STRUCTURED TRADE STRUCTURED TRADE and and

COMMODITY FINANCECOMMODITY FINANCE

A FRAMEWORK FOR SECURING OIL COMMODITIES A FRAMEWORK FOR SECURING OIL COMMODITIES FINANCEFINANCE

Presented byAndre SOUMAH

Executive Chairman

Structuring Access to Global Capital Markets to Structuring Access to Global Capital Markets to Finance Commodity Finance Commodity

NOT AN OFFICIAL UNCTAD RECORD

ESTABLISHING ESTABLISHING

AN EFFICIENT COMMODITY FINANCE AND STORAGE AN EFFICIENT COMMODITY FINANCE AND STORAGE SECTOR SECTOR

IN DEVELOPING COUNTRIESIN DEVELOPING COUNTRIES

Pre Pre ConditionCondition

The ACE - AUDIT CONTROL & EXPERTISE Group

PARTICIPATION OF A NATIONAL DEVELOPMENT BANK AS A FINANCIER ( CREATION OF A SPECIAL PURPOSE VEHICLE SPV)

IN COLLABORATIONWITH A REPUTABLE CREDIT SUPPORT COMPANY(TO CONTROL AND MONITORE THE COMMODITY STORAGE PROCESS AND THE END TO END TRADE FLOWS)

RELEVANT BODY OF COMMERCIAL LAWS GOVERNING STORAGE OF GOODS

Field Warehousing & Control Financing

WAREHOUSE RECEIPT FINANCE WAREHOUSE RECEIPT FINANCE is a form secured lending

in which the Lender advances funds against physical goods that are

being stored in a warehouse and that have been assigned to the lender

through warehouse receipts.

Basics of OIL Commodity Finance transactions

Structure necessitates full ownership

Ownership evidenced by stock confirmations W H R .

Market analysis and understanding of price dynamics.

Commodity risk – storage, grading, other characteristics

Comprehensive insurance covers risk of ownership.

ACE & FINANCIER/TRADE HOUSE

What about Synergies ?What about Synergies ?

ACTORS SUPPLYER LOCAL AGENT PORTEXPORT

EROFF-

TAKER

STEPS Delivery of Raw MaterialWarehousing

Processing

Warehousing

TransitWarehousing

Loading

Export/Shipment

Receivables

TYPE OF FINANCING

Raw Material Financing

Working Capital Financing (Tolling)

Export Product Financing

Receivable

Financing

EXPORT GRADE PRODUCT WARRANTS

COLLATERAL RAW MATERIAL WARRANTSSHIPPING

DOCUMENTS

RISKSSupplier Performance

Quality/Quantity/Weight

Supplier/Processing Performance

Carrier Perform

ance

Terminal Performance

Carrier Performa

nce

PAYMENT

MITIGANTS

ACE SUPERVISON MONITORING

ACE COLLATERAL MANAGEMENT

1st Class Offtaker

or Secured Payment

Instrument

  Plant Management / Technical Assistance

Exporter/Carrier Expertise, Reputation & Technical Support

FINANCIER/TH’S CONVENTIONAL SCOPE

ACE’S SCOPE

STCM Products Overview Transaction Management

Transaction Management Overview

Managing deals closely by specific Transaction Managers

• Weekly , Monthly reporting to clients

• Communication with clients on an ongoing basis

• Checking Securities

• Stock management and control

• MIS reporting

• Daily Price checking

• Through Product knowledge enhancing the Accounting processes

• Payments Monitoring

• Receipts

• Vat/ Tax reporting on Weekly, monthly

• Department of Finance, Energy, Trade and Industries reporting

Transaction Management Overview

Skills as a Transaction Manager

• Accounting and Reporting on a deal level

• Client interaction

• Financial Modeling

• Liaise with internal departments

• Verify funding rates obtained by the Marketer

• Adhere to International Reporting Standards

• Statutory Reporting

SCAM Supporting Systems

• The business processes and transaction management functions

are supported by an CONTROL AND MONITORING system called E3C

• Loading , storing and release product as well as stock information

• Reporting to track trends and highlight issues

SCAM’s Business Processes

Selling SCAFProducts and

Acquiring Clients

Marketers

ConductingKYC

Compliance

DraftingContract

Legal

ManagingSecurities

Securities

Capturing DealInformation

Transaction Manager

Deal Preparation and Capture Deal Administration

Technical Manager Transaction Manager

Product Approvaland Limit Allocation

Acquiring Insurance

Processing of Payments

Handling Payment Errors

Receipts

Initiating Receipts

Initiating Milldoor Receipts

Processing Receipts

Handling Late/Non/Alter Receipts

Deal Closure

Contract Closure

SCAF

Extend Contract orRefinance

Document Management

Flag Management

Workflow

Month-end Process, Cost of Funds Allocation,Insurance Claim Generation,

Tax Reporting, Reverse Transaction, Write-Off Approval,Financial Reconciliation, Stock Reconciliation,

Securities Release

Month-end and ad-hoc

Initiation of Following Payments:Insurance

Contract GrowingTransferable Instrument

Invoice purchasingCollateral Manager

Payments

Price Checking

Securities

The BANKS, The INSURERS & ACE need to The BANKS, The INSURERS & ACE need to

know:know:Oil Specifications Market Environment (if it is a buyer or seller market)Logistics aspectsStorage and Refining CapacityTransportation availabilitySecurityTime CyclePrice MechanismsSelling Mechanism (Firm Offtake or Speculation)

EVALUATION OF THE TRANSACTION EVALUATION OF THE TRANSACTION TO BE FINANCEDTO BE FINANCED

The preparation of the terms of the facility agreement The preparation of the terms of the facility agreement requires full knowledge and in-depth understanding of requires full knowledge and in-depth understanding of

the Risks associated to the transaction.the Risks associated to the transaction.

« TRANSACTIONAL » FINANCING

PARTIES INVOLVED IN THE TRANSACTIONPARTIES INVOLVED IN THE TRANSACTIONThe bank/Insurer & ACE have to know the various The bank/Insurer & ACE have to know the various players involved in the transaction in order to players involved in the transaction in order to secure the collateral and remove the lien of the secure the collateral and remove the lien of the parties :parties : First Stage Buyers, Suppliers, Exporters Traders Credit Support Company Transporters Refineries Tank Farm Operators Forwarders Shipping Agents Insurers BrokersOne objective only : One objective only : Completion of the Completion of the

transaction in facilitating transaction in facilitating repayment of the loanrepayment of the loan

« TRANSACTIONAL » FINANCING

So when talking about performance risk - similarly to a So when talking about performance risk - similarly to a loan collateral - the Credit Support Company should loan collateral - the Credit Support Company should ensure that it does,ensure that it does,

ACE - AUDIT CONTROL & EXPERTISE Group

give the financier clear rights over it, allow to liquidate it and take possession in case of

default, carry out all local registration procedures and

compliance, not give any correlation between the counterparties

credit risk and the collateral value, provide for robust procedures allowing prompt

collateral liquidation if need be, provide for collateral segregation from custodians'

own assets.

The appliedThe appliedsolutionsolution

SOLUTION

Field Tank Farm Receipt & Receivables Field Tank Farm Receipt & Receivables Financing Financing

coupled with, coupled with,

The underlying principle being to: Use in synergy Field Tank Farm receipt & Receivables

financing with

Multilevel biotechnical and chemical cargo marking process - which applies unique DNA codes - allowing for unequivocal identity proof of ownership and source of Oil/Products cargo,

With permanent real time monitoring for Tank Farm storage through the use of an integrated IT graphic solution combining permanent sensor and ultrasonic measurement technologies with Web enabled reporting.

AN ACE RISK MANAGEMENT SOLUTION

1.1. DNA Cargo Tagging,DNA Cargo Tagging,2.2. IT Real Time Tank Storage Monitoring,IT Real Time Tank Storage Monitoring,3.3. near real time fully secured over the web near real time fully secured over the web

reportingreporting

Wide Area Network, via IP: dial up, GSM, wireless, satellite or a combination of all, depending on conditions & existing infrastructureACE On-Site interventions for: -Marking / Tagging -Sampling & Analysis (Country Wide)

AN ACE RISK MANAGEMENT SOLUTION

Oil/Products Tank Storage or Refinery Complex

ACE On-Site Real Time monitoring network & sensors

ACE Central Server

Pre-Operation Phase - ACE will

- Identify Tank Farm / Terminal - Survey Tank Farm / Terminal - Approved Tank Farm / Terminal Sub-Lease from owners Operate Tank Farm/Terminal

Pre-Operation Phase - ACE will

- Survey Refinery Process - Approve Refinery Facility Sub-Lease from owners Obtain Waiver & Consent from owners

Pre-Operation Phase - ACE will

- Identify Field Tank Farm - Survey Field Tank Farm- Approve Field Tank Farm Sub-Lease from owners Operate Field Tank Farm

ACE Integrated Risk Management Solution - Collateral

Management & Monitoring -

Concept

CR

UD

E O

IL

TANK FARMStorage

REFININGPROCESS

TANK FARMStorage

TANK FARMStorage

TANK FARMStorageOPERATION PHASE

ACE will - Monitor Processing - Control Quantity out - Control Weight out - Control Quality out - Attend & Monitor Transport

OPERATION PHASE - ACE will - Control Distributed Quantity - Control Weight Out - Control Distributed Quality

TRANSMIT TO FINANCIER Delivery Documents.

OPERATION PHASE - ACE will - Control Quantity and Weight In - Control Quality In - Approve/Refuse crude oil entry - If approved, DNA Tag oil cargo

TRANSMIT TO FINANCIER Quality/Quantity/Weight Cert. Issued Tank Farm Receipt

OPERATION PHASE ACE will

- Control Quantity out - Control Weight out - Control Quality out - Attend & Monitor Transport

Pre-Operation Phase - ACE will

- Identify Tank Farm / Terminal - Survey Tank Farm / Terminal - Approved Tank Farm / Terminal Sub-Lease from owners Operate Tank Farm

Pre-Operation Phase - ACE will

- Identify Field Tank Farm - Survey Field Tank Farm- Approved Field Tank Farm Sub-Lease from owners Operate Field Tank Farm

ACE Integrated Risk Management Solution - Collateral

Management & Monitoring -

Concept 2

PR

OD

UC

TS

TERMINAL/TANK Storage

TANK FARMDistribution Storage

TANK FARMDistribution Storage

TANK FARMDistribution Storage

OPERATION PHASE - ACE will - Control Distributed Quantity - Control Weight Out - Control Distributed Quality

TRANSMIT TO FINANCIER Delivery Documents.

OPERATION PHASE ACE will

- Control Quantity out - Control Weight out - Control Quality out - Attend & Monitor Transport

OPERATION PHASE - ACE will - Control Quantity and Weight In - Control Quality In - Approve/Refuse crude oil entry - If approved, DNA Tag oil cargo

TRANSMIT TO FINANCIER Quality/Quantity/Weight Cert. Issued Tank Farm Receipt

The LEGAL Nature of ACE Risk Mgt Services

The Depositor relinquishes possession of the property;

This is the legal term describing the relationship when the ownership of personal property resides in one person and possession of it is in another.

ACE assumes « exclusive, continuous and notorious possession of the property ».

Two conditions are necessary for « Bailment » to exist,

BAILMENT CONCEPTBAILMENT CONCEPT

The depositor of the goods is known as the « Bailor »

The person engaged in storing the goods of others for compensation (I.e. the Collateral Manager) is known as the « Bailee »

Oil/Products Import Structure – Legal Agreements

- “All Risks” plus misappropriation.- Professional Indemnity, Fraud & Omission.- Political Risk (confiscation, expropriation, nationalization & Depossession).

CMA & CSS Agreements

Assignment of

Insurance

Sale & Purchase AgreementAssignment of Farm Tank Receipt & Proceeds

Procurement/Purchase Contract

ACEACE

Insurance Company

Distribution Network

Financing Bank (SPV)

Transporters

TANK FARM

Storage

REFINERY Process & Storage

Small Importers

TANK FARM

Storage

Transporters

SUPPLIER

Lease/Sub-Lease,

Waiver & Consent

Agreements

Transport, Waiver & Consent

Agreements

Refining/Storage or

Tolling Agreement

Transport, Waiver & Consent

Agreements

Lease/Sub-Lease,

Waiver & Consent

Agreements

Purchase,Waiver & Consent

Agreements

Oil/Products Import Structure – Product Vs Cash

Product Grade ACE Tank Farm Receipt

ACE crude Oil Tank Farm Receipt

Classification

ACETank Farm Receipt

CMA & CSM Fees

Transporters

Distribution Network

TANK FARM

Storage

REFINERY Process & Storage

Small Importers

TANK FARM

Storage

Transporters

SUPPLIER

Revenue Authority

ACEACETax & Duties

Transport Fees

Processing/Storage Fees

Storage Fees

Cash for Procureme

nt

Transport Fees

Storage Fees

Financing Bank (SPV)

Financing Bank (SPV)

Proceeds from Sales

Field Tank Farm Receipt Financing

Benefits of implementation for StakeholdersBenefits of implementation for Stakeholders1. To Tank Farm Operators/Refinery

Reduced number of small counterparts or interfaces. Prevent bypassing of existing infrastructure. Constant monitoring of storage conditions and stored quantities.

2. To Small Importers Reduced transactional obstacles (economies of scale). Reduced transactional cost (economies of scale). Access to Farm Tank financing (Field Farm Tank Warrant).

4. To Financing Institutions Securitized warrant based financing. Access to unratable and previously non-financed borrowers.

3. To Tax Authorities and Consumers Prevention of tax evasion and increased cargo traceability capacity. No more Fuel alteration. Improved Quality & Safety Standards country wide.

ANALYSE RISKS

1

SECURETRANSACTION

3

CREATEVALUE

4

CATALYSEBUSINESS

5

SHARE RISK& REWARDS

6

ACE

ACE RISK MANAGEMENT SERVICES

STRUCTUREFLOWS

2

As a Credit Support Company, do we share only risks ?As a Credit Support Company, do we share only risks ?

We shareWe shareKNOWLEDGEKNOWLEDGE

» Of the producers/exporters» Of the commodity dynamics & its trade» Of the countries» Of the laws» Of practical mitigants» Track-record / experience / expertise

We shareWe shareRELATIONSHIPSRELATIONSHIPS

Borrowers Insurers Transporters Clearing forwarders, Shipping Lines Participating Banks & Exchanges Law Firms

ACE RISK MANAGEMENT SERVICES

(Headquarters) - Rue Richard-Wagner 11202 Geneva – Switzerland

Tel. : +41 22 919 91 11 Fax : +41 22 919 91 19

Email : ace.geneva@ace-group.net

www.ace-group.net