ankara, 25-27 september 2019 · 2019. 10. 2. · botas ankara, 25-27 september 2019 1. correggio...

Energy Market Development

Risk Management Training for

BOTAS

Ankara, 25-27 September 2019

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Correggio ConsultingBoutique consulting company set up in 2006 by Jan Haizmann

after 15 years of legal and commercial practice

OUR SERVICES involve advising corporations, start-ups, governments, and International Organizations in areas such as legal, regulatory, operations, commerce and strategy. Below is a list of services rendered:

Regulatory and legal due diligence; in-house style regulatory function.

Market entry strategy for power and gas markets.

License submissions and co-ordination of pan-European registration procedures as an outsourced service.

Project support for asset purchases in gas and power.

Assistance in negotiating legal arrangements for electricity and gas.

Legal risk analysis in the context of market risk reports or counterparty risk reports.

Assistance in regulatory compliance for power and gas market participants in multiple European countries.

Support in finding investment opportunities in the gas industry.

Anti-trust and compliance audits for energy supply and trading agreements.

Corporate positioning vis-à-vis regulators and state authorities.

Asset reviews, with a focus on wholesale trading portfolios.

Institutional consulting within international framework service contracts.

Implementation of the greenhouse trading schemes in the EU.

Monitoring EU legislation in competition policy law and energy regulation;

Carrying out compliance audits in relation to customs and duties, financial and environmental regulations.

Filing notifications with the European Commission and the relevant national authorities in relation to merger and acquisition deals.

Market research and reporting.

Product Compliance Audits.

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Workshop leader: Jan Haizmann

Academia

Studies & Gratuation Universität Freiburg (Germany)1st State Exam in Law (1990)In Munich 2nd State Exam in Law (Ass.iur 1994), Post-Grad: Brussels University (Dr. iur. - 1998) und London University (LL.M. 1991)Admission to The German Bar, OLG München 1994

Career

1994-1999 Associate Lawyer Graf von Westphalen, Freiburg & Brussels Office 1999-2001 Director Regulatory Affairs, ENRON, London and Frankfurt2001-2002 Senior Legal Counsel, TXU Energy Trading SA, Geneva2003-2005 Front Desk Gas, Glencore Energy, London

Since 2006 Chairman EFET Legal Committee, Director EFET Brussels OfficeBoard Member EFET, Amsterdam, Member of the EEX Exchange Council, Leipzig

Founder and Managing Director of CORREGGIO CONSULTING, Brussels - successful boutique advisory firmwww.correggio-consulting.eu- Multiple advice in arbitration proceeding context- building own practice as independent international expert for energy trading - planned co-operation with network of lawyers and industry expertsin partnership with European Energy Lawyers Association: www.eela.eu

Introduction

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http://www.correggio-consulting.eu/

http://www.eela.eu/

Agenda - Day 1

• DAY ONE - Legal Basis Risk/ Contractual Training

– Introduction into traded gas market and market risks

– Contractual training

– What needs to be in a trading contract?

– What is the advantage of standardization (Back-to-Back risk)

– EFET Trading Gas Agreement in detail

– Questions and Answers

– Test on Contractual Issues

4

Agenda - Day 2

• DAY TWO (Morning Session)

• Introduction to risk policies for political risks

– KYC principles

– ways to manage trade restrictions such as sanctions

• trade sanctions on Russia and Iran

• DAY TWO (Afternoon Session)

• Regulatory risk

– introduction into compliance system

– REMIT reporting obligations as envisaged by the EU

5

Agenda - Day 3• Market Risk Management, Credit Risk Management, Operational Risks

– Market risk management & ways to mitigate currency risks

– Credit risk management through credit arrangements

• ways to mitigate insolvency risk

• collateralization of trading (what type of collateral)

• functionality of letters of credit

• functionality of parental guarantees

• functionality of a credit department and credit setting with counterparties

• clearing

– Operational Risks

• Force Majeure scenarios

• non-delivery due to grid failures

– Questions and Answers

6

Day One

Legal Risk: Contractual Training

EFET Gas Master Agreement

7

Trading: Essential Risks

Legal

RISKS

Operational Credit

9

Contracting Options for Trading

Legal / Contractual

• PART I. A walk-through the EFET standards

• PART II. Regulatory challenges: products

classification under MIFID II

• PART III. BREXIT

• PART IV: Netting as mitigator for key credit /

legal risk

11

Contractual StandardisationOr how things can go wrong …

ISDAFinancial OTC Trading (Derivatives)Developed by banks (ISDA 1992 und 2002)Template for standard contracts for physical electricity and gas trading

EFETPhysical OTC TradingDeveloped by EFET in cooperation with energy tradersSince 2000 established as standard for electricitytrading in Continental Europe

GTMA:Historical Standard for physical OTC trading of electricity in England & Wales

PART I: a walk through the EFET standards

EFET Standard Contracts ...

– Save time: You only negotiate the Elections

– Are Fair: All provisions are un-biased, no side has an

unfair advantage

– Are Complete: Address all the important issues

– Provide Best Risk Management:

– Credit Clauses,

– Early Termination

– Close-out Netting

Risks need adequate management

DEFAULT (COUNTERPARTY) RISK

The Seller does not deliver the agreed volume.The Purchaser does not take delivery/pay the agreed price.

Seller Trader Purchaser

EFETAgreement EFETAgreement

Check and Manage Credit Risk(EFET clauses)

Risks need adequate management (2)

PERFORMANCE RISK

The Trader is required to:

•purchase replacement volumes at a higher price than the price agreed with the Defaulting Seller.

•sell the volume to a different Purchaser at a lower price than the price agreed with the Defaulting Purchaser.

Agree on Early Termination Clauses &Close-Out Netting

Risks need adequate management (3)

Operational RiskOOPS!

Trading commodities in a liquid market is a mass business, i.e. a multitude of transactions are entered into every day.

Mistakes occur when operationally handling the transactions (details later in Programme).

Use EFET Standard Agreements &Confirmations

Risks that need adequate management (4)

Agree on EFET GAS TRADE RESTRICTION CLAUSE

Political Risk – Trade Restrictions

The counterparty is added to EU sanctions listUS Sanctions – Vs EU Sanctions

Navigating the EFET Universe ofDocumentation

EFET Geeral Agreement Electricity

EFET Credit Support Annex (CSA)

Spain PVB

Austrian VTP

EFET Master Netting Agreement (MNA)(formerly: CPMA)

TTFGaspool

EFET General AgreementAcceptance and Delivery of Natural Gas

NBPZPT

Ireland

CSA

PEG PSV

Gas Capacity

VPAOC

UK Beach

CO2

EMIR RMTA

REMIT RA

Turkish Beach Appendix? – Trading at ICT with Bulgaria/Greece ( potential will be there)

The EFET Universe of Documentation

The EFETGeneral Agreement (Gas)

EFET General Agreement (1)

Individual

Contract

Individual

Contract

General Agreement

The General Agreement is the legal framework:

„(…) governs all transactions the Parties shall enter into for the purchase, sale, delivery and acceptance of Electricity/Natural Gas including Options (…) (each such transaction being an „Individual Contract“) .“

Individual

Contract

Individual

Contract

EFET General Agreement (2)

Main

Document

Annex 2 a-d

(Confirmation

Templates)

Election Sheet

Annex 1

Definitions

§1.1

Subject of Agreement

The General Agreement has several components:

„(…) this General Agreement (which includes ist annexes and the election sheet („Election Sheet“)) (…)“

2nd October 2017, Amsterdam

Why so manyparts?

Not negotiated:

• Main Document = 24 pages• Annex 1 (Definitions) = 7 pages

TOTAL= 31 pages

Negotiated:

• Election Sheet = 7 pages• Individual Contract = 2 pages

TOTAL= 10 pages


And on top of this ...

“I buy 100 MWh from you for delivery in Q1 2018 – and the rest is

per the EFET!!!! “ Whilst the General Agreement (framework) is made in writing …

… the Individual Contracts canbe concluded over thetelephone(provided your jurisdiction allowscontracts to be concluded this way)

13 June 2018, Budapest

General Agreement (Overview)

Performance Assurance§17

Conclusion of Individual Contracts,

§3

Delivery &Acceptance,

Payment

§§4-6

Assignment, Confidentiality,

Reps & Waranties, Governing Law &

Jurisdiction

§§19-23

Invoicing, Taxes

§§13-14

Liability

§12

Force Majeure

§7Failure to Deliver or

Accept

§8

Early Termination

CLOSE-OUT NETTING

§10-11

13th June 2018, Budapest

Holger Hartenfels – Legal - page 3

Credit Derivatives

Close out netting (1): credit risk mitigation techniques

– Traders use different credit risk mitigation techniques.

– Credit risk management recognises risk mitigation, provided it results in reduction of credit risks and it is legally enforceable.

– As far as banks and Investment Firms are concerned: to the extent risk mitigation is eligible, institutions are allowed to reduce their credit exposure when calculating their capital requirements

Collateral SecuritisationGuaranteesNetting

Holger Hartenfels –Legal - page 26

Intro close out netting (2): netting definition

• Netting is not a legal term

– In the broadest sense: Netting is ‘offsetting of risk

positions’.

• Depending on the type of risk positions, the point in time

when it occurs and the technique used, we normally

distinguish between three types of netting:

Netting by Novation Close-out NettingSettlement Netting


Close-Out Netting…

Close-Out Netting

Reduces Exposure (= the economic risk of a Party from the total Agreement) to a minimum!

Party A Party B

Risk: EUR 30

With Close-Out Netting

Insolvency

Risk: EUR 100 + 70 = EUR 170

Without Close-Out Netting

Party A Party B


Close-Out Netting (Step 1)

§10.5(c) of the General Agreement – Winding-Up/Insolvency/Attachment

§§10.3-10.5 – Termination for Material Reason•Material Reason•From Early Termination Date: all future payments and performance in respect of all Individual Contracts released•Obligation of one Party to pay the Termination Amount (§11)

Early Termination

§10.3


EarlyTermination

§10.3

§11.2 – Calculation of Settlement Amounts

• Calculation of Settlement Amounts (from all Individual Contracts)• Settlement Amounts = Gains – Losses + Costs

SettlementAmounts

§11.2


Early Termination

§10.3

§11.1 – Calculation of Termination Amount

• Netting of Settlement Amounts and all other amounts• Results in one single Termination Amount

If amount is negative – the Terminating Party has to paythe Termination Amount

SettlementAmounts

§11.2

Termination Amount§11.1


Financially Settled Transactions

data2map.de

Great Britain and

Northern IrelandIreland

The Netherlands

Belgium

Luxembourg

Germany

France

Spain

Andorra

Portugal

MonacoSan Marino

Italy

Switzerland

Liechtenstein Austria

Czech Republic

Poland

Denmark

Slovakia

Hungary

Slovenia

CroatiaBosnia-

Herzegovina

Montenegro

Albania

Serbia

Macedonia

Bulgaria

Romania

GreeceTurkey

Ukraine

Belarus

Latvia

Lithuania

Estonia

Russian Federation

Norway

Sweden

Finland

Moldavia

Cyprus

Netting enforceable

(for qualifying

transactions)

Not enforceable

Not covered

Uncertain

Netting Map

Insolvency Related Termination

(Financial)

Physically settled OTC Transactions…

Check theEFET Legal

Opinion for the

jurisdiction of your

counterparty!

Netting Matrix

• Contractual risk management requires constant review

of netting for counterparties per jurisdiction

National insolvency law overrides contractual

stipulations

• EFET Users need to keep netting matrix across the

European Union to assess the enforceability of close-

out netting

EFET sells Netting Opinions for 25 Jurisdictions

• EFET Legal Opinions are basis of “Netting Matrix”

Netting Matrix (2)

• Should be produced by every EFET user in

view of (example follows):

specific counterparties and

various trading products

(physical/financial)

Location (residence) of CPY

• Looks at the enforceability of netting:

Early Termination scenarios

insolvency scenarios

• Enforceability of automatic termination clauses

AUSTRIA(NETTINGMATRIX)

√

Non-insolvency-related termination and close-out netting are enforceable.

√ MIFID II PRODUCTS

Insolvency-related termination and close-out netting are generally enforceable under Austrian law in the event that the agreement has been entered into with respect to "financial transactions" (as per Section 20, paragraph 4 Austrian Insolvency Act).

√ SPECIAL REGIME

Insolvency-related termination and close-out netting are enforceable under Austrian law in the event the agreement has been entered into with respect to qualified "physical transactions" as per Section 20, paragraph 4, number 2a Austrian Insolvency Act ("Handelsgeschäfte mit börsennotierten Waren und Rohstoffen im Sinne des § 1 Abs. 4 Börsegesetz (...), soweit sie nicht der Deckung des Eigenbedarfs dienen, sondern reine Handelsgeschäfte sind").

With respect to other transactions, which do not qualify as per Section 20, paragraph 4, number 2a Austrian Insolvency Act, insolvency-related termination and close-out netting are enforceable, provided, however, that only such Material Reasons which occur prior to the opening of insolvency proceedings remain valid and enforceable.

Section 10 and Section 11 of the General

√ AUTOMATIC

With respect to qualified privileged transactions as defined in Section 20 (4) Austrian Insolvency Act.

Not necessary to opt for Automatic Termination.

If transactions are out of scope of 20 (4). AT +

√ IMPROVEMENT

Add at the end of Section 1 Paragraph 1 of the General Agreement: "This Agreement shall only be used for pure trading transactions."

Add representation is inserted in Section 21 of the General Agreement:

"In addition [Austrian Party] represents and warrants the following: it does not use and does not intend to use any of the electricity delivered to it under this Agreement to cover own use ("Eigenbedarf") and any transaction entered into by it shall constitute a pure trading transaction ("reines Handelsgeschäft") within the meaning of Section 20, paragraph (4), sub-paragraph 2a of the Austrian Insolvency Act."

Source: Based on EFET Legal Opinions

Coffee Break

§1 – Subject of Agreement

• §1.1 – Subject of AgreementThe General Agreement governs ALL transactions of the Parties for the

purchase, sale, delivery and acceptance of electricity/natural gas (including Options)

• §1.2 – Pre-existing ContractsIf this §1.2 is specified as applying, each transaction between the

Parties regarding the purchase, sale, delivery and acceptance of electricity/natural gas (including Options)

entered into before the Effective Date but which remain either not yet fully or partially performed by one or both Parties, is deemed to be an Individual Contract under the Agreement.

§2 – Definitions and Construction (1)

• §2.1 – Definitions

Annex 1 to the General Agreement (Defined Terms) assigns specific meanings to some terms used in the General Agreement. These terms are begun with Capital Letters in the English version of the Agreement.

A note on translations:

If you are using a translation of the General Agreement back-to- back with the English version of the General Agreement, be aware that the translated term might be interpreted differently than in the original.

EFET does warrant the correctness/completeness of translations

§2 – Definitions

• §2.2 – Inconsistencies

In the event of any inconsistency between the provisions of the Election Sheet and the other provisions of this General Agreement, the Election Sheet shall prevail.

In the event of any inconsistency between the terms of an Individual Contract and the provisions of this General Agreement (including ist Election Sheet), the terms of the Individual Contract shall prevail for the purposes of that Individual Contract.


§3 – Concluding and Confirming Individual Contracts (1)

• §3.1 – FormIndividual Contracts may be concluded in any form (orally or otherwise).

§ 23.1 – Recording of telephone conversations & use asevidence

• §3.2 – Confirmations – no requirement for a bindingcontract!

In the event that an Individual Contract is not concluded in written form, both Parties shall be free to confirm in writing their understanding of the agreed terms of the Individual Contract

§3 – Concluding and Confirming Individual Contracts (2)

• § 3.3 – Objections to ConfirmationsIf a Party receives a Confirmation, it shall promptly review the terms of

such Confirmation and if they differ from ist understanding of the terms of the aplicable Individual Contract, notify the other Party of any inconsistency without delay.

If both Parties send a Confirmation without delay and their termscontradict, then each such Confirmation shall be deemed to be anotice of objection to the terms of the other Party‘s Confirmation.

• §3.4 – Optional: Authorised Persons Lists

§4 – Primary Obligations For Delivery/ Acceptance

• Primary Obligations of the Seller:• The Seller shall sell and deliver the Contract Quantity at the

Delivery Point

• Primary Obligations of the Buyer:• The Buyer shall purchase and accept the Contract Quantity at

the Delivery Point• and shall pay to the Seller the relevant Contract Price

• Bilateral Obligation:• Scheduling as defined in §4.2

§5 – Primary Obligations For Options

• The General Agreement also applies to Options:

• Call Options and Put Options• Seller of the Option = Writer and Purchaser of the Option = Holder• The Holder pays to the Writer the Premium• Option = right, but not obligation, to Excercise• Exercise of the Option during the Exercise Period by the Exercise

Deadline

• When an Option is exercised, the Writer and the Holderhave the primary obligations under §4

§6 – Delivery, Measurement, Transmission and Risk

• Specification of Delivery:• Electricity: current/frequency/voltage in accordance with the

standards of the relevant Network Operator

• Natural Gas: quality and pressure requirements of the relevant Physical Downstream Transportation System

• Note EFET Gas: §8a - Off-Spec Gas

• Transfer of Rights and Title:• At the Delivery Point

• Measurement & Documentation

§7– Force Majeure (1)§7.1 – Definition of Force Majeure

„An occurrence beyond the reasonable control of the Party claiming Force Majeure (the „Claiming Party“) which it could not reasonably have avoided or overcome and which makes it impossible for the Claiming Party to perform (…) its delivery or acceptance obligations.“

Including, but not limited to:

(ii)

(i) Failure of communications/computer systems of the relevant Network Operatior

Relevant Network Operator‘s failure to respond

§7– Force Majeure (2)

UNLESS: Transportation Failure, i.e. an event which (i) is beyond the reasonable control of the Claiming Party and the Network Operator and (ii) could not reasonably have been avoided by either of them and (iii) makes it impossible for both of them to perform.

§7.1 – Only in the EFET Gas:

No Force Majeure in case of

(ii)

(i) curtailment or interruption of transportationrights, orany other transportation problem

§7– Force Majeure (3)

• §§7.2 & 7.4 – Consequences of Force Majeure:Both Parties are released from their respective delivery or acceptance

and payment obligations.

No obligation to pay damages pursuant to§8 (Failure to Deliver or Accept)

• §7.5 – Only in the EFET Gas: Long Term Force MajeureWhen exceeding the Long Term Force Majeure Limit termination

right of the other Party

§7(a) Non-Performance Due to Trade Restriction

§7(a) Non-Performance Due to Trade Restriction (2)

[ ]

[ ]

the United States of America, [or]

,

relating to trade sanctions, trade embargoes and other foreign trade controls, export

controls, non-proliferation, anti-terrorism and similar laws.

• Optional clause for the EFET Gas• Valid for all types of trade restrictions (US < -> EU) • Developed in response to EU Sanctions for Russia

• §7(a).1 – Definition of Trade Restriction:

"Trade Restriction" means any law, regulation, decree, ordinance or legally binding

order, rule or requirement of the United Nations or under the laws of the European

Union, any EU Member State,

§7(a) Non-Performance Due to Trade Restriction (3)

• §7(a).2 – Release of the Trade Affected Party from Delivery, Acceptance and Payment Obligations for the period of time and to the extent affected

• §7(a).3 – Notification and Mitigation (if permissible)

• §7(a).4 – Effects on Other Party

• §7(a).5 – Accrued Amounts

• §7(a).6 – Long Term Trade Restrictions Limit(P) „have been adversely affected“ – if the Supply Period only commences

in the future?

§ 8– Failure to Deliver or Accept

• Under-/overdelivery or under-/overacceptance

• The other Party has a right to claim compensation

• Difference between Contract Price und market price (in most cases price of balancing energy)

• The idea is for the other Party not to suffer any economic loss. The other Party may or may not use the compensation payment for a replacement purchase

§ 8a– Off-Spec Gas

Unlike electricity, Natural Gas delivered may not conform to the qualityspecifications agreed:

•§8a.1 – The Seller shall procure that Natural Gas delivered at the Delivery Point conforms to the quality and pressure requirements of the relevant Physical Downstream Transportation System•§8a.2 – The Seller shall notify Buyer as soon as reasonably practicable if Natural Gas delivered is off-spec•§8a.3 – Under certain circumstances, the Buyer has a right torefuse acceptance of the Off-Spec Gas•§8a.4 – Otherwise, the Buyer has a right to be indemnified

§ 9– Suspension of Delivery or Acceptance

• Should a Party default on any payment or

should it fail to provide any Credit Support Document or Performance Assurance, the Non-

Defaulting Party is entitled to cease further

delivery or acceptance (released, not merely

suspended, from ist obligations):

• No earlier than three (3) Business Days after

sending a written

• notice to the Defaulting Party

• The Defaulting Party may avert the

§ 10 – Term and Termination Rights (1)

• §10.2 – Ordinary Termination• Expiration Date and 30 day notice• „shall apply and there shall be no Expiration Date“• Shall remain legally binding for existing rights and obligations

• §§10.3-10.5 –Termination for Material Reason• With effect from the Early Termination Date all further payments

and performance in respect of all Individual Contracts shall be released

• Obligation of one Party to pay the Termination Amount calculated in accordance with §11.1 to the other Party

§10 - Term and Termination Rights (2)

• Aim: Terminate early enough to avoid so calledCherry Picking Right of insolvency administrator

• §10.5(a) – Non-Performance• Failure to pay or to deliver any Performance Assurance• Can be first signs of an impending insolvency!

• §10.5(b) – Cross Default and Acceleration• Defaults under Specified Indebtedness between the

other Party and a third party (credit institution)

• §10.5(c) – Winding-up/Insolvency/Attachment

§10 – Term and Termination Rights (3)

• §10.5(d) – Failure to Deliver or Accept (optional)

• §10.5(e) – ONLY in the EFET Power: Long-term

Force Majeure – compare §7.5 of the EFET Gas

• §10.5(f) [(e) in the EFET Gas] – Representation or Warranty

• Often: Other Material Reason - Specified Transaction Default

§10.4 – AutomaticTermination

Election depending on insolvency law applicable to the other Party – some jurisdictions do not allow automatic netting

(Check EFET Legal Opinions!)

Automatic

Termination –

The Early Bird…

Automatic Termination

Cherry Picking (Selection) Rightof the insolvency administrator,i.e. right to refuse performanceof unprofitable contracts and toenforce profitable ones

“manual” Termination

Day 0

Post Day 0

Institution of Insolvency

Proceedings

Opening of Proceedings

Automatic Termination

Prior to

Day 0

Prior to

Day 0

§11 – Calculation of the Termination Amount

• Termination Amount = sum of all Settlement Amountsfor all Individual Contracts (Close-out Netting)

• Settlement Amount = Gains – Losses + Costs

• The Terminating Party might be the one obliged to pay the Termination Amount!

§12 –Limitation ofLiability

• §12.2 – Exclusion of Liability

Don‘t forget to amend „gross“ before negligence in the EFET Gas– otherwise you are liable for simple negligence!

§13 – Invoicing andPayment

• §13.3 – Payment Netting Every-day netting ≠ Close-Out Netting!

• §13.5 – Interest Rate

• §13.6 – Disputed Amounts (a): Pay first [subject to manifest error], dispute later (b): Pay first only undisputed amount

§14 – VAT and Taxes

• §14.8 - Termination for New Tax

• Often additional represenatation that Parties are „taxable dealers“ in the meaning of Art. 38 of the EU Council Directive 20067112/EC

• Hard BREXIT may lead to new scenarios

§15 –Floating Prices

• §15.1 – Calculation of Floating Contract Prices Calculation Agent

• §15.2 – Provisions in case of a Market Disruption Event

§16 – Guarantees and Credit Support

• §16 – Credit Support Documents & Credit Support Provider

„ (…) the Parties may agree, on or at any time after the Effective Date, or at the time of the concluding of each Individual Contract (…)“

Parent Company Guarantee Bank Guarantee Letter of Awareness re Control and Profit Transfer

Agreement Letter of Credit

§17 – Performance Assurance (1)

• §17.1 – Right to Require

• If a Party believes in good faith that a Material Adverse Change (MAC) has occured

• To be provided within 3 Business Days from a written notice

• Otherwise: Termination Right of the Requesting Party §10.5(a)

§17 – Performance Assurance (2)

• §17.2 – Material Adverse Change

• §17.2(a) and (b) - Credit Ratings (Party/Bank as CSP)

• §17.2(c) and (d) – Financial Covenants, Decline inTangible Net Worth

• §17.2(e) and (f)– Expiry/Failure of Performance Assurance or Credit Support

• §17.2(g) – Failure of Control and Profit Transfer Agreement

• §17.2(h) – Impaired Ability to Perform

• §17.2(i) – Amalgamation/Merger

§18 – Financial Statements and Tangible Net

Worth§18.1 – Annual/Quarterly Reports (Optional)

§18.2 – Tangible Net Worth (Optional)


§19 –Assignment

• §19.1 – ProhibitionNot without prior written consent of the other Party

• §19.2 – Assignment to Affiliates (Optional) Affiliates must be of an equal or greater creditworthiness and incorporated in the same jurisdiction

§20 –Confidentiality

• §20.1 – Confidential Obligation (Optional)The terms of an Individual Contract are confidential

• §20.2 – Exclusions

§21 – Representations and Warranties

A Party represents and warrants –

• It has the power to enter into the EFET Agreement• It is authorised to perform all obligations thereunder• No Material Reason exists with respect to it• It has all required licenses and approvals• It is a professional party and not insolvent

Etc.


§22 – Governing Law andArbitration

• §22.1 – Governing Law• EFET Power – German law• EFET Gas - Option A (English Law) or Option B (German Law)

• §22.2 – Arbitration• EFET Power – German Institution of Arbitration (DIS)• EFET Gas - In case of Option A: Rules of the London Court of

International Arbitration (LCIA); in case of Option B: DIS


§23 –Miscellaneous -

Notices§23.1 – Recording of Telephone Conversations

§23.2 – Notices and Communications

§23.3 – Amendments

§23.4 – Partial Invalidity

§23.5 – Third Party Rights


LunchBreak


Case Study: Filling in the Election Sheet

Election Sheet

§1Subject of Agreement

§1.1 Subject of Agreement: [ ] §1.1 shall apply, or[ ] § 1.1 shall apply, except (…)

§1.2 Pre-Existing Contracts: [ ] § 1.2 shall apply, or [ ] § 1.2 shall notapply

§2Definitions and Construction

§ 2.4 References to Time: time references shall be:[ ] as provided in the General Agreement (CET), or [ ] to the following time:

Case Study: Filling in the Election Sheet (2)

§3Concluding and Confirming Individual Contracts

§ 3.4 Authorised Persons:[ ] § 3.4 shall apply to Party A and shall be as designated in Annex

, or[ ] § 3.4 shall not apply to Party A[ ] § 3.4 shall apply to Party B and shall be as designated in Annex

, or[ ] § 3.4 shall not apply to Party B

§7Non-Performance Due to Force Majeure

§ 7.1 Definition of Force Majeure:[ ] § 7.1 shall apply as written in the General Agreement, or[ ] § 7.1 shall not apply as written but instead shall be as follows:


§5Primary Obligations for Options

§ 5.3 Exercise of Option and Deadline:If in respect of an Individual Contract which provides for an Option no ExerciseDeadline is specified:[ ] the Exercise Deadline shall be as provided in § 5.3; or[ ] the Exercise Deadline shall be .



§ 10Term and Termination Rights

§ 10.2 Expiration Date:[ ] § 10.2 shall apply and the Expiration Date shall be: , or [ ] § 10.2 shall not apply and there shall be no Expiration Date

§ 10.4 Automatic Termination:[ ] §10.4 shall apply to Party A, with termination effective , or [ ] §10.4 shall not apply to Party A[ ] §10.4 shall apply to Party B, with termination effective , or [ ] §10.4 shall not apply to Party B



§ 10.5(b) Cross Default and Acceleration:

[ ] § 10.5(b)(i) shall apply to Party A, or[ ] § 10.5(b)(i) shall not apply to Party A

[ ] § 10.5(b)(i) shall apply to Party B, or [ ] § 10.5(b)(i) shall not apply to Party B

[ ] § 10.5(b)(ii) shall apply to Party A and the Threshold Amount for Party Ashall be: , or[ ] § 10.5(b)(ii) shall not apply to Party A

[ ] § 10.5(b)(ii) shall apply to Party B and the Threshold Amount for Party A shall be: , or[ ] § 10.5(b)(ii) shall not apply to Party B



§ 10.5(c) Winding-up/lnsolvency/Attachment:[ ] § 10.5(c) (iv) shall apply and the applicable time period is within days, or[ ] § 10.5(c) (iv) shall not apply

§ 10.5(d) Failure to Deliver or Accept: [ ] § 10.5(d) shall apply, or [ ] § 10.5(d) shall not apply

§ 10.5 Other Material Reasons:[ ] Material Reasons shall be limited to those stated in the General Agreement, or[ ] the following additional Material Reasons shall apply to Party A:

[ ] the following additional Material Reasons shall apply to Party B:



§12Limitation of Liability

§ 12 Application of Limitation:[ ] § 12 shall apply as written in the General Agreement, or[ ] § 12 shall be amended or replaced in its entirety as follows:

§ 13.2 Payment:

§13Invoicing and Payment

initial billing and payment information for each Party is set outin § 23 of this Election Sheet

§ 13.3 Payment Netting: [ ] § 13.3 shall apply, or [ ] § 13.3 shall not apply

§ 13.5 Interest Rate: the Interest Rate shall be the one month EURIBOR interest rate for 11:00 a.m. on the Due Date, plus percent (_%) per annum.§ 13.6 Disputed Amounts: [ ] §13.6 (a) shall apply,

or [ ] §13.6 (b) shall apply



§14VAT and Other Taxes

§ 14.8 Termination for New Tax:[ ] unless otherwise specified in the terms of an Individual Contract the provisions of § 14.8 shall apply to such Individual Contract only in the circumstances specified in the first paragraph of § 14.8, or[ ] subject to the terms of an Individual Contract, the provisions of §14.8 shall only apply in the following circumstances: [ ]

§ 14.9 Withholding Tax:[ ] § 14.9 shall apply, or [ ] § 14.9 shall not apply



§15Settlement of Floating Prices and Fallback Procedures For Market Disruption

§ 15.5 Calculation Agent: [ ] the Calculation Agent shall be Seller, or[ ] the Calculation Agent shall be

§16Guarantees and Credit Support

§ 16 Credit Support Documents:Party A shall provide Party B with the following Credit Support Document(s):

Party B shall provide Party A with the following Credit Support Document(s):

§ 16 Credit Support Provider:Credit Support Provider(s) of Party A shall be:Credit Support Provider(s) of Party B shall be:



§17Performance Assurance

§ 17.2 Material Adverse Change:the following categories of Material Adverse Change shall apply to Party A:

[ ] §17.2 (a) (Credit Rating), and the minimum rating shall be: ; [] §17.2 (b) (Credit Rating of Credit Support Provider that is a Bank);

[ ] §17.2 (c) (Financial Covenants), andthe EBIT to Interest ratio shall be: ,the Funds From Operations to Total Debt ratio shall be: , and the Total Debt to Total Capitalisation ratio shall be: ;[ ] §17.2 (d) (Decline in Tangible Net Worth), and the relevant figure is:

;[ ] §17.2 (e) (Expiry of Performance Assurance or Credit Support), and[ ] the relevant time period shall be , or [ ] no time period shall apply;[ ] §17.2 (f) (Failure of Performance Assurance or Credit Support); [ ] §17.2 (g) (Failure of Control & Profit Transfer Agreement);[ ] §17.2 (h) (Impaired Ability to Perform); and [ ] §17.2 (i) (Amalgamation/Merger)



the following categories of Material Adverse Change shall apply to Party B:

[ ] §17.2 (a) (Credit Rating), and the minimum rating shall be: ; [] §17.2 (b) (Credit Rating of Credit Support Provider that is a Bank);

[ ] §17.2 (c) (Financial Covenants), andthe EBIT to Interest ratio shall be: ,the Funds From Operations to Total Debt ratio shall be: , and the Total Debt to Total Capitalisation ratio shall be: ;[ ] §17.2 (d) (Decline in Tangible Net Worth), and the relevant figure is:

; [ ] §17.2 (e) (Expiry of Performance Assurance or Credit Support), and[ ] the relevant time period shall be , or [ ] no time period shall apply;[ ] §17.2 (f) (Failure of Performance Assurance or Credit Support);[ ] §17.2 (g) (Failure of Control & Profit Transfer Agreement); [ ] §17.2 (h) (Impaired Ability to Perform); and[ ] §17.2 (i) (Amalgamation/Merger)


Case Study: Filling in the Election Sheet (12)§18

Provision of Financial Statements and Tangible Net Worth§ 18.1 (a) Annual Reports:[ ] Party A shall deliver annual reports, or[ ] Party A need not deliver annual reports, and[ ] Party B shall deliver annual reports, or

[ ] Party B need not deliver annual reports

§ 18.1(b) Quarterly Reports:[ ] Party A shall deliver quarterly reports, or[ ] Party A need not deliver quarterly reports, and [ ] Party B shall deliver quarterly reports, or[ ] Party B need not deliver quarterly reports

§18.2 Tangible Net Worth:[ ] Party A shall have a duty to notify as provided in §18.2, and the applicable figure for it shall be , or[ ] Party A shall have no duty to notify as provided in §18.2, and[ ] Party B shall have a duty to notify as provided in §18.2, and the applicable figure for it shall be ,



§19Assignment

§ 19.2 Assignment to Affiliates:[ ] Party A may assign in accordance with §19.2, or[ ] Party A may not assign in accordance with §19.2, and[ ] Party B may assign in accordance with § 19.2, or [ ] Party B may not assign in accordance with §19.2

§20Confidentiality

§ 20.1 Confidentiality Obligation:[ ] § 20 shall apply, or [ ] § 20 shall notapply



§22Governing Law and Arbitration

§ 22.1 Governing Law:[ ] § 22.1 shall apply as written, or[ ] § 22.1 shall not apply as written but instead shall be as follows:

§ 22.2 Arbitration:[ ] § 22.2 shall apply as written and the language of the arbitration shall be:

, or[ ] § 22.2 shall not apply as written but instead shall be as follows:

§ 22.1 Governing Law and Arbitration:[ ] Option A shall apply; or[ ] Option B shall apply and the language of the arbitration shall be ; or [

] Neither Option A nor Option B shall apply and the following provisions shall apply in respect of governing law and dispute resolution:



PART II: ADDITIONAL PROVISIONS TO THE GENERAL AGREEMENT

Executed by the duly authorised representative of each Party effective as of the Effective Date.

"Party A" "Party B"

[Name of Party]

[Name of Signatory/ies]

_ [Name of Party]

_[Name of Signatory/ies]

[Title of Signatory/ies]_

[Title of Signatory/ies]





Spain PVB

Austrian VTP


TTFGaspool


NBPZPT

Ireland

CSA

PEG PSV

Gas Capacity

VPAOC

UK Beach

CO2

EMIR RMTA

REMIT RA



The EFET GasAppendices

The GasAppendices

Gaspool Hubin Deutschland

TTF(Title TransferFacility) in theNetherlands

NBP(National Balancing Point) in UK

ZPT(Zeebrugge ) in Belgium

VTP(Virtual Trading Point)in Austria

PSV(Punto di ScambioVirtuale) in Italy

VP(Punkt Wirtualny) in Poland

PEGs/TRS(Pointsd'échange de gaz) in France

AOC(Almacenamiento Operativo Comercial) in Spain

[UK Beachin UK]


The GasAppendices

In Theory

EFET Gas General Agreement for Natural Gas= all you need for trading gas at any hub in Europe

In Practice

Hub Operator’s Damages and Force Majeuresometimes divergent (e.g. TTF, VTP)Cash-Out mechanism may require to make supplementary arrangements





Spain PVB

Austrian VTP


TTFGaspool


NBPZPT

Ireland

CSA

PEG PSV

Gas Capacity

VPAOC

UK Beach

CO2

EMIR RMTA

REMIT RA



The EFETCredit Support Annex


The CSA defines the terms under which Eligible Credit Support (Cash or Letterof Credit) is posted or transferred between the Parties.

Eligible Credit Support is security (collateral) for the Exposure.

Exposure means the amount determined by the Valuation Agent to be due andpayable to a Party pursuant to the method set out in § 11 of the GeneralAgreement, i.e. the amount that would be payable to such Party upontermination of all outstanding Individual Contracts at that time.

The CSA may be executed at the same time as the General Agreement or anytime threreafter.



Q: What would you have to pay to me if we terminated the EFET today ?

A: My EXPOSURE

I want SECURITY for it!




Spain PVB

Austrian VTP


TTFGaspool


NBPZPT

Ireland

CSA

PEG PSV

Gas Capacity

VPAOC

UK Beach

CO2

EMIR RMTA

REMIT RA



The EFETMaster Netting Agreement

13 June 2018,

EFET Power ISDAEFET Gas GTMA Others

EFET Master Netting Agreement (MNA)

CSA zum MNA

The EFET Master Netting Agreement (MNA)

= Netted Agreements (NAs)

Close-Out Events

MNA Default Events

NAs Default Events

or

Harmonised Default Events

and either

Trading Products

• Different Regulatory Regimes apply ->

different product definitions

Table 1: MIFID II definition of relevant financial instruments (FI) for commodity trading

Physically settled & concluded: Cash settled & concluded:

Spot

Bilateral

OTCon OTF

on

MTFon RM

on 3rd

Country TV

Bilateral

OTCon OTF on MTF on RM

on 3rd

Country TV

Power and gas

delivery in EUNo FI if must

be physically

settled

Industry

understanding

not a FI if 3rd

country TV is

similar to OTF

Oil and coal

but „look

alike“ are in

scope

Other

commodities and

exotics

but „look

alike“ are in

scope

GoOs

(In German EEG

explicilty

exempted from

FI)

but „look

alike“ are in

scope

EUAs/CERs

= FI

= not a FI

TV = Trading Venue;

RM = Regulated Market;

MTF = Multilateral Trading Facility;

OTF = Organised Trading Facility

„look alike“ = OTC contract

equivalent to TV/3rd country TV

Other commodites/Exotics/GoO = as defined in C10 and Art. 8 of

RTS 2017/565

All FI (except EUA and CER) on this table are at the same time

commodity derivatives // spot EUAs/CERs are „only“ FI ; and all

other EUA/CER (forward/future, cash/physically settled)) are

derivatives (see C4)

Regulatory challenges: products classification MIFID II (1)

Problem: Physically Settled OTC Power delivered on SWISSGRID

Table 2: MIFID II relevant products for ancillary activity tests (AA-tests)

Note: privileged transactions in above products (hedging, obligatory

liquidity provision, transactions by authorised entity and certain

intragroup transactions) are not relevant!

= in scope

= out of scope

Physically settled & concluded: Cash settled & concluded:

Spot

Bilateral


on 3rd

Country TV

Bilateral


on 3rd

CountryTV

Power and

gas delivery

in EU

FI,

bu

t do

es

no

t co

un

t ag

ain

st

the

thre

sh

old

so

f the

AA

-tes

tsa

cc

.to

ES

MA

FI,

bu

t do

es

no

t co

un

t ag

ain

st

the

thre

sh

old

so

f the

AA

-tes

tsa

cc

.to

ES

MA

Oil and coal

but „look

alike“ are

in scope

Other

commodities

and exotics

but „look

alike“ are

in scope

GoOs

(In German

EEG explicilty

exempted

from FI)

but „look

alike“ are

in scope

EUAs/CERs

Regulatory challenges: products classification MIFID II (2)


PART IV: BREXIT

13th June 2018, Brussels

Draft EU/UK Withdrawal Agreement

• 19 March 2018: Latest working draft published by the European

Commission and the UK Government. Colour coded to identify level

of agreement

• October 2018: Practical deadline for settling the Withdrawal

Agreement

• Title VI Ongoing Judicial Cooperation in Civil and Commercial

Matters

• Rome I continues to apply in the UK in respect of contracts

concluded before the end of the transition period

• Rome II continues to apply in respect of events giving rise to

damage which occurred before the end of the transition period

• Jurisdiction, recognition and enforcement of judicial decisions

provisions still to be agreed

• Nothing is agreed until everything is agreed

105

October 2018: Deadline for the Withdrawal Agreement

• Title VI (Ongoing Judicial Cooperation in Civil and Commercial Matters)

• Rome I continues to apply in the UK in respect of

contracts concluded before the end of the transition

period

• Rome II continues to apply in respect of events giving

rise to damage which occurred before the end of the

transition period

• Jurisdiction, recognition and enforcement of judicial

decisions provisions still to be agreed

• “Nothing is agreed until everything is agreed”

English Law as Governing Law

• If proceedings are brought before an EU 27 court:

• Rome I and Rome II Regulations continue to apply in the EU

• Clauses specifying English law as the governing law of contract

should continue to be recognised by EU 27 courts, irrespective of the

domicile of the parties.

• If proceedings are brought before an English court:

• Rome I and Rome II Regulations will no longer apply in the UK

• Under the European Union (Withdrawal) Bill, Rome I and Rome

II Regulations will form part of “retained EU Law”.

• Article 62 of the EU/ UK Withdrawal Agreement (for transition

period)

• UK Government’s Position Paper “Providing a cross-border civil

judicial cooperation framework” confirms that UK Government

intends to incorporate Rome I and Rome II into UK domestic law106

Recognition Jurisdiction Clause ?

• Will a jurisdiction clause in favour of

English Courts be respected?

• EU courts are bound to respect

jurisdiction clauses in favour of another

on the basis of the Brussels I Recast

Regulation.

• Post-Brexit, this Regulation will no

longer directly apply to the UK

• UK Government concerns:

• “Unilateral retention of the Brussels I

Arbitration

What is the impact on arbitration clauses in an EFET/ISDA Master Agreement which select England as a seat?

Arbitration is regulated by national law and the New York Convention -> EFET arbitration clauses should be unaffected

Arbitration awards made in the UK should continue to be recognised and enforced in EU 27 member states, and vice versa, to the same extent as pre-Brexit

Is there merit in retaining English law but submission to arbitration?

Situation unchanged – English law is popular

BREXIT

• Great Repeal Act 2018

• Impact

• Choice of Law: English – German

Rome I Convention; Art.3 Choice of Parties

Hague Convention: exclusive choice of courts

• Jurisdiction of London Courts

Not longer automatic if tried first

English law interpreted by continental courts?

• Arbitration (no impact)

• Enforceability

Recast Brussels Convention – competence of CJEU?

UK Court Rulings automatically enforced?

• Insolvency Laws

• Conclusion


www.Correggio-consulting.eu

Thank you for your attention!

Q & [email protected]

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