efet

4. EFET Members EFET Structure EFET Deutschland Members EFET Deutschland Board Board Membership Committee Secretariat Oversight Committee Finance & Treasury Process Standardisation Committee Legal Committee Gas Committee Electricity Committee German TF Electricity (GTFE) TF Market Supervision B.O. Group TF CpML Legal Opinion Review German TF Gas (GTFG) TF CEE-G WG TR TF CEE-E TF VAT/Tax IT Architecture LC TF Coal Doc. TF Renewables BPOC Credit Risk TF TF Iberia LC TF Res TF Emissions Trading Gas Hub Development TF Switzerland eCM PwG TF Hub/Gas Doc Clearing & Collateral WG Capacity Allocation TF EU Collateral Reform LNG PG TF France eSM PwG Capacity PG LC TF Gas Appendix Intraday PG TF Italy eXRP TF Mrkt based balanc. LC TF CEE/SEE eCredit Matrix TF TF BeNe-G WG Balancing Info. Transp. PG TF Dodd-Frank Payment Netting PG TF Turkey www.efet.org Secure Data Exch.

5. Why Contractual Standardisation? • Or how things can go wrong …

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

7. Standardisation = Engine for Liquidity

8. Energy Trading = International Business Quelle: EEX

9. Summary... No Standard Contractual Terms = No OTC Market in any Commodity

10. 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 Agenda

11. OTC Trade as Continuous ProcesssMany Products = Same Contractal Terms

12. The Challenge: “right” agreement for each type of transaction IETA offers standard documentation for emissions trades 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

13. The ISDA Master Agreement ISDA MASTER AGREEMENT • Physical Power Annex • Grid Trade Master Agreement (GTMA) Annex • North American Power Annex • Physical Gas Annex • European Gas Annex (NBP and ZBT*) • North American Gas Annex 2005 Commodity Definitions Schedule • Physical Emissions Annex • EU Emissions Allowance Annex • Physical Coal Annex • Global Physical Coal Annex Confirmations *out of date

14. Physical Commodity Trading Agreements Power UK Emissions – now mainly used for spot Gas and Power (Emissions) Bespoke Coal Precious Metals

15. The EFET Master Agreement EFET Individual PRISMA Gas Capacity Contract Credit Support Annex EFET GENERAL AGREEMENT TTF (Netherlands) ZBT (Belgium) NBP (UK) PSV (Italy) PEG (France) Austrian VTP Gaspool (Germany) PSV (Italy) UK Beach Polish VP Appendix Power Gas Emissions Allowance Annex Election Sheet Confirmation

16. EFET Agreement should be used here... Reference: PwC – Liberalization Effects on Turkish Energy Market – 2011 Nov 18 – Istanbul Traders Event – Slide 3

18. FET Gas Master Agreement: – is used mainly here…

19. 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

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 Agreements

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 Agreement

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

23. EFET General Agreement II. Contractual Structure General Agreement (“main body”) Election Sheet • 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.

24. EFET General AgreementII. Contractual Structure General Agreement (“main body”) Election Sheet Annexes & Appendices Election Sheet • Annexes (part of the General Agreement by default): Definitions, Confirmation templates • Appendices (optional, selection): Credit Support Annex (bilateral Margining), Allowances Appendix (Emissions Allowances)

25. EFET General AgreementII. Contractual Structure General Agreement (“main body”) General Agreement (“main body”) Election Sheet Election Sheet Annexes & Appendices Individual Contract Annexes & Appendices Election Sheet Individual Contract Individual Contract Individual Contract Individual Contract single agreement concept (§ 1)

26. EFET General AgreementII. Contractual Structure General Agreement (“main body”) General Agreement (“main body”) Election Sheet Election Sheet Annexes & Appendices Individual Contract Annexes & Appendices Election Sheet Individual Contract Individual Contract Individual Contract Individual Contract priority (§ 2.2)

27. EFET General AgreementIII. Essential provisions of the Agreement Legal RISKS Operational Credit

28. §3 Concluding and Confirming Individual Contracts The contract can be concluded in any form of communication Contract becomes legally binding from the time the commercial terms are agreed Confirmation merely documents an agreed transaction; standard confirmation templates 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)

29. § 4 Primary Obligations – Delivery and Acceptance

30. Provides for definition of simple Put and Call option §5 Options Premium payable on 5th Business Day unless otherwise agreed If Option is exercised verbally it requires confirmation in writing No automatic exercise

31. § 6 Delivery, Measurement, Transportationand Risk Measurement of gas in accordance with nomination and allocation arrangements at the Delivery Point Seller represents that it has right to transfer to Buyer full entitlement to the gas, free and clear of encumbrances Seller bears risk and bear all costs up to the Delivery Point, Buyer at and from the Delivery Point

32. § 7 Risk and Force Majeure An event beyond reasonable control of Party claiming 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

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)

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!

35. § 8 Remedies for Failure to Deliver and Accept

36. § 8a Off-Spec Gas Delivery of Off-spec Gas constitutes Underdelivery

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 • Suspension of delivery or acceptance of Natural Gas and • b) Withhold payments owed to Defaulting Party

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

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

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; and • all 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

41. § 14 Taxes All taxes up to the Delivery Point for account of Seller, at and after Delivery Point for account of Buyer EU is now implementing reverse charge mechanism Wholesale Market exempt from VAT For Turkish market a warehousing solution is needed No VAT NO STAMP DUTY

42. § 16 Credit Support § 17 Performance Assurance Parties may on Effective Date or upon entering into Individual Contract agree on Credit Support (PCG, bank guarantee, cash etc. ); Credit Support Annex 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

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 • Of the same creditworthiness and • Is incorporated in the same jurisdiction

44. §21 Representations and Warranties PRINCIPAL POWER TO EXECUTE ACTING FOR ITS OWN ACCOUNT NO INSOLVENCY ENTITY DULY ORGANISED PRINCIPAL LINE OF BUSUINESS LICENCES, GOVERNMENTAL AND REGULATORY APPROVALs

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!

46. EFET Gas and Gas Hub Terms Vitual Point Physical Hub Physical delivery at Hub Requires Appendix • No Hub Terms required, • Use of the EFET Gas for any paper transactions

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)

48. Aim:Trading without borders

49. Thank you for your attention! European Federation of Energy TradersEU Liaison OfficeRue Le Correge 931000 BrusselsTel: +31 (0)20 5207970Email: j.haizmann@efet.org www.efet.org