Power traders

In the recent spate of policy announcements, one of the major items which has probably been overlooked is the allowing of 49% foreign investment in power exchanges - 26% via FDI and the rest via FII. FII purchases are, however, restricted to the secondary market and no single entity is allowed to hold more than 5% stake.

I see 2 listed companies benefiting from this move by the government – PTC India (not the Financial services arm) and Financial Technologies. The rationale is as below.

At present, in India, there are only 2 operational power trading exchanges – Indian Energy Exchange (IEX) and Power Exchange India (PXI). PXI’s equity holders include NSE, NCDEX, PFC, Governments of Gujarat, Madhya Pradesh and West Bengal, JSW, GMR and Tata Power Trading while IEX’s stakeholders include Financial Technologies, PTC India, Rural Electrification Corporation, IDFC. In fact, IEX was the first national power exchange in India co-promoted by PTC India through its subsidiary, PTC India Financial Services in the year 2008. 

Currently, there is no specific dispensation under FDI policy for power trading exchanges. These exchanges are engaged in day-ahead market and await regulatory approvals for future and derivative products. Two power exchanges — National Power Exchange and Marquis Energy Exchange — are being planned. The equity holders of National Power Exchange, which is yet to begin operations, are NTPC, NHPC and PFC (collectively 50%) and Meenakshi Power, IFCI and DPSC, West Bengal.

PTC India is among the most credible player in bilateral market as well as on the power exchanges. PTC plays a key role on IEX as it has the biggest portfolio of trading power on the exchange through traders. A number of captive power producers (CPPs) avail PTC services to trade power on the exchange as clients of the company. It is the pioneer in implementing the power trading concept in India and has successfully demonstrated its efficacy in optimally utilizing the existing infrastructure within the country to the benefit of all.

PTC has maintained No. 1 position in electricity trading since sustained trading began in 2000-01. It seeks to provide holistic services in the power trading market, including intermediation for long-term supply of power from identified domestic IPPs and cross-border power projects, financial services like providing equity and debt support to projects in the energy value chain through its subsidiary PTC India Financial Services (www.ptcfinancial.com), fuel intermediation/ aggregation for cross-border power plants through PTC Energy Ltd. and advisory services among others. It thus plays the unique role of a Complete Energy Solutions Provider.

Of the two power exchanges in India, Financial Technologies has co-promoted IEX along with PTC India Financial Services (PFS), an arm of PTC India. FT’s 33 per cent holding in IEX, considered the key beneficiary of the reform in the sector, is worth Rs 500 crore, based on the last deal where PFS sold 14.01 per cent (in IEX) for Rs 70.76 crore. However, thereafter the valuations have gone up as a result of higher profits.

Value unlocking in both the above scrips (PTCI and FT) could happen thru a stake sale in case of IEX (with both FT and PTCI as the beneficiaries) as well as thru the introduction of advanced power trading products which the foreign partner may bring leading to increased trading volumes on the exchange. The 2 exchanges are trading about 2% of the 800 billion units generated in the country today, so there is ample scope for expansion in volumes traded on these exchanges. However, it must be remembered that this will be a long drawn game and the actual benefits would flow in much later for a power hungry country like India, when not only appropriate products but also the necessary infrastructure would be in place. But when this happens, the results could be multi-fold (PTC came out with an IPO in March 2004 @16 and currently has given more than 300% returns in 8-1/2 years multiplying more than 4 times in this 8-1/2 year period). FT appears to have an edge here being a private player and thus free to take expeditious decisions as compared to PTC which being a PSU is firmly under the control of government with all its attendant delays in decision-making.