re : mg : russian prepayment exposure 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 - 3 mm
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
re : mg : russian prepayment exposure
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 - 3 mm
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