Liquidity risk is the Company’s possibility of failing to fulfill of its net funding obligations. Uncertainty in the markets or occurrence of events as a result of decrease in funding resources such as decrease in credit ratings can give rise to Liquidity Risk. The management of EGC InfraEnergy manages Liquidity Risk by keeping enough cash and similar resources ready in order to fulfill its current and potential responsibilities by distributing the funding resources. The Company performs periodical liquidity risk analysis for the risks it may expose to.
Credit risk is the risk of occurrence of financial loss of one of the parties in a commercial relation due to of failure by the other party to meet its obligation relating to a financial instrument. The Company is exposed to the credit risk due to its deposit amount kept in the bank. All the bank deposits of the Company are kept in Turkish banks.
Due to its activities, the Company is investing in long-term projects. Financing needs of these investments are satisfied by liquid values; and the risks such as failure to find funds with appropriate conditions for project financing credit, failure to create due dates of the existing debts according to the due dates of the assets under the current assets item and failure to establish optimum balance between the assets and resources are all monitored.
Currency/Interest Rate Risk
Foreign Currency Risk is the effects arising from currency rate movements in case of having assets, liabilities and Off-Balance Sheet liabilities in any foreign currency. The company currently is not subject to foreign currency risk. The Company expose to interest rate risk due to effects of the changes in market interest rates lead to fluctuations in the prices of financial instruments. These exposures are managed by short-term retention of assets affected by interest rate changes.
Share Certificate Price Risk
All stocks of the Company categorized as financial assets held for purchase and sale are traded at Borsa Istanbul. Based on the analyses made by the Company, in the event that there is an increase/decrease of 5% in the stock market price of the shares, presuming that all other variables remain constant, there is a TL 1.465.425 decrease/ increase net period loss of the company for the period at December 31, 2015. (31 December 2014: TL 1.490.443).
Market risks such as; fluctuations in electricity prices, changes in electricity demand, price instability for the raw materials (sources), state ongoing intervention in the electricity market, are important elements that need to be monitored closely especially in recent years.
Adverse effects of economic instability (such us stagnation, crisis, recession, devaluation etc.) and fluctuations in currency and interest rates are the major risk factors for the investment and operation stages.
The Company has combined-cycle natural gas, wind power plants, as well as mobile generators, geothermal energy and mobile power station in its portfolio and therefore places great importance on feasibility studies, as the Company’s main objective is to grow with profitable investments. Accordingly, the potential effects of all internal and external risk factors on planned investments are identified and relevant scenarios are analyzed.
The Company conducts technical feasibility studies at the most optimum level possible, in all stages of its projects, for which the investment decision has been made. The Company also takes into consideration financial feasibility, including macroeconomic growth, inflation rate, currency rates, sales volume, market impact, prices, and monitors these factors periodically. The profitability of a project is determined by calculating the internal productivity ratio, profitability index, and capital cost. During the project development stage, the Company closely monitors progress through the use project management tools.
Through privatizations and a new regulatory framework, a more liberal and competitive market is being formed to replace the public monopoly in the energy sector, leading to increased competition. Therefore, the Company manages competitive risk by implementing innovative sales and marketing strategies. As a result, portfolio diversification will continue to be on the company’s agenda in the coming period as well.
Legal and political risks, defined as changes in regulations, delays in obtaining project permits, licenses or expropriation permits from public authorities, compliance with tender contract conditions, and political relations, are considered natural risks in the energy sector. The Company keeps such risks under control through close monitoring and timely actions.
As technological developments, newer and more efficient energy production systems, at the same or lower cost, continue to emerge every day, the Company may potentially experience weakening competitive power in terms of profitability. Therefore, the Company makes short-term upgrades to integrate these new technologies.
Environment/Health/Safety Related Risks
At its production facilities, the Company implements strict policy and procedural guidelines to ensure compliance with legal standards related to environmental protection, stakeholder safety and health; the Company also tries to take the necessary measures against adverse geographic and climatic conditions.