dr. jan haizmann ll.m. legal committee chairman, member of the board [email protected] jan...
TRANSCRIPT
Dr. Jan HAIZMANN LL.M.
Legal Committee Chairman,
Member of the Board
Jan Haizmann 18 September 2012
European Federation of Energy Traders
1
Standardisation as Key Requirement for OTC Trading in Turkey & Basics of the EFET General Agreement Gas PETFORM EFET Workshop
20 May 2014, Ankara Turkey
www.efet.org
EFET Structure
EFET MembersEFET Deutschland
Members
BoardSecretariat
Membership CommitteeEFET Deutschland
Board
Legal Committee Gas CommitteeElectricity Committee
German TF Electricity (GTFE)
eCM PwG
TF CpML
TF Market Supervision
German TF Gas(GTFG)
TF EmissionsTrading
TF Iberia
TFSwitzerland
TF CEE-E
Legal OpinionReview
B.O. Group
TF VAT/Tax
TF France
IT Architecture
Payment Netting PG
Gas HubDevelopment
Info. Transp. PG
Clearing & Collateral
eSM PwG
eXRP TF
LNG PG
Capacity PG
Mrkt based balanc.
TF Hub/Gas Doc
LC TF Coal Doc.
LC TF Res
LC TF Gas Appendix
TF EU CollateralReform
LC TF CEE/SEE
TF Renewables
WG Balancing
Intraday PG
WG Capacity Allocation
eCredit Matrix TF
Credit Risk TF
Oversight Committee
Finance & Treasury
TF CEE-G
ProcessStandardisation
Committee
Secure Data Exch.
TF Dodd-Frank
WG TR
TF Italy
TF BeNe-G
TF Turkey
BPOC
Jan Haizmann Warsaw, 29th March, 2010 5
Why Contractual Standardisation?
Or how things can go wrong …
Jan Haizmann Warsaw, 29th March, 2010 6
Standardisation allows Risk Managment
Energy Traders need One Agreement across many
countries to effectively manage their legal risks
EFET Agreement offers international proven (!)
standard solution accross many jurisdictions
Insular solutions lead to delay in product
standardisation and create obstacles for market
developments
Standard products allow liquidity in trading and
pricing is based on standard conditions
Jan Haizmann Istanbul, 22 July 2011 7
Standardisation = Engine for Liquidity
8Dr. Jan Haizmann Berlin, 17.1.2012
Energy Trading = International Business
Quelle: EEX
9Dr. Jan Haizmann Berlin, 17.1.2012
Summary...
No Standard Contractual Terms
=
No OTC Market in any Commodity
Jan Haizmann Istanbul, 22 July 2011 10
Agenda
EFET Vision of Standardisation
Physical Commodities Trading Agreements
The EFET Gas Master Agreement – why use it?
Basic Mechanics EFET Gas Master Agreement
Why does Turkey need Standardisation
Q&A
Jan Haizmann Istanbul, 22 July 2011 11
OTC Trade as Continuous ProcesssMany Products = Same Contractal Terms
Jan Haizmann Istanbul, 22 July 2011 12
The Challenge: “right” agreement for each type of transaction
ISDA covers a wide scope of financial products, including commodities
EFET Gas and EFET Power cover continental gas, power and emissions with physical settlement
EFET does not provide for cash settlement
IETA offers standard documentation for emissions trades
Jan Haizmann Istanbul, 22 July 2011 13
The ISDA Master Agreement
2005 Commodity
Definitions
Schedule
ISDA MASTER
AGREEMENT
Physical Gas Annex
•European Gas Annex (NBP and ZBT*)
•North American Gas Annex
Physical Coal Annex
•Global Physical Coal Annex
Confirmations
Physical Emissions Annex
•EU Emissions Allowance Annex
*out of date
Physical Power Annex
•Grid Trade Master Agreement (GTMA) Annex
•North American Power Annex
Jan Haizmann Istanbul, 22 July 2011 14
Physical Commodity Trading Agreements
Gas and
Power
(Emissions)
Power UK
Coal
Emissions – now mainly used for spot
Precious Metals
Bespoke
Jan Haizmann Istanbul, 22 July 2011 15
The EFET Master Agreement
EFET GENERAL
AGREEMENT
Election
Sheet
TTF (Netherlands) ZBT (Belgium)
NBP (UK)
PSV (Italy)
PEG (France)
Austrian VTP
Gaspool (Germany)
PSV (Italy)
UK Beach
Polish VP Appendix
Credit
Support
Annex
Gas
Confirmation
Emissions
Allowance
Annex
Power
EFET Individual
PRISMA Gas
Capacity
Contract
Jan Haizmann Istanbul, 22 July 2011 16
EFET AGREEMENT SHOULD BE USED HERE...
Reference: PwC – Liberalization Effects on Turkish Energy Market – 2011 Nov 18 –
Istanbul Traders Event – Slide 3
Jan Haizmann Istanbul, 22 July 2011 17
FET Gas Master Agreement: – is used mainly here…
Advantages of the EFET Master Agreement
Ensures smooth operational processes and avoids back to back risks; allows for speedy negotiations and high volume trading
Credit clauses allow parties to monitor each other’s creditworthiness over time
Close-out netting and single agreement character to avoid cherry picking by liquidator
Endorsed by EFET Legal Committee and supported by legal opinions in various jurisdictions
Jan Haizmann Istanbul, 22 July 2011 20
EFET General AgreementI. Introduction
contractual / legal framework
simplification / standardisation
meeting on an equal footing
payment netting
close-out netting
credit risk management
Enables to focus on the trading business
Advantages of Master AgreementsAdvantages of Master Agreements
Jan Haizmann Istanbul, 22 July 2011 21
EFET General AgreementI. Introduction
developed by EFET in 2000 with the objective of:
balanced position of the Parties, big or small, seller or buyer
suitable for all local power trading markets
shall cover the whole power trading business of the Parties
shall fulfill all regulatory requirements to a standard document
accepted and established as a “Standard” across Continental Europe
EFET facilitates the speedy negotiations
The EFET General AgreementThe EFET General Agreement
Jan Haizmann Istanbul, 22 July 2011 22
EFET General Agreement II. Contractual Structure
General Agreement
(“main body”)
› Who can use it as a Party?
traders, generators, suppliers, grid operators, customers, having access to the grid
› Products:
standard physical power products (base/peak, intraday, spot, forward),
non-standard physical power products or physical power options as well
Jan Haizmann Istanbul, 22 July 2011 23
EFET General Agreement II. Contractual Structure
General Agreement(“main body”)
ElectionSheet
› Election Sheet (contains the results of the negotiation between the Parties):
› Clauses marked („...unless otherwiese specified in the Election Sheet…“) in
the main body have to be customised.
› Any other clause may be customised.
Jan Haizmann Istanbul, 22 July 2011 24
EFET General AgreementII. Contractual Structure
General Agreement
(“main body”)
Annexes & Appendices
ElectionSheet
› Annexes (part of the General Agreement by default):
Definitions, Confirmation templates
› Appendices (optional, selection):
Credit Support Annex (bilateral Margining),
Allowances Appendix (Emissions Allowances)
ElectionSheet
Jan Haizmann Istanbul, 22 July 2011 25
EFET General AgreementII. Contractual Structure
General Agreement
(“main body”)Annexes & Appendices
Individual ContractIndividual Contract
Individual ContractIndividual Contract
Individual ContractIndividual Contract
Individual ContractIndividual Contract
Individual ContractIndividual Contract
ElectionSheet
single agreement concept (§ 1) single agreement concept (§ 1)
General Agreement
(“main body”)
Annexes & Appendices
ElectionSheet
ElectionSheet
Jan Haizmann Istanbul, 22 July 2011 26
EFET General AgreementII. Contractual Structure
priority (§ 2.2)priority (§ 2.2)
General Agreement
(“main body”)Annexes & Appendices
Individual ContractIndividual Contract
Individual ContractIndividual Contract
Individual ContractIndividual Contract
Individual ContractIndividual Contract
Individual ContractIndividual Contract
ElectionSheet
General Agreement
(“main body”)
Annexes & Appendices
ElectionSheet
ElectionSheet
Jan Haizmann Istanbul, 22 July 2011 27
EFET General AgreementIII. Essential provisions of the Agreement
LegalLegal
RISKSRISKSOperation
al
Operational CreditCredit
Jan Haizmann Istanbul, 22 July 2011 28
§3 Concluding and Confirming Individual Contracts
The contract can be concluded in any form of communication
Confirmation merely documents an agreed transaction; standard confirmation templates
Contract becomes legally binding from the time the commercial terms are agreed
Many companies send Confirmation for each transaction (regardless of whether they are Seller or Buyer); electronic matching for flow deals common
§ 3.4: Only very few companies maintain authorised trader lists (administratively too burdensome)
Jan Haizmann Istanbul, 22 July 2011 29
§ 4 Primary Obligations – Delivery and Acceptance
Jan Haizmann Istanbul, 22 July 2011 30
§5 Options
Provides for definition of simple Put and Call option
Premium payable on
5th Business Day unless otherwise agreed
If Option is exercised verbally it requires confirmation in writing
No automatic exercise
Jan Haizmann Istanbul, 22 July 2011 31
§ 6 Delivery, Measurement, Transportationand Risk
Seller represents that it has right to transfer to Buyer full entitlement to the gas, free and clear of encumbrances
Measurement of gas in accordance with nomination and allocation arrangements at the Delivery Point
Seller bears risk and bear all costs up to the Delivery Point, Buyer at and from the Delivery Point
Jan Haizmann Istanbul, 22 July 2011 32
§ 7 Risk and Force Majeure
that it could not reasonably have avoided or overcome
makes it impossible for the claiming party to perform its delivery or acceptance obligations
An event beyond reasonable control of Party claiming Force Majeure
Jan Haizmann Istanbul, 22 July 2011 33
§ 7 Force Majeure
Interruption or curtailment of gas flows as a result of Transportation Failure – 2 legs:
Beyond the reasonable control of the party claiming FM
Beyond reasonable control of TSO which could not reasonably have been avoided or overcome by it and which makes it impossible for TSO to fulfil its obligations (delivery and acceptance of Gas)
Jan Haizmann Istanbul, 22 July 2011 34
§ 7 Force Majeure
Planned and unplanned Maintenance is included in Force Majeure unless the maintenance has been notified prior to entering into the Individual Contract
Obligation to notify and mitigate effects of Force Majeure
Long Term Force Majeure -> Walk-away!
3 months ˂ Z x 90/365 ˂ 1 year or 50% of contracted quantity
EFET Gas Force Majeure standard is generally not amended in order to avoid back to back risks!
Jan Haizmann Istanbul, 22 July 2011 35
§ 8 Remedies for Failure to Deliver and Accept
Jan Haizmann Istanbul, 22 July 2011 36
§ 8a Off-Spec Gas
Jan Haizmann Istanbul, 22 July 2011 37
§ 9 Suspension of Delivery or Acceptance
Suspension right only available if a) failure to pay or b) failure by Credit Support Provider to provide, replace or increase guarantee
3 Business Days prior notice required
Non-defaulting Party’s right to
a)Suspension of delivery or acceptance of Natural Gas and
b) Withhold payments owed to Defaulting Party
Jan Haizmann Istanbul, 22 July 2011 38
§ 10 Termination for Material Reason
If Material Reason with respect to a Party has occurred and is continuing, the other Party may terminate the Agreement by giving the other Party notice
Notice of Termination for Material Reason orally or in writing if confirmed in writing within 2 Business Days. Notice MUST specify the reason for termination
Termination to be effective at terminating party’s choice on any day between day on which termination notice has been received and 20 days after such day
Automatic Early Termination in the event of Insolvency required by some jurisdictions -> Early Termination Date for all Individual Contract occurs
immediately and automatically
Jan Haizmann Istanbul, 22 July 2011 39
§ 10 Termination for Material Reason
INSOLVENCY EVENT:
Law of the incorporation of counterparty applies not law chosen to govern Agreement
Close-out netting enforceable? EFET provides up to date netting opinions
TERMINATION AMOUNT: Calculation in accordance with §11
Costs – (Losses + Gains)
No replacement transaction required
Jan Haizmann Istanbul, 22 July 2011 40
Close-Out Netting - a reminder
Close-out netting is process by which, following an early
termination of the Agreement:open transactions between two parties are terminated;each terminated transaction is valued; andall the termination values, together with any unpaid amounts, are reduced to
a single net amount owed by one party to the other.
Reduces Credit Risk–can reduce exposure in close-out as exposed only up to the net amount of mutual obligations
–can reduce collateral-posting requirements by netting collateral requirements across agreements
Expands Credit Lines
Reduces Regulatory Capital Requirements–regulators are willing to require a lower amount of capital to cover transactions if netting arrangements are in place
Jan Haizmann Istanbul, 22 July 2011 41
§ 14 Taxes
For Turkish market a warehousing solution is needed
No VAT
NO STAMP DUTY
EU is now implementing reverse charge mechanism
Wholesale Market exempt from VAT
Jan Haizmann Istanbul, 22 July 2011 42
§ 16 Credit Support § 17 Performance Assurance
If a Material Adverse Change in respect of other Party has occurred (subjective standard but good faith) the other Party has the right to request Performance Assurance
Material Adverse Change: EFET provides for defined list of events (see next slide) but some parties expand list (e.g. add ISDA like language)
Letter of Credit, cash or other security reasonably acceptable to other Party
Parties may on Effective Date or upon entering into Individual Contract agree on Credit Support (PCG, bank guarantee, cash etc. ); Credit Support Annex
Jan Haizmann Istanbul, 22 July 2011 43
§19 Assignment
Neither Party has right to assign its rights and/or transfer its obligations to a third party without prior consent. Consent not to be unreasonably withheld
Election: Assignment to Affiliate without consent if
a)Of the same creditworthiness and
b)Is incorporated in the same jurisdiction
Jan Haizmann Istanbul, 22 July 2011 44
§21 Representations and Warranties
POWER TO EXECUTE
NO INSOLVENCY
ENTITY DULY ORGANISED
ACTING FOR ITS OWN ACCOUNT
PRINCIPAL
LICENCES, GOVERNMENTAL
AND REGULATORY APPROVALs
PRINCIPAL LINE OF BUSUINESS
Jan Haizmann Istanbul, 22 July 2011 45
§22 Applicable Law and Jurisdiction
Option A: English Law and Arbitration at London Court of International Arbitration
Option B: German Law and Arbitration at German Institution of Arbitration
Some parties agree on ordinary courts e.g. English courts
If other law applied prior legal review required!
Jan Haizmann Istanbul, 22 July 2011 46
EFET Gas and Gas Hub Terms
Vitual Point
No Hub Terms required,
Use of the EFET Gas for
any paper transactions
Physical Hub
Physical delivery at Hub
Requires Appendix
Jan Haizmann Istanbul, 22 July 2011 47
Gas Appendices for Virtual Trading Points and Hubs
TTF (Netherlands)
ZBT (Belgium)
NBP (UK)
AOC (Spain)
PSV (Italy)
PEG (France)
Austrian VTP
Polish VP
Gaspool (Germany)
UK Beach
Area D - Norway (in preparation)
Jan HaizmannDirector of the EFET Brussels EU Liaison Office
Euractiv Italy’s Conference“Diamo voce all’Italia in Europa”Rome, 17th October 2011
Jan Haizmann Rome, 17th October 2011
European Federation of Energy Traders
48
Giving voice to Italy in Europe:The EFET contribution
Aim:Tradingwithoutborders
Jan Haizmann Istanbul, 22 July 2011 49
Thank you for your attention!
European Federation of Energy TradersEU Liaison Office
Rue Le Correge 931000 Brussels
Tel: +31 (0)20 5207970Email: [email protected]
www.efet.org