New Delhi: The move to set up a second exchange to trade electricity and involving the National Commodity and Derivatives Exchange Ltd, or NCDEX, has come unstuck following irreconcilable differences among the initial group of promoters.
Besides NCDEX, other investors in the venture were NTPC Ltd, National Stock Exchange of India Ltd (NSE), National Hydroelectric Power Corp. Ltd, and Power Finance Corp. Ltd.
In a joint statement, NCDEX and NSE said: “We have withdrawn from the JV (joint venture) because of our discomfort over the manner in which certain issues were being dealt with. These were not in accordance with best practices.”
A senior NTPC executive, who did not wish to be identified, also confirmed the development.
The fallout, say officials familiar with developments but who did not wish to be identified, was because NTPC was unwilling to allow NSE a bigger role in management control in the project. Further, the two differed on the move to accord promoter and not investor status to Tata Consultancy Services Ltd (TCS), which was to provide the technology solutions.
“TCS was to provide the software solution for the exchange but being a Tata group company there were issues that it may be representing the interest of Tata Power (Ltd). And, therefore, some partners were against TCS getting a higher stake,” said a senior executive of one of the joint venture partners who did not wish to be identified. He also said NSE had been looking for a much bigger role in the venture.
The collapse of the venture comes even as rival Financial Technologies (India) Ltd and the PTC India Ltd-led India Energy Exchange plans to start operations in the first quarter of fiscal 2009, starting April.
The other members of this exchange include private sector power firms such as Reliance Power Ltd and Tata Power, and trading firm Adani Enterprises Ltd.
A power exchange functions on the lines of commodity exchanges and provides a platform for buyers, sellers and traders of electricity to enter into spot and forward contracts. It would also provide a payment security mechanism to buyers and sellers. The exchange primarily identifies the price for the following day, which is the electricity sector’s equivalent for the spot price.
The JV involving NCDEX had filed its application with the Central Electricity Regulatory Commission for setting up a power exchange in July last year. Although the “in-principle” approval was given in October last year, the signing of the agreement was delayed.
Initially it was fixed for 19 January, but NCDEX had some reservations and NSE skipped the event. NSE is a promoter in NCDEX with a 15% stake and therefore part of important decision making in NCDEX.
According to a senior government official, the issue of TCS was discussed by NTPC in presence of all co-promoters and as part of that discussion, NCDEX proposed that TCS should be inducted as a service provider and later included as an investor. However, this was not acceptable to other co-promoters and TCS.
“In a subsequent meeting that was called in the last week of January to sort out all the issues related to management control, promoters and corporate governance, NCDEX and NSE maintained their stand. Since it was not acceptable to other co-promoters including TCS, NCDEX and NSE withdrew from the proposed JV,” said the government official who did not wish to be identified.
According to Shubranshu Patnaik, executive director, PricewaterhouseCoopers, the falling apart of the JV will not make much difference in the power trading business as only 5% of surplus power is perceived to be traded through power exchange.
“I feel even one exchange is enough to carry on the business of trading. What is important now is that grey areas in power trading business are addressed, operations of its functioning are made smooth and the concept itself is made attractive to make trading happen through such exchanges,” said Patnaik.