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Enron Mail |
Andrea,
Based on discussions with D'Arcy on the commercial terms of the proposal we want to offer to Champion, I've made a few changes to the attachment of the Champion draft contract that I would like you to take a look at (sorry Brent, but they are in Portuguese in the interest of getting this deal done ASAP). The basics are as follows: If Champion has a Load Factor above 91%: They pay a final price that could be a max of R$ 42.72/MWh or a min of R$ 40/MWh. The final price will be determined based on an indexation formula that will dictate the exact fluctuation [D'Arcy, I think we should have a more final formula to include so please review it]. If Champion has a Load Factor equal or below 91%: They pay a demand charge of R$ 3.16/kW (assuming the contracted demand is 3000 kW), and R$ 40.28/MWh that they consume. To be honest this doesn't give us any real protection on the demand charge side, but it's consistent with a previous agreement with Elektro. Ideally I would like to see Champion committ to a min take or pay of say 50% of the energy. We need further confirmation on these numbers from Luiz Ot?vio and Baccaro (the idea was to use the same numbers of the Elektro contract, but assuming the increase that you got). The idea is to make this contract a little simpler than what D'Arcy had in mind initially in the interest of getting the deal done by the end of this month (we need verbal confirmation tomorrow though to inform volumes to the MAE). Please send your comments asap. Claudia D'Arcy Carroll 08/24/99 06:07 PM To: Brent Hendry/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Andrea Bertone/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Claudia Brun/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Don Black/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sara Shackleton@ENRON_DEVELOPMENT, lotavio@elektro.com.br, baccaro@elektro.com.br Subject: Re: Champion - legal Pls see comments. (and note that have forwarded proposal separately). Brent Hendry 08/24/99 04:14 PM To: D'Arcy Carroll/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Andrea Bertone/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Claudia Brun/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Don Black/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sara Shackleton@ENRON_DEVELOPMENT Subject: Re: Champion - legal I am still somewhat unclear on the indexing structure but I will specify what I see the deal as and you can correct me if I get it wrong. When the deal was described to me it sounded like we were buying a floor and that we would imbed the floor into the physical power deal. After looking at the structure you sent it looks like they are the ones buying the floor. They are getting paid (by virtue of the reduced cost of energy) if the spot goes below the strike. now i'm confused (!) - Champion will benefit from a fall in paper prices through a reduction in the cost of their energy, limited to a minimum of R$40 with an original and maximum price of R$42.75; defer to you for advice on how to best structure this i.e., theoretically, both Champion and Enron S.A. are "buying" puts, floor (Champion from ECE and ECE from Enron N.A.) - but, yes absolutely no question, ECE would prefer to imbed the product in its energy sale, so that Champion only sees floating price with possible adjustments to the downside Based on your email this is how I think the deal would be structured. We supply on a firm basis 3MW of energy for three months. They pay a floating price for the energy based on the following formula: R$42.75 minus an amount, if positive, equal to [factor] multiplied by the difference between [a strike price in R$] and the Spot Price. The Spot Price will be in R$ per pound of a paper product quoted in R$ [which is to be defined]. (I did not understand your third bullet point very well. The relationship between the two indexes was unclear and contrary to your formula it did not appear that these indexes were quoted in R$. Please clarify these issues for me.) Formula: R$42.75 * (Avg. (decrease) Index price - Spot or Floor Price)/Spot or Floor Price (Page 2 of proposal "Tarifa") eg adjusted each month on the % decrease in the monthly index average Note: would like prefer to set the Spot or Benchmark Price at outset. The R$ versus Pounds/Metric Ton issues are very good points - defer to you, I think, Brent/Andrea for preferred structure; in this case, Champion will I think defer to us. We can ask how they execute for their exports and R$/Pounds exposure. We will need to know where and when to pick up the spot price so that everyone understands what published price will be used each month when the price is determined. The [factor] will be something you will need to come up with to correlate the volumes you are hedging with the amount of electricity actually sold. We will also need to make clear if there will be a floor on how low the price can go. R$40.MWh Do you intend for the price to be able to go below zero? If so, what do you intend to happen? Based on your answers we will need to go to outside counsel to make sure we do not violate the Brazilian anti-gaming laws or any regulations. I may have missed the point of how the trade is supposed to work so any additional information would be helpful before we go to outside counsel. Thanks. D'Arcy Carroll 24/08/99 05:44 PM To: Andrea Bertone, Brent Hendry/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Claudia Brun, Don Black Subject: Champion - legal Pls find overview listed re ECE-Champion-Elektro transaction: ECE selling equivalent of 3MW (Peak- and Off-peak) energy eg consumption take-or-pay for period Sep - Oct - Nov Price will be R$42.75 which represents 5% discount to present average Elektro rate of R$45 ECE wants to adjust on a monthly basis the R$42.75 sales price downward should the price of PPI UK A$ cut size 80g index or the PPI UK A4 Reels 60g index average below Strike Price x (Pounds per Metric Ton). The adjustment will be based on formula: Avg. Monthly hedged volume * (Index avg-Strike Price) * R$/Pound spot price We are trying to finalize negotiations this afternoon re both the energy sale and the incorporated index and strike etc.,... and should feel like we have substantial flexibility to articulate how best to structure the transaction. Pls shoot any/all inputs including needs for additional information.
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