Acquisition Cost Costs in Shipping
Operating Costs Voyage Costs

Annex A. Convenience Flags

Panama Registry MAR Registry (Madeira)

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Ship Acquisition Cost

Prof. Manuel Ventura Ship Design I MSc in Marine Engineering and Naval Archuitecture

Investment
Initial Investment

I = Q (1 + Ka )
with:

Q: Ka :

Ship acquisition cost Owners expenses during ship building and acquisition, expressed as percentage of the acquisition cost, generally of about 5 15%.

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Ship Acquisition Cost

Based in recent statistics the following expression can be used:
Q = ( CH + CE + CM + C X ) (1 + Kb )
with:

CX : Special Equipment Cost (cranes, cell guides, etc.) Kb : Profit Margin of the shipyard, in percentage

CE : Equipment Cost CM : Machinery Cost

CH : Hull Steel Cost

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Hull Steel Cost

CH = k1 WS k 2 Cbk 3
The coefficients k1, k2, and k3 are characteristic of each ship type, obtained from statistical regression analysis.
k1 Oil Tankers Bulk Carriers Container Carriers General Cargo 2,523 2,666 3,167 2,925 k2 0.8864 0.8837 0.8802 0.8815 k3 -0.2380 -0.2336 -0.2217 -0.2285

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Profit Margin of the Shipyard

This value can be estimated as follows: 1. Estimate the shipbuilding cost of a reference ship (QR) by the previous expressions 2. Obtain the actual ship cost from the current market (QM) 3. The nominal profit margin can then be obtained by the expression:

Kb =

QM 1 QR

If the Kb value is too low or too high, for instance, outside of the interval [-30%, +30%] the cost formulas should be reviewed and updated.

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Equipment Cost
CE = k1 WE k 2
The coefficients k1 and k2 are characteristic of each ship type, obtained from statistical regression analysis.
k1 Oil Tankers Bulk Carriers Container Carriers General Cargo 15,955 11,966 14,770 13,588 k2 0.9335 0.9335 0.9313 0.9313

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Machinery Cost
CM = k1 PMCR k 2
PMCR: Propulsive power [bhp] The coefficients k1 and k2 are characteristic of the type of propulsive plant:
k1 Diesel (2 stroke) Diesel (4 stroke) 2 x Diesel (2 stroke) Steam Turbine
M.Ventura

k2 0.620 0.647 0.650 0.540

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19,877 12,507 14,141 38,480

Costs Estimate

Container Cell Guides Cost

CCG = 2500 WCG 0.97
WCG weight of the cell guides [t]

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More Detailed Estimates

When more information about the manufacturing process is known, more detailed and accurate estimates of the cost can be made The labor ratios of the shipyards are a measure of their efficiency of the production process

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Ship Acquisition Cost (Alternative)

Q = CH + CE + CM + GE + S + EC
with:

CH CE CM GE S EC

Cost of hull Cost of equipment Cost of machinery General expenses (about 90% labor cost) Profit of the shipyard (about 5% labor cost) Extra Costs

Each component can be divided into cost of materials or equipments and labor cost:

Ci = Cmat +Clabor
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Structure of the Labor Costs

General

CFx = Hhx mHh

with: Hhx: mHh: number of Man.hours spent unit cost of the Man.hour 20 US$/Hh (Source: ENVC Set. 1999)

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Hull Cost
CC = CAC + CFC
with:

CAC - Material cost CFC - Production cost

CAC = PC mC
with:

CFC = HhC mhH

Hhc: Number of man.hours necessary

PC mC

Weight of the hull (t) Unit cost of structural steel (US$/t) mC = 500 US$/t

mHh:

HhC = y PC
Unit cost of Man.hour (12 US$/hH)

(ENVC Set. 1999)

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Prices of Shipbuilding Steel

Type of Product Average (plates + stiffeners) Plates Plates (MS) (HTS) Stiffeners (MS) Stiffeners (HTS) [US$/t] 800

Source: World Steel Review 2008

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Equipment Cost
CE = PE .mE + CFE
0.95

with:

PE mE CFE

Equipment weight (t) Unit cost of the equipment (US$/t) = 1,000 US$/t (outfitting) = 3,500 US$/t (deck machinery) Installation cost of the equipment (US$)

CFE = HhE mhH

HhE = Z L B1/ 2
with:

Z L B

Coefficient

Z = 350 (non-sophisticated ships)

Length of ship Breadth of ship

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Machinery Cost
CM = 1.6 (PB 100)
with:
0.82

mM + CFM

PB Propulsive power (MCR) [kW] mM Unit cost of the machinery [US$/kW] CFM Installation and alignment cost of the machinery [US$]
Type of Propulsive Machinery Unit Cost [US$/kW] 350 450 335

Slow-speed Diesel (incl. shaft line and propeller) Medium-speed Diesel (incl. shaft line) Fast-speed Diesel
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Machinery Cost
Installation of the Propulsive Machinery

CFM = HhM mhH

HhM = 1600 (PB 100) k
0.6

with: PB: Propulsive Power (KW) K = 1 (Diesel engines, aft)

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Typical Prices of New Ships (1998-2005)

Mill.US$

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Typical Prices of New Ships (2009)

Type of Ship Handymax Bulkcarriers Panamax Capesize Products Tankers Aframax Suezmax VLCC Source: Fearnleys 2009/week 46
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DW [t] 56,000 76,000 180,000 47,000 110,000 150,000 300,000

Price [US Mill] 30.5 35.5 56.0 36.0 51.0 61.0 98.0

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Ship Demolition Value

Notes: ltd = lightship displacement

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Source: Knapp et al (2008), Econometric Analysis of Ship Demolition Market, Marine Policy
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Costs in Shipping

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Classification of Costs
1. Operating costs - the expenses involved in the day-to-day running of the ship - essentially those costs such as crew, stores and maintenance that will be incurred whatever trade the ship is engaged in. 2. Periodic maintenance costs - which are incurred when the ship is dry-docked for major repairs, usually at the time of its special survey. In older ships this may involve considerable expenditure, so shipping companies often include a dry-docking provision in their operating costs. Since this is a provision rather than a cash item it is better treated separately from operating costs. 3. Voyage costs - variable costs associated with a specific voyage and include such items as fuel, port charges and canal dues. 4. Capital costs - depend on the way the ship has been financed. They may take the form of dividends to equity, which are discretionary, or interest and capital payments on debt finance which are not. 5. Cargo handling costs - the expenses of loading, stowing and discharging cargo. They are particularly important in the liner trades.
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Operating Costs

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Operating Costs
Operating costs are the ongoing expenses connected with the daily running of the vessel, but excluding the Fuel Oil which is assumed to be included in the voyage costs. Operational Costs = Crew + Supplies and Lub. Oils + Maintenance and Repair + Insurance + Administration

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Crew Costs
Includes: Basic salaries and wages Social insurance Repatriation expenses Victuals Recruitment and training Other Models of crew selection representatives of the current market: Mod. A: Asian crew (officers, petty-officers and seamen) Mod. B: North-European crew (European officers, asian pettyofficers and seamen) Mod. C: South-European crew (Portuguese officers, pettyofficers and seamen, MAR registry)
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Number of Crew Members

The crew complement can be estimated by the expression:
with:
1/2 N CREW = k1 + k 2 CN / 1,000 + k 3 PMCR

CN - Cubic Number (Lpp*B*D)

PMCR Propulsive power [hp]

K1, K2 and K3 - coefficients from the following table:

Ship Type Oil Tankers Bulk Carriers Container Carriers General Cargo Coastal
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k1 Mod.A 10 11 12 12 8

k1 Mod.B 9 10 11 11 6
Costs Estimate

k1 Mod.C 7 7 9 10 6

k2 0.05 0.09 0.07 0.06 0.06

k3 0.020 0.018 0.018 0.018 0.018

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Crew Costs (1)

The crew costs can be approximated by the expression:
0.95 CCREW = k1 N CREW

where N is the crew number and k1 is obtained from the table as a function of the ship type and of the type of crew selected
Ship Type Oil Tankers Bulk Carriers Container Carriers General Cargo Coastal
M.Ventura

Crew A 34,000 30,000 30,000 25,000 25,000

Costs Estimate

Crew B 48,000 40,000 38,000 38,000 38,000

Crew C 56,000 45,000 41,000 41,000 41,000

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Supplies and Lub. Oils

Cost of supplies (excluding spare parts) and lubricating oils can be estimated by the expression: CSUP = k1.N + k2.(Lpp.B.T)0.25 + k3.PMCR0.7 [US$/year] The coefficients k1, k2 and k3 depend on the type of ship and type of propulsion plant, in accordance to the following table:
k1 k2 (tankers) k2 (dry cargo) k3 (Diesel engine, 2 stroke) k3 (Diesel engine, 4 stroke) k3 (steam turbine)
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3,500 5,000 4,000 200 250 150

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Maintenance and Repair

Costs associated with routine maintenance, including spares CM&R = k1.C0 + k2. P0.66MCR [US$/year]

C0: cost of the ship propulsive power [hp] PMCR: k1, k2: coefficients that depend on the type of propulsion plant, in accordance to the following table: k1 k2 (Diesel engine, 2 stroke) k2 (Diesel engine, 4 stroke) k2 (steam turbine)
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0,0035 105 125 75

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Insurance Costs
The total insurance cost including risks of navigation and war, can be estimated by the expression: CINS = k1.Vs + k2.GT [US$/year]

The coefficients k1, and k2 depend on the ship type and size, in accordance to the following table:
k1 Tankers Tankers Tankers DW < 20,000 20,000 < DW < 80,000 DW > 80,000 0.019 0.013 0.008 0.010 0.008 0.006 k2 12.00 5.50 2.75 11.50 5.00 2.50
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Dry Cargo DW < 20,000 Dry Cargo 20,000 < DW < 80,000 Dry Cargo DW > 80,000
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Administration Costs
The administration costs depend from the management structure of the ship Owner, the size of the fleet and even from the accounting criteria adopted In the absence of data specific to a given Owner, it is a good practice to assume the administrative costs as if the management is made through outsourcing the technical management to others
CADM [US%/year] Tankers Dry Cargo Coastal Ships 150,000 120,000 70,000

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Docking Costs
The average cost of the required statutory dockings can be estimated as a fraction of the ship initial cost C0, and distributed annually CDOCK = k1.C0 [US$/year]

The coefficient k1 depends on the ship type, in accordance to the following table:
k1 Tankers and Bulk-carriers Cargo liners Coastal Ships
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0,005 0,006 0,004

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Daily Costs
The value of the daily operation costs is a common way of expressing the freight It can be computed by the expression:

CDAY =

CCREW + CSUP + CM & R + C INS + C ADM + CDOCK [US$/day] 365 OH

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Voyage Costs

Voyage Costs
Variable costs associated to a specific voyage CVOY = CFO + CPD + CTP + CD with: CFO fuel costs for main and auxiliary machinery CPD port and light dues CTP tug and pilotage costs CD canal dues

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Typical FO Consumptions (1)

Type of Propulsive Plant
1. Diesel Engines Slow speed (2 stroke) Medium-speed (2 stroke) Medium-speed (4 stroke) Fast speed (4 stroke) 2. Steam Plants (oil) Steam non-reheated, up to 2 pre-heaters Steam non-reheated, with 5 pre-heaters Steam reheated
M.Ventura 3. Steam Plants (coal) Costs Estimate

Specific Consumption [kg/kW.h]

0.170 0.180 0.200 0.220

0.280 0.260 0.240 0.410

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Typical FO Consumptions (2)

Type of Propulsive Plant
4. Gas Turbines Non-regenerative Cycle Regenerative Cycle STAG Cycle 5. Electric Power Plants Diesel Steam (normal) Turbo-Generators
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Specific Consumption [kg/kW.h]

0.340 0.285 0.250

0.250 0.310 0.360

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Average Fuel Oil Prices

Type of Fuel Oil
Heavy Fuel Oil Heavy Fuel Oil Marine Diesel Oil Marine Gas Oil (HFO 380 CST) (HFO 180 CST) (MDO) (MGO)

[US$/t]
424.00 444.00 546.00 584.00

Source: Prices in Rotterdam (www.bunkerindex.com, February 2010 )

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Capital Costs
Capital costs may appear in the cashflow in 3 ways: the initial purchase cash payments to banks or equity investors who put up the capital to purchase the vessel cash received from the sale of the vessel

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Cargo Handling Costs

Cargo Handling Costs

CCH = CLOAD + CDISC + CCLM with: CLOAD cargo loading charges CDISC cargo discharge costs CCLM - allowance for cargo claims
Information about charge/discharge rates can be generally obtained from the Internet sites of the ports.

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Bibliography (1)
dAlmeida, Jorge (2009), Arquitectura Naval O Dimensionamento do Navios, Prime Books. Benford, Harry (1965), Fundamentals of Ship Design Economics, Lecture Notes, University of Michigan. (CD-ROM#42) Benford, Harry (1967), Practical Application of Economics to Merchant Ship Design, Marine Technology, January 1967. Benford, Harry (1968), General Cargo Ship Economics and Design, University of Michigan. (CD-ROM#51) Benford, H. (1970), Measures of Merit for Ship Design, Marine Technology, October 1970. Branch, Alan Edward (2007), Elements of Shipping, 8th Edition, Routledge. Buxton, I. (1987), Engineering Economics and Ship Design, 3rd Edition, British Maritime Technology, Wellsend.
Costs Estimate 43

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Bibliography (2)
Chou, C-C and Chang, P-L. (2001), Modeling and Analysis of Labor Cost Estimation for Shipbuilding The Case of China Shipbuilding Corporation, Journal of Ship Production, Vol. 17, No. 2, SNAME (CD-ROM#51) Evans, J.J. & Marlow, P.B. (1990), "Quantitative Methods in Maritime Economics", 2Ed, Fairplay Publications, London. Fisher, K.W. (1997), Economic Optimisation Procedures in Preliminary Ship Design, Naval Architect, April 1997, pp. 293-317. Gentle, N.F. and Perkins, R.J. (1982), "An Estimate of Operating Costs for Bulk, Ro-Ro and Container Ships", Bureau of Transport Economics, Canberra. Hunt, Everett C. and Butman, Boris S. (1995), "Marine Engineering Economics and Cost Analysis", Cornell Maritime Press. Liker, J. K. and Lamb, T. (2002), What is Lean Ship Construction and Repair?, Journal of Ship Production, Vol.18, No.3, SNAME (CDROM#51)
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Bibliography (3)
Magirou, Evangelos F.; Psaraftis, Harilaos N. and Christodoulakis, Nikolaos M. (1992), "Quantitative Methods In Shipping: A Survey of Current Use and Future Trends", Report No. E115, Center for Economic Research, Athens University of Economics and Business. (CD-ROM#70) Mistree, F.; Smith, W. F. ; Bras, B. A. ; Allen, J. K. and Muster, D. (1990), "Decision-Based Design: A Contemporary Paradigm for Ship Design", SNAME Transactions, 1990. (CD-ROM#51) Mulligan, Robert F. (2008), "A Simple Model for Estimating Newbuilding Costs", Maritime Economics & Logistics 10, pp.310-321 (September 2008) Rashwan, Ahmad M. (2005), "Estimation of Ship Production ManHours", Alexandria Engineering Journal, Vol.44, No.4, pp.527-533. (CD-ROM#69) Ross, J. M., (2004), "A Practical Approach for Ship Construction Cost Estimating", COMPIT04, Sigunza, May 2004.
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Bibliography (4)
Stopford, Martin. (2009), Maritime Economics, 3rd Edition, Routledge. Veenstra, Albert W. and Ludema, Marcel W. (2006), "The Relationship Between Design And Economic Performance Of Ships", Maritime Policy & Management, Vol.33, No.2 May 2006, pp.159-171. (CD-ROM#70) Watson, D.G.M. and Gilfillan, A.W. (1977), Some Ship Design Methods, Naval Architect, July 1977, pp. 279-324. Watson, D.G.M. (1998), Practical Ship Design, Vol.I, Elsevier.

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Links
www.bunkerworld.com www.bunkerindex.com www.fairplay.co.uk www.fearnrsearch.com www.lloydslist.com www.lqm.com www.steelpricenews.com www.clarksons.net (Fuel Oil Prices) (Fuel Oil Prices) (Fairplay registered users) (Fearnleys) (Fuel Oil Prices) (Steel Prices) (Shipping Intelligence Network)

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Annex A. Convenience Flags

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Convenience Flags
A ship with a convenience flag is that with a registry in a country other than the Owners Also designated by open registry, for being open to ships of foreign ship owners The main motivations are:
Lower registry taxes Lower or no taxes Freedom to employ cheaper labor

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Convenience Flags
The most well known convenience flags are:
Panama (www.segumar.com) Liberia (www.liscr.com) Cyprus (www.shipping.gov.cy) Bahamas (www.bahamasmaritime.com) Gibraltar (www.gibmaritime.com) Malta (www.mma.gov.mt) Madeira (www.madeira-management.com /aboutmadeira /shipping.html)

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Panama Registry
www.pancanal.com

Panama Registry Advantages (1)

Ownership
Any person or company, irrespective of nationality and place of corporation, is eligible to register ships under the Panamanian flag. There are no income or withholdings taxes payable by non-resident shipping corporations.

Minimum Requirements
No minimum tonnage is required for registration. Vessels older than 20 years must pass a special inspection by an authorized Panamanian inspector in order to obtain permanent Registration.

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Panama Registry Advantages (2)

Technical Certificates
Ship owners who wish to transfer their vessels to the Panamanian registry are not required to have the vessels resurveyed, provided the vessels possess valid safety certificates. Provisions are made to accept foreign tonnage certificates at the moment of registration; this obviates the necessity to have the ship dry docked prior to the registration and consequently saves the ship owners considerable expenses.

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Panama Registry Advantages (3)

Dual Registry
A foreign vessel, bare boat chartered for a period of two years can be registered in Panama for the same period without losing its previous registration, and the opposite is also permissible, that is, from Panama to the other countries. The "Dual Registry System" represents a great advantage for the Shipping community, especially for the ship owners who, for some reason or other, have no vessels under the open registry. The dual registry may be considered an answer to the problems confronted by the European Ship owners faced with the high cost of operation represented by having vessels flying the flags of most European countries versus those under open registries.

Discounts for Fleet Registrations

Discounts for fleet registration are contemplated by Law No. 36 of 1995.
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Registo Internacional de Navios da Madeira (MAR)

Registo Internacional de Navios da Madeira (MAR)

O MAR foi criado em 1989, no mbito do Centro Internacional de Negcios da Madeira e dotado de um quadro de benefcios fiscais e operacionais No MAR esto registados navios de carga geral, cimenteiros, graneleiros, navios de passageiros, petroleiros e qumicos, rebocadores, navios de transporte de gs liquefeito, dragas, plataformas petrolferas e iates. No final de 2005, estavam registados no MAR 143 navios de comrcio que, no seu conjunto, representavam uma tonelagem bruta de 1.317.814. Actualmente, encontram-se registados no MAR 150 navios, dos quais 18 so navios de passageiros, 12 navios tanque, 24 navios de carga/contentores, 32 navios mistos de passageiros e carga, 8 navios graneleiros e 56 navios diversos.
Costs Estimate 56

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Registo Internacional de Navios da Madeira (MAR)

Criado pelo DL n 96/89, de 28 de Maro Alterado pelos Decretos-Leis
No. 393/93, de 23 de Novembro, 5/97, de 9 de Janeiro [estabelece a norma interpretativa do n 3 do art 14 do Decreto-Lei n 96/89], 31/97, de 28 de Janeiro No. 331/99, de 20 de Agosto [declarao de rectificao publicada no DR n 229-I-A, de 30 de Setembro/99]

Diplomas conexos:

DL n 250/97, de 23 de Setembro (Zona Franca da Madeira - Extino do licenciamento - publicitao) Decreto Regulamentar Regional 5/93/M, de 5 de Fevereiro

Jurisprudncia:

Parecer da Procuradoria Geral da Repblica n 4/97 [publicado no DR, II, 20.11.1997] - Registo Internacional de Navios da Madeira - Zona Franca - Off-shore
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