Outsourcing Contract Documentation at ENOC
by Jitendra Sharma, Group Manager, Treasury & Insurance, Emirates National Oil Company Limited (ENOC) LLC
In February 2014, Emirates National Oil Company (ENOC) concluded the first of a number of important contracts in Tanzania, an important strategic market for the company. This brought a number of operational and risk management challenges including large volumes of transactions which ENOC’s treasury found difficult to handle. In this article, Jitendra Sharma, Manager, Group Treasury, ENOC outlines how the company opted for relationship bank Abu Dhabi Commercial Bank’s (ADCB) outsourced export Document Preparation Services for letter of credit handling, delivering significant commercial and operational advantages.
A key part of ENOC’s international expansion strategy is to develop our footprint in Africa, where the provision of reliable energy is essential to building economic prosperity and stability. An important country for us as part of this strategy is Tanzania, and we have been developing our activities there throughout 2014. The first deal was transacted in February 2014 for $300m through the Tanzania government, which was a sizeable transaction. However, we soon realised that rather than dealing with a single counterparty, we were actually conducting business with up to 50 mid-cap and small to medium-sized enterprises (SMEs). This created a different risk dynamic dealing with a single counterparty, and involved issuing a very large number (over 200) letters of credit (LCs) reflecting each product sale. As our treasury department is accustomed to dealing with a small volume of high-value transactions, we were not equipped to manage this scale of labour-intensive processing, and it was a struggle to fulfill the first contract. Ultimately, we achieved it, but we recognised the urgent need to find an alternative solution for subsequent contracts.
The decision to outsource
ADCB, one of our key relationship banks, approached us and explained the ‘one stop’ Document Preparation Services solution that they offered. Although we were attracted to the solution, and impressed by the skills, experience and reputation of the ADCB team, we were initially concerned that the bank would not be in a position to manage such a high volume of transactions over a short period. Specifically, the contract involved shipping six oil vessels within a four- week period, with 170 LCs to 40 individual buyers. Each would need to be confirmed by ADCB to guarantee payment, and the entire LC documentation process would also need to be prepared for the LCs accurately and promptly. However, we made the decision to outsource our LC processing to ADCB once a new contract in Tanzania was agreed in July 2014.
Service delivery in practice
Our concerns over ADCB’s processing capacity quickly proved to be unfounded, as we immediately recognised the value of the service that they offered. Indeed, so impressed were we by this outsourced solution that we had no hesitation in continuing with ADCB’s services for the next Tanzania contract in October 2014.