Trading Emissions Plc (TEP) is seeking to renegotiate unprofitable carbon contracts in China and is hopeful after initial signs that Chinese sellers are taking a “pragmatic approach to the problem.”
TEPs EEA team in Beijing is tasked with renegotiating the major emission reduction purchase agreements (ERPAs) in China in recognition of the fact that they have become unprofitable due tothe current price of carbon.
"TEP is not alone in commencing such price renegotiation and there are encouraging initial signs that Chinese counterparties are taking a pragmatic approach to the problem. We acknowledge that the realisation of fair market value of the assets of the Company is still uncertain and is dependent on a number of factors including the market price of carbon, a successful renegotiation of key contracts in connection with the carbon portfolio and a successful conclusion of the sales processes that have commenced in relation to the individual private equity assets," said Francis Hackett, chairman, TEP.
The current estimate of the unhedged exposure of TEP to carbon obligations is approximately 11 million of CERs. That estimate includes a number of CERs that will be delivered post December 2012. The Board has instructed EEA to take all actions that are lawfully available to it to minimise the Company's exposure to unprofitable carbon contracts.
TEP has received advice that it is likely to be obliged to take delivery of CERs that are projected to be generated in 2012 but only delivered after March 2013. These CERs are included in the risk adjusted estimate of 14.0 million CERs to be delivered.This figure also includes 2.3 million CERs due to be delivered pursuant to ERPAs that are subject to renegotiation.
TEP has a risk adjusted portfolio of approximately 24.2 million CERs expected for delivery before the end of March 2013, of which approximately 14.6 million have been delivered as at the date of this report. TEPs average CER purchase price is EUR 6.29 for delivered and future risk adjusted CERs.
As at 27 March 2012, TEP had an inventory of approximately 1.9 million CERs, which are valued at EUR 7.4 million.