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Enron Mail |
Which commodities does this impact? Is it only concs?
Mike Jordan@ECT 07/27/2000 03:39 AM To: Shona Wilson/NA/Enron@Enron cc: Sally Beck/HOU/ECT@ECT, Brent A Price/HOU/ECT@ECT Subject: MG : Russian Prepayment Exposure Interesting information floating up from some detailed review work by Tim - says a lot about the way MG do business I think. RE NY we should ask the same questions - what prepayments exist ( Philip Bacon seemed uncomfortable with the need for a DASH for each prepayment on a contract ) add to this the absence of credit people in NY and we may have some issues - although Marcelo and others stressed the fact that Concentrates appeared to move no product without a letter of credit, which was then often discounted to realise cash!! Shona we should also discuss the legal contract issue - another comment yesterday from Philip was that each of his concentrates contracts were 'unique' - whilst I can accept that each may be tailored to customer preferences - they still need to be CACSed - we should look at the enforceability/legal risk here. Whilst information prepayment risk for Metals should come from London - accessing any relevent inofrmation from NY may be helpful Will call later ! ---------------------- Forwarded by Mike Jordan/LON/ECT on 27/07/2000 09:33 --------------------------- Tim Poullain-Patterson 26/07/2000 21:53 To: Eric Gadd/LON/ECT@ECT, Goran Novakovic/LON/ECT@ECT, Robert Quick/LON/ECT@ECT, David Hardy/LON/ECT@ECT, Mike Jordan/LON/ECT@ECT, Justin Boyd/LON/ECT@ECT, Howard Carter/The Metal & Commodity Co Ltd/MGLTD@MGLTD cc: Richard Sage/LON/ECT@ECT, Diana Higgins/LON/ECT@ECT, Fernley Dyson/LON/ECT@ECT, Steve W Young/LON/ECT@ECT, Bjorn Hagelmann/HOU/ECT@ECT, David P Tregar/MGLTD_London/MGLTD@MGLTD Subject: MG : Russian Prepayment Exposure The situation at present is as follows: MG have nine open contracts with four counterparties sourcing mainly copper from the Russian Federation on a prepayment basis all contracts are on a floating price basis (LME less discount) notional value of each contract is circa $0.5-3mm prepayment is on a unsecured trade finance basis, for between 90-95% value with balance on exchange of title evidenced by documents The issues break down into three broad areas: 1) Commercial At present Enron does not engage in prepayment activities with Russian Federation counterparties. No further prepayments are permitted until RAC have performed a DASH for this activity. As this is likely to take several weeks Howard will liase with Commercial to manage issues with existing prepayment counterparties arising from this suspension. Howard and David Hardy will also take immediate steps to manage down existing prepayment exposures. 2) Legal Based on a cursory review of the confirmations by Robert, if we are to continue this activity Legal need to instructed to perform a full review for several reasons, including: the confirmations contain ambiguous language concerning basic economic terms, e.g. pricing date they are light on the mechanics of the prepayments, and are generally not constructed in an appropriate way for this type of activity. "Conditions of Purchase" are attached to the confirmations which refer to English Law, but as they are not always countersigned, under conflict rules the closest or real connection may be deemed to be Russian law which, in the absence of a properly executed agreement raises concerns about enforceability. there are several "open" contracts with volumetric shortfalls where we are beyond the delivery period, and which could be considered to have been discharged by breach. Again the confirmation does not contain adequate language. 3) Credit/Operational There are no formal counterparty limits. Nor are prepayment and volumetric exposures tracked on a contract by contract basis. This information is necessarily to ensure transparency over contract performance, and needs to be factored into the overall credit monitoring process. David has requested this information from MG, and will follow up this one off exercise by introducing a spreadsheet workaround to enable us to track exposures based on the methodology developed for Helsinki. Further work is required to quantify our exposures and to demonstrate that, despite the issues identified with contractual terms, there is performance against the contracts. David is pursuing this from a Credit perspective and will report back to his group his findings by Friday latest. The issues raised regarding contractual language suggest that we need to accelerate a planned review of contract language for all MG's activities in all jurisdictions. Mike and I will discuss bringing this review forward with Justin. Any questions, please call. Regards, Tim
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