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PTC India to retain only 5% stake in IEX

According to reports, PTC India Ltd, one of the promoters of the Indian Energy Exchange (IEX), plans to sell part of its stake in the bourse, retaining a minority 5%, in line with regulations.

As part of the exit plan, Renuka Ramnath’s Multiples Alternate Asset Management (MAAM) will buy PTC’s 14.5% stake in IEX. PTC, which originally held 26% in IEX through PTC India Financial Services Ltd, has already obtained Foreign Investment Promotion Board clearance for the transaction valued at around Rs.54 crore. PTC had earlier sold a 5% stake to Bessemer Venture Partners and Lightspeed Venture Partners—existing partners in the exchange.

“We have taken this decision in the wake of the Central Electricity Regulatory Commission rule that an electricity trader can’t hold more than a 5% stake in an electricity exchange,” said a PTC executive, requesting anonymity.

Apart from PTC India Financial Services, Financial Technologies, which floated the Multi Commodity Exchange of India Ltd, holds a 46% stake in the power exchange.

Other stakeholders in the exchange include Tata Power Co. Ltd, Reliance Energy Ltd, Infrastructure Development Finance Co. Ltd, Lanco Infratech Ltd, state-run Rural Electrification Corp. Ltd, Adani Enterprises Ltd, Lightspeed and Bessemer. The exchange started operations in June 2008.

Jayant Deo, managing director and chief executive officer of IEX, confirmed the development. Ramnath, managing director and chief executive officer of MAAM, declined to comment.

India has three power trading exchanges; the other two are Power Exchange India Ltd and National Power Exchange Ltd.

They function along the lines of commodity exchanges and provide a platform for buyers, sellers and traders of electricity to enter into spot, forward contracts and trading of renewable energy certificates. They also provide a payment security mechanism to buyers and sellers. These exchanges primarily serve to discover the price for the day ahead, which is the electricity sector’s equivalent for the spot price and help tap the shortfall of power in the short term. Earlier, these prices were determined bilaterally by the buyer and seller mostly over the phone.

There is merit in energy exchanges, and energy derivatives have to be traded, said Deepesh Garg, managing director of Mumbai-based investment bank o3 Capital Global Advisory Pvt. Ltd. “It’s a strong proposition if executed well. It’s a story that has a future because there is a demand-supply mismatch. As utilization of power increases, trade of energy will also increase.”

According to IEX, the average spot tariff in the 2012 fiscal year fell to Rs.3.55 per unit from a high of Rs.10.78 in April 2009. The reason for the decline was the inability of state electricity boards (SEBs) to buy costly power. While there is growing competition on the part of electricity suppliers, the demand for traded power is faltering as SEBs across India are saddled with losses because of power theft, technical losses during transmission and distribution and billing inefficiencies. The political compulsion of providing free power to farmers has also had an impact on SEBs.

“We think the spot market for electricity has become much more stable in India as: a) average FY12 spot tariffs are unchanged y-o-y (year-on-year); b) month-on-month volatility in tariffs has declined significantly; and c) average volumes have increased consistently,” according to a 9 March UBS Investment Research report.

IIFL Institutional Equities said in a 14 March report: “A cautious approach by even other power trading companies and unwillingness by banks/NBFCs (non-banking financial companies) to fund incremental working capital has led to severe liquidity crunch in discoms over the past two quarters. Inability to pay for traded power has led to huge peak energy deficits in states such as UP (Uttar Pradesh) and TN (Tamil Nadu). TN, for instance, has imposed a 12-hour power cut to industries as a result of unavailability of power.”

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