The Importance of the EEI Master Agreement in Energy Transactions

As a financial contract, the EEI master agreement is important to international energy sector transactions. As the energy and finance industry becomes more globalized, having a workable financial contract for transactions is essential. Today’s EEI master agreement is not limited to just electrical energy, even though it is broadly used in electric markets. It is also used for natural gas, coal, renewable energy, clearing, portfolio management, intellectual property, insurance, and foreign exchange deals.

The importance of the EEI agreement is underscored by the fact that disputes surrounding various aspects of today’s energy markets have led to billions of dollars in claims in several modern international energy arbitration matters such as ICC-22366/SP, ICC-22957/SP, ICC-23377/SP, ICC-22284/SP, ICC-23167/SP, ICC-21901/SP, ICC-20152/SP, ICC-21587/SP, ICC-20758/SP, ICC-20595/SP, ICC-22076/SP, ICC-20905/SP, ICC-22745/SP and ICC-22403/SP. The consequences are often far-reaching results or implications for international energy agreements.

The EEI Master Agreement is a standard form financial contract for the financial market for transactions involving the delivery of electricity, interests in electricity and/or related products. It includes provisions that are common to commercial contracts, including general conditions, and those unique to the delivery of electricity, such as balancing, delivery and hedging provisions. According to the comprehensive EEI master agreements, it is a legal framework to promote standardized and executable financial contracts that ensure release from financial obligations after the international energy deal has been breached. In this manner, the EEI agreement mitigates the risk of real time financial losses for electricity in the event of a missed payment. It is intended for general use within the energy sector to promote the sale and purchase of electricity and to facilitate trading in electricity, financing debt obligations through the issuance of securities, issuing commercial paper and obtaining credit enhancements.

The EEI Master Agreement is frequently used in the Arab world to facilitate capital markets. It is widely implemented in transactions throughout Asia, India, Africa, Central America, South America and the Middle East with a concentration of people agreeing to it in the American and European markets. It is even used in transactions in non-electrical energy sectors such as real estate finance, equity share purchase, ship financing, shipping, equipment leasing and securities lending.

A flexibly formulated financial contract, the EEI master agreement is designed to be utilized by any party that buys or sells electricity and/or related products on a contractual basis.

Given the fact that Europe intends to concentrate on fossil resources and reduce its dependency on imported fuels, while the Arab world wants to enhance its catalogue of fossil fuels in the energy basket, there will continue to be a need for standard financial contracts such as the EEI master agreement to support trading and financing of energy transactions. There is also the fact that global market forces are increasingly relied upon to determine energy prices. The advent of trading in derivatives such as oil and natural gas futures has resulted in these fossil fuel products being traded as commodities. Having a flexible and standardized contract such as the EEI Master Agreement will continue to be useful in the Arab world. Economic and political tensions that have resulted in trade sanctions on the Arab world may present challenges for consumers of fossil fuel products in the region. This may motivate these consumers to maintain inventory of these products and to enter into EEI agreements so that they are able to manage their use of gas and oil from a financial perspective.