Crude Oil Performance BondA Crude Oil Performance Bond is one way a buyer can get some kind of guarantee that the seller will perform and deliver the product. The AluminumNow Group has seen these instruments used in a number of ways.
Some buyers request a PB as a qualifier of the seller. Some buyers want to warrant continuous delivery. Refineries have a need to have consistent feed stock supply and this is one way to get compensation if that continuity ceases. But Performance Bonds are possibly the number one reason deals don’t even get to the contract stage (outside of unqualified buyers or sellers). This is because they are hard to negotiate. The requirement from the buyer requesting a PB is always an active banking instrument. Normal procedure is for an RWA or ATV-POF supplied by the Buyer's bank to enable the seeler to provide a non-operational PB. The Buyer's bank then issues the required bank instrument when this
is received by the seller's back the PB becomes active. The other issue with a PB is the procedural verbiage is very specific, because banks aren’t allowed to solicit and there is always a battle about who goes first with their instrument. In most cases the buyer has to go first with their banking instrument or a promise of one. Sometimes with certain banks a promise is not good enough. It is most unlikely that a Seller’s bank would commit to a PB unless there is an active instrument placed by the Buyer's bank. This is partially because the PB is stated as 2% of the buyers banking instrument. But it is also because the bank does not want to loose its clients money. It is understandable that a buyer does not want to commit to the expense of the MT799 or MT760 unless there is a commitment that there will be a PB placed.
SAMPLE NOMINATIONS, SHIPMENT & BANKING PROCEDURES 1)
Seller send SPA to Buyer, and Buyer receive and
sign SPA. 2)
Buyer signs and returns SPA with the following
details: ETA/ATB format, CIS, scan copy of Buyer’s passport and company
registration certificate. Seller and Buyer lodges SPA in his banks. 3)
For Trial Shipment: Buyer instructs their bank to
forward POF and ATV PROOF of FUNDS to the Seller’s Bank. 4)
Upon Seller’s Bank receipt and confirmation of the
Buyer’s POF. Seller’s bank issues a non – operative 2%PB. 5)
Upon Buyer’s Bank receiving non-operative 2%PB,
Buyer’s bank issues DLC via MT700 to Seller nominate account from top 25 banks
in the world valid for 90 days. After Seller’s bank receiving and confirmed
MT700, 2% PB becomes active. If the Buyer (bank) will not issue the DLC in 7
bank days, Buyer will be obligated to pay a fine, which is 4 % of the total
amount of monthly cargo. 6)
. Upon confirmation of instrument, within 10 days,
Seller sends Laycan, nominates and loads 2m barrel vessel with BLCO in buyer's
name and issue POP documents to the Buyer. 7)
Vessel captain issues NOR/ETA to Buyer Inspectors
(shipping agency) and sails to Buyer’s Port of Discharge on CIF terms. 8)
At the port of discharge, Buyer’s shipping agent
clears the vessel while Vessel captain issue MATB to Buyer's inspection team. 9)
Seller discharges the Crude Oil into Buyer’s
Tanks. Inspectors conduct CIQ inspection and release results to both the Buyer
and the Seller. Seller issues commercial invoice and inspection result to the
Buyer's bank. Seller issued Warranty of Title to the Buyer. 10)
Buyer's bank pays for discharged cargo by SWIFT MT103 /TT cash wire
transfer into Seller’s account. And Seller immediately pays all intermediary
commissions in accordance with the Fee Protection Agreement provisions of this
SPA/Agreement.
ANNEX A {SELLERS BANK ACCEPTED SBLC VERBIAGE} Sample MT760 - ISSUE OF A
STANDBY LETTER OF CREDIT
CREDIT NUMBER : DATE OF ISSUE : DATE AND PLACE OF EXPIRY : ISSUING BANK : APPLICANT : XXXXX BENEFICIARY : XXXXX BANK OF BENEFICIARY : CURRENCY CODE : USD CREDIT AMOUNT : XXXXX PLACE FOR PRESENTATION :
AT OUR COUNTERS FORM OF PRESENTATION :
PAPER / BY COURIER SERVICE LANGUAGE OF ANY REQUIRED DOCUMENTS :
ENGLISH PARTY LIABLE FOR THE
PAYMENT OF ANY CHARGES : BENEFICIARY UNDERLYING RELATIONSHIP :
XXXXX WE HEREBY IRREVOCABLY AND
UNCONDITIONALLY WITHOUT PROTEST OR NOTIFICATION, WITH OUR FULL RESPONSIBILITY,
UNDERTAKE TO PAY AGAINST THIS STANDBY LETTER OF CREDIT NUMBER SBOSBLC/XXXXX TO
THE ORDER OF XXXXX, THE BEARER OR HOLDER THEREOF AT EXPIRY DATE OF THE DD OF MM,
YYYY, THE SUM OF USD XXXXX (XXXXX US DOLLARS ONLY) IN LAWFUL CURRENCY OF UNITED
STATES OF AMERICA UPON SURRENDER AND PRESENTATION OF ORIGINAL HARD COPY OF
THIS STANDBY LETTER OF CREDIT AT OUR COUNTERS AS PER OUR FILE. SUCH PAYMENT SHALL BE MADE WITHOUT SET OFF AND SHALL BE FREE AND CLEAR OF ANY DEDUCTIONS OR CHARGES, FEES, OR WITHHOLDINGS OF ANY NATURE PRESENTLY OR IN THE FUTURE IMPOSED, LEVIED, COLLECTED, WITHHELD OR ASSESSED THEREIN OR THEREOF. PAYMENT IS AVAILABLE UPON
THE BENEFICIARY'S FIRST WRITTEN DEMAND IN THE FORM OF PRESENTATION INDICATED
ABOVE ONLY TO BE SENT TO US NOT EARLIER THAN 15 (FIFTEEN) DAYS BEFORE EXPIRY
DATE. THIS STANDBY LETTER OF
CREDIT IS TRANSFERABLE AND ASSIGNABLE WITHOUT PRESENTATION TO US AND WITHOUT
PAYMENT OF ANY TRANSFER FEE OR CHARGES. THIS STANDBY LETTER OF
CREDIT IS SUBJECT TO THE ICC UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, PARIS, UCP 600 UNDER ICC PUBLICATION
NO. 600 AND SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF ENGLAND. ANY
DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS STANDBY LETTER OF CREDIT SHALL
BE SUBJECT TO THE EXCLUSIVE JURISDICTION OF THE COMMERCIAL COURT OF ENGLAND. THIS IS AN OPERATIVE
INSTRUMENT AND NO CONFIRMATION SHALL FOLLOW.
____________________________________________ Bank Officer (1) Bank Officer (2) SELLER’S APPROVED 2%
PERFORMANCE BOND VERBIAGE FULL BANK RESPONSIBILITY
AND AUTHORITY HEREBY IRREVOCABLY AND UNCONDITIONALLY WITHOUT PROTEST OR
NOTIFICATION UNDERTAKE TO PAY AN AMOUNT NOT EXCEEDING USD1, 600,000.00 (ONE
MILLION SIX HUNDRED THOUSAND UNITED STATES DOLLARS ONLY) BEING TWO PER CENT
PERFORMANCE BOND ON THE BLOCKED FUNDS, GUARANTEEING EACH SINGLE SHIPMENT OF
BONNY LIGHT CRUDE OIL OF USD80,000,000 (EIGHTY MILLION UNITED STATES DOLLARS
ONLY) RECEIVED FROM ---------------------------- (BUYER NAME AND ADDRESS) AS PER
MT799 BLOCKED FUNDS, HEREIN REFERRED TO AS
“BUYER”
WITH REFERENCE TO THE CONTRACT NO. NLO/115/3QT.15.FOR THE SALES AND PURCHASE OF
NIGERIAN BONNY LIGHT PETROLEUM PRODUCTS.
THE AMOUNT OF THE PERFORMANCE BOND FOR THE MAIDEN VOYAGE
ONLY SHALL BE USD1, 600,000.00 (ONE MILLION SIX HUNDRED THOUSAND UNITED STATES
DOLLARS ONLY) BEING TWO PER CENT PERFORMANCE BOND ON THE USD80, 000,000.00
(EIGHTY MILLION UNITED STATES DOLLARS) BLOCKED FUNDS FOR THE MAIDEN VOYAGE AND
WHICH PERFORMANCE BOND ONE (1) YEAR AND ONE (1) MONTH SHALL BE ISSUED WITHIN 10
WORKING DAYS AFTER THE RECEIPT, VERIFICATION AND CONFIRMATION OF THE BUYER´S
MT799 BF. WE ON BEHALF OF__________
(SELLER NAME AND ADDRESS) HEREIN REFERRED TO AS “SELLER” HEREBY GUARANTEE THE
GOOD PERFORMANCE OF THE OBLIGATION ASSUMED TOWARD BUYER IN ACCORDANCE WITH THE
ABOVE MENTIONED CONTRACT. IN CASE THE SELLER
FAILS TO CARRY OUT AND FULFILL THEIR OBLIGATION TO SUPPLY THE QUANTITY OF THE
NIGERIAN BONNY LIGHT PETROLEUM PRODUCTS ASSUMED UNDER THE SAID CONTRACT FOR THE
MAIDEN VOYAGE ON OR BEFORE 60 DAYS AFTER SELLER’S RECEIPT AND
CONFIRMATION OF YOUR BANK’S BLOCKED FUNDS, AND FOR
THE TERM CONTRACT ON OR BEFORE ONE YEAR AND ONE MONTH AFTER THE RECEIPT AND
CONFIRMATION OF YOUR BANK’S BLOCKED FUNDS, WE IRREVOCABLY UNDERTAKE TO HOLD THE
SAID AMOUNTS AT YOUR DISPOSAL, FREE OF INTEREST AND FEES, AND SUBJECT TO THE
LIMIT OF AN AMOUNT NOT EXCEEDING USD1,600,000.00 (ONE MILLION SIX HUNDRED
THOUSAND UNITED STATES DOLLARS
ONLY) FOR THE MAIDEN VOYAGE AND FOR EACH SINGLE SHIPMENT OF
BONNY LIGHT CRUDE
OIL, AND TO THE LIMIT OF AN AMOUNT NOT EXCEEDING
USD6,400,000.00 (SIX MILLION FOUR
HUNDRED THOUSAND UNITED STATES DOLLARS ONLY) FOR THE
TERM CONTRACT, PAYABLE IN CASH TO YOUR NOMINATED BANK ACCOUNT WITHIN FIVE
BANKING DAYS ON YOUR FIRST DEMAND BY YOUR BANK SWIFT STATING THAT THE SELLER HAS
FAILED TO PERFORM THEIR OBLIGATIONS
PURSUANT TO THE CONTRACT NO. NLO/115/3QT.15 AND NOT
WITHSTANDING ANY CONTESTATION BY THE SELLER. THIS PERFORMANCE
BOND SHALL COME INTO FORCE FROM ITS ISSUANCE, AND SHALL BE VALID FOR ONE YEAR
AND ONE MONTH FROM THE DATE OF OUR RECEIPT AND CONFIRMATION
OF YOUR BANK’S BLOCKED FUNDS. CLAIMS, IF ANY, HAVE
TO BE RECEIVED BY US ON/OR
BEFORE THE MATURITY DAY. THIS PERFORMANCE BOND IS
SUBJECT TO THE ICC UCP 600 CURRENT VERSION. FOR AND ON BEHALF OF AUTHORIZED SIGNATORY: AUTHORIZED SIGNATORY: Information provided by the AluminumNow Group and is for information only as the procedures are changing. |