Brussels, 28/04/2014 (Agence Europe) - European energy producers say that the EMIR Regulation that introduces greater transparency on the derivatives markets will increase their hedging costs.
In a letter last week to the European Commission, the European federation of energy negotiators, the European electricity industry union, Eurolec, and the European gas association, Eurogas, warned the European Commission that the financing of hedging will rise under the new EU rules (see EUROPE 10648).
Under the EMIR Regulation, non-financial companies buying derivatives to hedge against fluctuations in raw materials prices will have to supply cash as guarantees from 2016 onwards. Energy producers and consumers say they do not have the same level of cash available as financial bodies because their capital is unvested in physical assets, such as electricity generation plants. At present, they are able to use bank guarantees and forward contracts rather than cash.
The three organisations want the European Financial Markets Authority, ESMA, to take account of the special nature of their businesses in the implementing measures for the regulation that it is currently drawing up.
Regulation 648/2012 requires payment to be made by centralised clearing houses for standard derivatives. Derivative deals still done over the counter will be subject to strict rules, such as the requirement to hold additional capital. All the transactions will have to be communicated to national registries which national regulatory bodies in Europe will have access to. Non-financial companies will be required to pay for their contacts at central clearing houses once the positions exceed a certain level. They will not be required to supply the derivatives registries with details of their transactions. (MB)