Indian Energy Exchange Ltd
NSE:IEX
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Indian Energy Exchange Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of Indian Energy Exchange, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sumit Kishore from Axis Capital. Thank you, and over to you, sir.
Thank you, Movrik. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Indian Energy Exchange Q4 FY '22 Earnings Conference Call.
We have with us the management team of IEX, which is represented by Mr. SN Goel, Chairman and Managing Director. We also had the senior management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive question-and-answer session. Over to you, sir.
Good afternoon, everyone, and welcome to the earnings call for quarter 4 and fiscal year 2022. I hope everyone continues to be safe and healthy. Joining me today are Mr. Vineet Harlalka, Mr. Rohit Bajaj, Mr. Amit Kumar, Mr. Sangh Gautam, Mr. Samir Prakash, Ms. Shruti Bhatia, and Mr. Rajeev Gupta.
Friends, the COVID-19 pandemic-induced slowdown is now behind us. The Indian economy is gradually regaining the good momentum and is now called as one of the most promising growth economies in the world. For IEX, the fiscal year '22 holds special significance since we achieved all-time high volume of 102 billion units, achieving a growth of 37% on a year-on-year basis.
As per recent government data, during the third quarter of fiscal year 2022, India's Index of Industrial Production held up to 1.7% in February from 1.5% in January '22. Cumulatively for the fiscal year '22, we expect India to achieve robust GDP growth of 8.9%. The increase in industrial and economic activity has direct correlation with demand for electricity.
In the fiscal year '22, the national peak demand for electricity increased to 201 gigawatts, seeing a 6% year-on-year growth while electricity consumption increased to 1,370 billion units, seeing about 7.8% year-on-year growth. As on 31st March 2022, the total installed generation capacity reached 399 gigawatts. The renewable capacity at 157 gigawatts is approximately 39% of installed capacity. The growing contribution of renewable energy is aligned to India's voluntary commitment of 500 gigawatts from renewal by 2030, made by our honorable Prime Minister at COP26 summit held in November '21 at Glasgow.
The power policy and regulatory paradigm has been undergoing significant transformation to align to the aspirations of building a sustainable and efficient energy reserve. Several policy and regulations took place during this fiscal year, and most of these developments are conducive to further growth of and development of the power market. The most significant policy and regulatory initiative in this quarter are: the CERC (Ancillary Service) Regulation, 2022, which includes the secondary reserve ancillary services along with exchange-based tertiary reserve ancillary services aiming to maintain the grid frequency stability close to 50 Hz besides increasing reliability.
Second is, CERC has also issued now draft REC regulations, redefining the process of issuance, including accreditation, issuance, exchange, redemption. The draft regulation also proposes inclusion of other nonconventional technologies such as offshore wind, hydro, municipal solid waste, biomass and biofuel in the REC certificate category.
CERC has approved procedures for related to implementation of National Open Access Registry, which will enable automation, increase efficiency and transparency in market processes, making them seamless, automate transmission allocation, thereby enabling greater efficiency in the power market. In fact, NOAR is going to be implemented from 30th of April of this month itself.
CERC has issued draft Connectivity and General Network Access regulations 2022, which will simplify as well as rationalize transmission allocation, transmission pricing and support strengthening and augmentation of transmission network. These regulations would further support growth of power market in the country.
On the policy front, the Ministry of Power recently introduced the Green Hydrogen Policy and guidelines for setting up EV charging stations. Both ministry initiatives are aimed at facilitating the energy transition. Continued thrust on distribution reform, initiated process for amending National Electricity Policy 2021; green open access for consumers with contracted load of 100 kw and above; amendment to Deviation Settlement Mechanism regulations, linking deviations to the price discovered at that same platform are few other significant policy and regulatory initiatives undertaken during the fiscal 2022. We are keeping a close watch on the policy and regulatory developments, assessing their impact as well as the new opportunities that these developments will unfold.
IEX's performance during the fourth quarter of the fiscal year 2022. IEX achieved 27.032 billion units of volume, comprising of 23.65 billion units in conventional power markets, 1.12 billion units in green market, and 32.49 lakh certificates in the REC segments, which is equivalent to 2.24 billion units. We achieved 21% year-on-year volume growth across all market segments during the quarter.
The growth in conventional power market was driven by increase in electricity consumption in states such as Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu and Punjab. Cumulatively, in the fiscal year 2022, 102 billion units volume comprising of 90.6 billion units in conventional electricity market, about 5 billion units in green markets, and about 6.4 billion unit in the certificate market.
Further, the new segments, such as RTM, GDAM, GTAM, played a pivotal role in accelerating volume growth and contributed 24% to the total volume. The conventional electricity volume, the Day-Ahead, Term-Ahead and the Real-Time Market achieved 90.61 billion units volume and saw 24% year-on cumulative growth.
In the cross-border electricity market, which is a part of conventional day-ahead power market, we achieved about 1.05 billion unit volume. Both Nepal and Bhutan have been participating actively on the sell side and buy side. We are consistently in touch with Bangladesh and are positive that they would be joining this market shortly. Thus, we are just working towards building an integrated South Asian power market in the power market.
The green market comprising of Green Day Ahead and Term Ahead segments achieved 4.945 billion units, which is 5x increase over the last year. Renewable Energy Certificate market achieved a volume of 60.78 lakh certificates, equivalent to 6.078 billion units. The Energy Saving Certificate market achieved trade of 2.86 lakh certificates equivalent to 286 million units of volume. With customer-centric city at its core, at IEX, we endeavor our -- our endeavor, however, has been to advance and strengthen exchange technology and introduce innovative products and services to provide the best-in-class experience to our customers.
We launched the web platform to provide a digital onboarding experience anytime, anywhere, easy and secure access to the trading system. We also -- and also market data insights for our customers. We make the bidding experience seamless with 0 minimal effort. We launched automated billing through application programming interface, API, for the real-time market products. We soon plan to commence API-based automated bidding for TAM, GDAM and REC segments. API also has been launched for the market data to enable the market participants to automatically fetch that type of the market segments.
We have also provided bid creation tool to our customers to make it very easy and fast to create bulk bid details for onboard on our access platform. Further, the value-added services have been introduced for the renewable generators to facilitate generation forecasting solutions from the best-in-class service providers in tandem with IEX.
Lastly, I am enthused to share with you that CNBC has recognized our outstanding leadership demonstrated by IEX during the challenging COVID times as well as the positive and transformational effect we have been bringing to the power sector. Honorable Finance Minister, Smt. Nirmala Sitharamanji, recently conferred The Most Promising Company of the Year Award to IEX at the 17th Edition of India Business Leaders Award organized by CNBC TV18, held on 1st April at Mumbai.
Indian Gas Exchange, I will now basically touch up on developments regarding the gas marketing in IGX. The gas markets saw significant traction in the fiscal year 2022. IGX has been growing from strength to strength since its inception and has been solidifying its performance by creating new [ resource ] on the business front almost every month, while accelerating development of the gas market. IGX has achieved financial breakeven in the fiscal year with a profit after tax of almost about INR 1.8 crores.
During the fourth quarter of the fiscal year 2022, IGX achieved a total volume of 7 million MMBtu. And cumulatively in the year FY '22 -- 2022, IGX achieved total volume of 12 million MMBtu compared to 0.2 million MMBtu in the last year. During the year, prominent leaders such as -- prominent leaders in the petrochemical sector, such as BPCL, IOC and IGL, ONGC, Adani Gas Pvt. Ltd. among others joined IGX as members. I'm pleased to share with you that recently, IGX also won the prestigious Diamond Award in the Smart Start-up category of the year at the sixth edition of the India Smart Grid Forum 2022.
Financial and business performance of the company. I will now come to the financial and business performance of the fourth quarter and the fiscal year 2022. On a stand-alone basis, revenue for the fourth quarter of the fiscal year 2022 increased to INR 128 crores, witnessing a growth of 25% on a year-on-year basis. The PAT grew by 27%, with a margin of 63%. Revenue for the fiscal year 2022 increased to INR 478 crores, witnessing a growth of 34% Y-o-Y basis. The PAT was INR 302.5 crores, which grew by 42% Y-o-Y basis, with a margin of 63%. The company declared a final dividend of INR 1 equivalent to 100% of the face value of the equity shares, taking total dividend payout during the year to 200% of the cash value of the share.
The key highlights of the fiscal year 2022 included 90.61 BU volume in the conventional market, achieving a growth of 24%; 4.945 million unit volume in the green market, achieving 530% volume growth; 63.64 lakh certificates constituting 60.78 lakhs of REC and 2.86 lakhs Energy Saving Certificates.
Friends, we are working towards introducing long-duration contracts in both electricity and renewable energy by the end of first quarter '23. We are also working to commence other new market segments, such as ancillary markets, capacity markets, gross bidding contracts, National Open Access Registry, et cetera, and remain optimistic about commencing this in this fiscal year itself. In February '22, CERC also approved introduction of hydro power contract at IEX, which will enable obligated entities to comply with hydro power purchase obligation.
In our first 2 consistently advanced customer centricity, we will be shortly launching web-based bidding platform to enable our market participants easy and fast secure access for bidding on IEX platform. Further, we also aim to provide advanced data analytics as well as new technologies, such as robotic process automation to eliminate human dependency in our processes. These initiatives would allow us to focus on introduction of new products and services to enable our market participants to derive better value through exchange platform.
Besides strengthening the core business through new products, we are continuously assessing adjacent business opportunities to further diversify in our business. With that, I shall conclude by thanking all of you. We will now commence the question-and-answer session.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
Congratulations on a very, very good quarter and a fantastic year. So my first question is, sir, it has been a story of contrast, especially the April month. You see strong demand in the India -- in the country. But at the same time, our volume is suffering, because of price gap. Also the shift to TAM and GTAM is causing loss to volume for us. How do you see it going forward?
Yes, Mohit, thank you for congratulating us on the performance. And as far as the demand scenario is concerned, in fact, increase in demand in the month of April is as high as 11% to 12% because -- mainly because of the level of economic activity and early onset of the summer. We did not expect summer to be so severe in the first week or second week of April, and the demand has increased by 11%, 12%.
At the same time, the imported coal prices are very, very high. And imported gas price or LNG price is also very high. What I understand that cost of generation on the imported coal is about INR 9 to INR 10. On the gas, it is plus INR 25. So generation on these imported fuel is less. It is less by almost about 9,000 to 10,000 megawatts.
So because of this, I think there is a gap between the supply and the demand. And this resulted in the increase in the price on the exchange platform. Price had increased to almost about INR 18, INR 19. Many of the time, it was priced about INR 20. And the regulator and the government then analyzed that even when the price is INR 20, gas-based generation is not coming. They are not selling on the exchange platform. It is only the imported coal with the variable cost, INR 8, INR 9 to INR 10. So beside that, it is mainly because of the high demand the prices increased. So to avoid that high price in the market, they capped the price.
So that is one thing which has happened. Because capping the price in the efficient market led to the process of that there is no price discovery on the exchange platform. And this has led to buyers shifting on the alternate platforms, so alternate options.
So this is something which has happened now. But I believe this is a phenomena, which is for a short period. In the month of May, particularly after 10th of May, the wind generation starts increasing and we are expecting almost about 150 to 200 MU additional generation from wind. The hydro generation will also start increasing. So I'm sure you will see in the month of May, situation improving and the price discovery, again, happening on that exchange platform.
So my second question is on the gas exchange revenue, which you have booked in the quarter. That number is INR 78 lakh. That number seems to be slightly on the lower side. Can you confirm the transaction fees, which you have earned from the gas exchanges during the quarter?
Just a minute, Mohit. Transaction fees, so the second row.
Yes. For the quarter, the transaction fee was INR 5.6 crores.
Okay. Because segmental shows INR 78 lakh. That's the reason I am asking.
That reason being, because IGX ceased to be a subsidiary company effective from the mid of January. So the consolidation and [indiscernible] and post that number being associated company, so the numbers are not presented there. And the majority of the volume started picking up from that, so that's why the numbers did not match.
The next question is from the line of Bharani Vijayakumar from Spark Capital.
Am I audible?
Yes.
So of the new products that we are planning to initiate in this FY '23, like National Open Access Registry product, ancillary markets, gross bidding contracts, et cetera, could you individually highlight the potential in, say, 1 billion units overall? And also color on what is the purpose these products will solve for the buyer? Like what is the need that it will serve?
Yes. One is the long-duration contracts. Long-duration contract is today on exchange platform, we can launch only products for delivery up to 11 days. It was -- because of the reason that in the earlier SEBI regulations, there was a provision that our contracts cannot be locked on the spot exchanges. But that issue has been resolved now by the order of the Supreme Court and now delivery contracts will be regulated by CERC and derivatives by the SEBI.
So CERC, we have applied to CERC for approval of long-duration contracts for delivery up to 365 days. Hearing was public consultation was done and now ordering result. We are expecting the order shortly from the regulator approving this long-duration contract. Now we will be able to offer to the market participants delivery contracts up to 365 days.
So with this, yes, we will be able to then also get the market -- get a good share out of the bilateral market. And volume happening in the bilateral market is about 55-60 BUs. So that is the market size, and we want to get into this market size also. That is for the long-duration contract.
And ancillary market is -- regulator has notified the ancillary services. And under the ancillary services, the tertiary ancillary services through the market, through the exchange. So exchange will be inviting bids from the market participants, who want to participate in this market. And then we will give the various system operator for inviting the various generation from them or requisitioning the generation from them based on their merit order.
So that market will be started by the regulator as and when they notify the date of execution of that. And the [indiscernible] date of starting is yet to be notified.
As far as gross bidding. In gross bidding again, we have applied to the regulator for the approval of this product. This is a very, very innovative product. I mean I'm sure you have heard about the MBED. MBED is a concept, which Government of India introduced to have the entire generation of the country to the exchange platform. And since it was mandatory, there was a lot of observations, a lot of resistance by many of the market participants, many of the state distribution company and states.
So we introduced gross bidding, which is a sort of voluntary MBED. I mean it is up to the states to participate in this market. And if they participate in this, they will be able to make some significant gain out of it by efficiently selling and purchasing their power.
So we have -- well, this kind of products are in operation in a couple of exchanges in other part of the world, North Pole and Japan power exchanges gross bidding concept is working very efficiently. So we are also talking to the states, doing the policy advocacy, explaining them how can they get benefit out of it. So that as and when this product is approved by the CERC, we can launch this and we can get good participation in this. CERC is yet to approve this product. I think they are looking for more public discussions and comments on this.
And fourth one was National Open Access Registry. National Open Access Registry is not a new product. It is basically affirmation of the entire open access process. Today, so the open access application has to be made in the SLDC, RLDC, and NLDC. They have to do the process manually and give the open access. And particularly at the state level, there are a lot of problems in this. Now with the National Open Access Registry, everything will be automated. This will streamline the process. So I'm sure this will also further give a boost to the spot market. It is difficult to identify the potential opportunity to this NOAR, but then this will smoothen the process.
So -- and not only the new products, whatever products we launched in the year 2021, I think a lot needs to be done in this year to get participation in these markets, like green market, which we started last year. In this market, we have done a volume of almost about 5 BU. But I think there is a large opportunity. We are interacting with many IPPs, many public sector companies, who are in the green generation space and discussing with them that there is good opportunity for them to set up renewable energy to the marketplace instruments.
And we are also getting favorable response from them. And in fact, in the -- policymakers and regulators are also quite open to this idea. So I'm sure all these -- with all the initiatives, it will be possible to maintain the growth momentum.
Yes. My second question is on the MBED. Can you give us update on when is this likely to see comments? When CERC is likely to come up with the final guidelines on this? How much volumes we can expect this year? And what could be the transaction fee on these volumes?
MBED, you say.
Yes, MBED, yes.
I think we should stop discussing about the MBED now. I think nothing is happening on the actually amendment. That's the only thing I can say. Ministry of Power has issued a small document to CERC, sent the document to CERC for further taking action, and CERC is not taking any action on that.
The next question is from the line of Sumit Kishore from Axis Capital.
My first question is, could you comment on the CERC order this April, and the potential implications for transaction fee across contracts? Also, we understand that your competition might only be offering rebates and incentives on transaction fees. What is your business strategy in this regard?
Yes. First of all, when we filed our petition with CERC, that was filed in the month of January, that petition has many items in that. And there were many compliances with respect to the PMR. We wanted to inform them to CERC and the other final approvals in the rules and business laws and also approval of the connection phase. So for the other activities, no objection or position was required, so CERC has approved all of them.
And on the transaction fees, we actually said that we file a separate application, and we will deal that. And the same thing we have done for the other exchanges also. So they will deal with these transaction fees for all the fee at the industry level. I mean for the 2 operating exchanges and the third exchange, who want to start their business, they have also applied for a common transaction fee. So they will deal with the transaction fees for all the 3 exchanges together.
And I'm reasonably sure to get approval of the fees as specified by CERC in the regulation, which is INR 0.02 either side which ensures speed in the regulation. And that has been the industry practice from the last 11 years. So I don't see any challenge in that. In fact, CERC has approved trading margin of INR 0.07 for the traders. So value provided by the exchange in that process is much higher than whatever it's doing. So if the INR 0.07 approved for the traders, I'm sure for the power exchanges, INR 0.02 either side is reasonable.
Sure. My second question is, could you also speak about the likely volumes expected in REC and Energy Saving Certificates in FY '23? And if you could comment on your market share in the last fiscal and even [indiscernible] you might have done?
This year, we did almost about 60 lakh certificates. And I'm sure in '23, the number should be higher than this. But again, very difficult to say, because transactions in REC market is dependent on participation of the states. And the states' participation because of their financial condition, we don't know to what extent would happen. But in spite of this difficult condition, still, we are reasonably confident that almost about 80 to 90 lakhs of REC certificate transactions would happen.
Okay. So 80 lakhs to 90 lakhs is for the market.
No, for IES.
For IES. Okay. So just to understand this factor, I mean, in FY '22 for the period, RECs traded, what was your market share? What was the market share of IES?
It was 75% plus for IE.
75%, okay. And last question, is there any update on when [ HTS ] [indiscernible] likely to commence its operation in the exchange?
I think you should be in a better position to talk on that. Tell me if you have any comment then.
The next question is from the line of Kunal Thanvi from Banyan Tree Advisors.
So I had 2 questions. One was on the dividend payout policy. If we look at our balance sheet, we've got a lot of cash now, but dividend payout continues to be the same the way it was last year. Any thoughts on how dividend policy would pay out going ahead?
And second was on -- if you look at our volumes now, I mean the ex REC, given the higher base we reached -- we kind of plateaued or even be doing on a month-on-month basis because of the high base. How do we look at volumes from here on, with -- of course, you talked about a lot of products that are expected to come. But those would be in still next 2 to 3 years, like next 1, 1.5 year, 2 year. How do we look at the volume? Like will it be a decline first, and then a rise in the volume post new products are launched and they gain the scale?
Number one, the dividend. The dividend this year INR 1 dividend, which is 100% of the face value in the month of January. And now we have declared another INR 1, that makes it almost about dividend outgrow of [ INR 180 crores ] as a...
No, what I meant was as a percentage of the net profit, right, so in the payout ratio.
So it is 60% of the net, so it's 60% of the profit. That is one. So I mean, as I mentioned in the past also, our dividend policy is at least 50% of the profit will be distributed in the form of dividends. So we have given this year 60% of the profit in the form of dividend.
Second question is about the volume projection for this year and particularly because of the high base, which -- because of the large growth, which we have achieved in the last 2 years. Friends, our market share out of the total generation today is only about 7%, and the Government of India vision is to take the short-term market to 25% in the next 3, 4 years. And there is a purpose behind this reason. We are going to add large, renewable generation capacity in the country. Integration of that with the grid will require a very, very liquid market, so that if there is any variation, the utilities can purchase power to the market to make good the variations. And Real-Time Market was also introduced, speaking obviously, in [ 3Q ].
So there are many policy and regulatory initiatives, which have been taken to defend the market. So I believe the opportunity size is much larger. Base is definitely high, and to achieve growth of 35%, 40% is definitely going to be difficult, but I'm sure reasonable growth of 20-25% should be possible to achieve. But that all depends on the market conditions. I mean our [ USP ] has been creating efficiency in the market and efficient competitive price discovery, so that market participants can get benefit out of that. The shortage scenario is not conducive for the market. So if power supply shortage scenario continues for a long time, it may have adverse impact on our vendors.
The next question is from the line of Ankush Agrawal from Surge Capital.
Sir, again, on this CERC order of limiting -- restricting the prices, so what kind of discussions did we have before this order was implemented and after this has been implemented in terms of, would it be a long-term solution that -- wherein or permanently the prices would be capped at INR 12? Or it's kind of a short-term tenure, something -- some kind of communication that you have received from CERC.
No, we did not have any communicating interaction for capping the price. We had interacted with CERC. They wanted to understand what is happening in the market, why the prices have increased. But what I understand that there was a direction from Government on India under section 107 to review the market situation and cap the price. And as per that direction, CERC has capped the price at INR 12. This capping is basically what we understood. There is nothing mentioned in the order. But what we understand is just for this interim period when the deficit is there, and as soon as the situation improves, the capping will be removed.
Right. Right. So what you're saying basically is that the exchanges are not consulted before this order.
Yes.
So sir, in the long term, don't you think this is a detrimental business model, because every time power generation increases, obviously, the price is going to go high, right? And I know the prices are going to artificially capped, which reduces the transaction on the exchange. So practically, the exchange won't benefit from growth in power demand as such. If there's like in the short term, the power demand increases, it's actually not beneficial. It's actually detrimental to our business. So any kind of communication that you think you need to have with the regulator in terms of this?
Now see, the power demand increase is definitely good for the sector. It is a good economic indicator. But at the same time, we have to ensure commensurate increase in the supply of power. Unfortunately, in the month of April, the demand increase was at a very high level, at 11%, 12%, and supply -- commensurate supply is not available.
And I tell you, this is a phenomena, which is not only in India. This is world over, this kind of phenomenon is happening. Friends, in France, the prices of EUR 30 per megawatt hour, which is about INR 30 a unit, is very common on the exchange platform [indiscernible]. So commodity prices have increased, input costs have increased, electricity cost has increased. So I think this is a phenomena, which is for a short period, and proactive actions already have been taken. Government of India has already advised all the states and the central PSUs to import coal, so that they can supplement the generation by another 4%, 5%. And if we can have another 4%, 5% of generation, that's all that is what is needed to bring enough liquidity in the market.
Right. Right. And just another bookkeeping question. So for the full quarter, you said IGX achieved INR 5.6 crores of revenue. Can you tell me the EBIT as well for the quarter?
Yes, I looked at Mr. Vineet Harlalka.
The EBITDA level is, as you look at the number, actually, the number is approximately INR 1.5 crores.
INR 1.5 crores. This was, I guess, INR 1.14 crores in Q3. Is that right?
Yes, sorry, it's INR 1.8 crores.
INR 1.8 crores. Got it.
The next question is from the line of Nikhil from DAM Capital.
Are you able to hear me?
Yes, I can hear you.
Sir, I've got 2 questions. Sir, how much was the open access volume as a percentage in FY '22? And where do we think it will go in FY '23?
See, the open access this year, our clearing price was INR 4.40. There is a very high increase in the clearing price. And at this kind of price, viability of open access is very, very low in most of the states. That is why our open access volume has reduced to almost about 8% of the total volume what we have achieved. So there is a fall in that.
And in FY '23, again, it depends on the clearing price. If our clearing price is in the range of INR 3.2 to INR 3.5 per unit, I'm sure that open access volume will increase. And -- but it all depends on supply situation improvement.
Okay, sir, understood. And the second question is, there is a talk of unified carbon trading market. So is there any chance our company will play any role in it? Have you heard of anything?
Yes, yes, yes, and we are fully aware about it. We are interacting with the EE, Europe Energy Efficiency. Europe Energy Efficiency, along with the Ministry of Environment and Ministry of Power, they are working on this initiative. So we definitely want to, intend to launch this. And this is -- initially, they want to merge with ESCerts and RECs, and they will have some multiplication factor to convert them into carbon states and do the trading of that. And subsequently, more products will be added into this list.
Understood, sir. And sir, just one last question. There was some cash -- cash has increased from INR 46-odd crores to INR 225 crores. Sir, any specific reason for it?
Basically, the year-end, we need to have liquidity. Because if you look at the year-end, the banking holidays, so we need to maintain that surplus fund to meet our payout obligations. So that was surplus fund was kept. Because of the higher prices and the volatility in the prices, we need to have a liquidity to meet our payout obligations, and considering the bank holiday, we need to keep that liquidity with us.
The next question is from the line of Swarnim Maheshwari from Edelweiss Securities.
Congratulations on the state of the numbers. Sir, the first question is what is really causing the delay in LDC? Because I believe it was well established from the apex court almost about 1.5 quarter back, and the CERC was already studying it very closely. So what is leading to the delay in the launch of LDC?
One is the regulatory process. Regulatory process of admitting the petition and inviting public comments and then the hearing. And in this case, since it is a new product, which they want to launch, they wanted to understand the implication of this, understand the product details. So I think that process is over now. Order is reserved. So we should get order in this month itself, maybe in this month of the month of May.
Okay. So what time does it take to officially launch it from the day of getting the order?
We are ready to launch it. Any time we get the order, we will launch.
Okay. Okay. So there is -- I think it's a high chance that you may launch it in May or June, let's say.
Yes. Yes.
Okay. Sir, my second question is, don't you think that there is a case that it's an established fact that in the month of October and again in the month of April or May, there always is demand-supply issues, some sort of mismatch. The merchant prices goes through roof, and discoms have to ultimately pay a very high price to get the things, and specifically, when the international coal prices are very high. But do you think that this can revise the medium-term PPA sentiment in the country?
Yes, the point is if this kind of situation continues for a long time, long time means maybe 6 months, 1 year, then yes, there will be tendency in the part of the buyers to secure some contracts. But I don't think -- I mean, October was for 15 days. After the first fortnight of October, second fortnight was very normal and things were very normal there; price discovery, not happening. Prices also came down. I'm sure this time also, it is for the month of April and maybe for 10 days of May. After that, the situation will get in normal.
So I mean, market development can take place only when we have sufficient liquidity in the market. I don't think any market can develop under deficit [indiscernible]. So if deficit continues for 2, 3 years, yes, there will be definitely be tendency on the part of discoms to buy. And that was the case prior to 2010/11. Lots of PPAs were signed, because there was a deficit of power in the country. But I'm sure, looking at the kind of capacity, what we have, that situation -- the situation, this is not going to continue for a long time, and this should have good visibilty on the sale side.
And so no threat to the merchant capacity as per you?
Pardon.
So as per you, no threat to the merchant capacity that we have in the country.
No, I don't see that. I don't see that.
Okay. Got it. Got it. Sir, one final question is, now with the exchanges coming in the -- the regulation experience becoming more aggressive in terms of market share and all, how do you respond if they were to reduce their transaction fees? I mean will you respond equally? Or you will let the market share actually go away? I mean if you can just help us with that, your thoughts on that.
See, we are operating in this market from the last 14 years. And from the last 14 years, there are 2 changes. If a reduction in the transaction fees can help in getting the market share, I'm sure exchanges would have tried that. But I don't think that can happen.
Market share is dependent on the value which you provide to the market participants, the liquidity which you have on the platform. It is basically a function of that. For a generator, who is selling power, for him, it is important to sell that power. If that power is not sold, he will lose that opportunity. And if he loses opportunity for others purchasing, getting that revenue of INR 4 is more important than INR 0.02 transaction fees. And same is the case with discoms.
So I think transaction fee is a very insignificant component in that whole process of sale and purchase of power. So we don't see any challenge because of this, and we don't want to enter into this game.
Got it. Got it. But sir, what if it is actually more regulatory induced? Say, with CERC, you guys have to respond within 15 days. And if CERC takes a case at INR 0.02, I mean although PMR guidelines [indiscernible], but then you still have to respond to that transaction fee thing, which came on 25th of April. So if CERC was to reduce it, then that will be for all the exchanges and for -- or can it happen that you can be charged different transaction fees for different products. Is that a possibility, sir?
No. First of all, different transaction fees for different exchanges means if you reduce my transaction fees, then you are asking other exchanges to close down.
No, no, not different exchanges. Different transaction fees for different products.
Yes, different -- I mean all products are of similar nature, whether it is, Day-Ahead Market or TAM market or wind market, is -- they're all same electricity transactions. So I don't think that kind of a view will be taken.
And as far as approval of transaction fees by CERC is concerned, as I explained earlier also, I don't see any challenge in that, because the regulators themselves, very recently about a year back, have approved trading margin INR 0.07 for the trading companies. And looking at the values with -- the exchange provides, they themselves have maintained a regulation INR 0.02 on either side. And I'm sure when the regulatory -- maintaining the regulation INR 0.02 either side, cannot drag their mind before mentioning that. So I'm very comfortable in getting this approval.
The next question is from the line of [ Aditya Chadda ] from InCred Asset Management.
Can you comment on the change in trade payables and trade sales, which is payable? This INR 635 crores and the sales which is at INR 87 crores?
The higher volume and the higher prices. As you know, the higher the electricity has been trading at almost INR 14, INR 15. So this has resulted in a significant increase in the payable amount. So we see the general temporary phenomena, because of the market sentiments. As and when the electricity prices get normalized, it will again settle down at the earlier rate.
The next question is from the line of Pavan Kumar from RatnaTraya Capital.
Sir, I wanted to understand, suppose in a situation like that happened in April as certain discoms like, say, appropriated certain power, and if any private players also wanted power and he was, I mean, bidding for the same power. So from the same state, is it like the discom has to purchase the power and then this is distributed to the private player or the private player himself can directly access the exchange?
The question is not clear. Which private players you're talking about?
Industrial players, because I am assuming is discoms are directly dealing with both the commercial and industrial purchases. But if a private player directly wanted -- an industry, who was facing some shortage of power wanted access today additional power, can it get it from the exchange directly? Because going to the...
Fair enough. Pavan, it's like this. These industrial and commercial consumers are the consumer of distribution company. They have taken connection from distribution companies. They are paying demand charge to the distribution companies. Now if these industrial consumers wants to avail power from the outside, if they are able to avail power from the outside at a rate lower than what distribution company is charging them, [indiscernible] open access regulations and open access charges, then they can do so. That is allowed under the act. And if they are not able to do that, then distribution company is obliged to supply them that power at the distribution tariff.
Okay. But in the case distribution company is not able to supply the power, the other route for them to move to meet their demand, is it through the exchange or they have to get into bilateral contracts?
No, in that case, they can buy it from the exchange. But the point is if there is enough power that is available in the market, then distribution company will be most happy to purchase power and supply that power. Because these industrial consumers are their paying customers. They will be happy to supply them power. So that kind of situation, when distribution company is not able to supply them, will happen only when there is a shortage of power in the country.
Okay. And in that case, actually, even the exchanges face the same issue.
Yes, yes. Yes, you are right.
The next question is from the line of Aditya Yadav from Transient Capital.
Hello?
Yes, sir, we can hear you. Please go ahead with your question.
Sir, firstly, my question was regarding the long-duration contracts. So for the long-duration contracts to be launched, is it necessary that the derivative should be launched before that so that the players have more of comfort entering into longer contracts?
No, there is no such thing throughout. Both are independent activities. And the derivatives start to be approved by SEBI and longer-term contracts are...
No, sir, I wasn't asking from the regulatory perspective. I was wondering from a market perspective, from the participants' perspective, do you feel that they will feel more comfortable if they have -- like the derivatives have also come in line -- come online and they can hedge their position. So they might be more comfortable with longer-duration contracts and that might act as an impetus for you as well? Or do you feel confident, okay, it's okay to go ahead with the longer-duration contracts without the derivatives?
Yes. I don't see any issue in that. I mean going ahead with long duration contracts without long-term derivatives can happen. And there is -- because already these bilateral transactions are happening in the market. And it's also basically shifting those bilateral transactions on the exchange platform. So I don't see an issue on that. Long term, derivatives will basically bring more liquidity in the market and reduce price volatility and will bring options available to the market participants. So this will definitely further deepen the market.
Sure. Sure. Sure. And as you had mentioned before, that anyway, this is a large market where you said the bilateral long contracts are around 50 billion, 60 billion units, if I got it, right.
Yes, yes.
Okay. Okay. Okay. Sir, my next question was regarding the developments on the gas business, the gas exchange business, where you've discussed a couple of quarters back -- quarter back, there were certain impediments in the [indiscernible] terminals, certain GST issues, and a couple of other structural issues, which are there before the gas market can be in a full-fledged mode. So if you can give further updates on that. So how have we come forward in the last 12, 15 months or so?
I mean most of the impediment...
And what are your expectations for the coming 12 to 18 months in the gas business?
Yes. I mean most of the issues are still persisting. That is under GST, so there are different charges, which are being charged by the different states. So if -- I mean, we are not able to launch a uniform contract across the states. That is one issue.
Secondly is the system operator. System operator, here, seeing a positive development on that. And the ministry has decided that they will create a system operator in the gas sector. So what -- on that, it's going to start very soon. Rationalization of transportation tariffs, regulatory PNGRB has initiated some action on that. It will take some time. But then, yes, there is a good news from that. They have initiated some process in rationalizing the transportation tariff.
The biggest problem what we are facing in the gas market today is very, very high gas price. And unfortunately, the prices are so high that they are unaffordable for the Indian consumers. When the gas price, which used to be $5, $6, today, it's more than $30. So because of that also, gas exchange volumes are impacted, but I'm sure these gas prices, which are very high today, in the coming days the prices should come down. And even if they come down to a range of $10, $12 also, that will lead to good transactions on that IGX platform.
But the end uses of the gas continues. Sir, the city distribution, city gas distribution and every other end usage continues, although the high prices are there. So I mean, yes, we are in a nascent stage and the business is developing. But the ecosystem is running apart from the power part. I agree where you said the cost was too high for the power generators in the gas field. But here, you see...
The gas distribution is getting gas out of the government-produced gas, which is the administered price cap. So the gas, which was given to the power sector, is not getting diverted to the city gas distribution system. And industries, they are forced to buy gas at high price, but many of the industries are now switching over to other fuel options. There was a time when using naptha was almost 30% costlier than using gas. Today, using gas is 30% costlier than naptha. So I think economics have changed, but as gas price coming down to $10, $12 will again change the whole economics. And industries will shift to the gas, and gas will become affordable at that price.
Okay. Okay. Okay. So -- and the other issues also you mentioned, sort of like in coming quarters, let's say, or -- we should expect more rationalization from the...
Yes. I mean government is also committed to increase consumption of gas in the country. Today, gas consumption is 6% of the energy bucket. And in the developed countries, the share of gas is almost about 25%, 30%. Government has decided to increase gas share to almost about 15% by 2030. If government want to do that, government will have to create a vibrant market in the country. And that can happen only when all these issues, which we discussed, are removed.
I mean, GST is something which is necessary. If you don't have a uniform price across the country, then how buyer and seller will know what kind of costing they are going to have.
Sure. Sure. Okay. Okay. Sir, my last question is regarding the pricing, pricing we charge on the transactions. Sir, why does the -- so can you help us understand the regulators' rationale behind traders getting INR 0.07 price and whereas exchanges are capped at a much lower price per unit.
No, if you look at the 2010 regulations for trading margin, there was a provision of INR 0.07 if the rate is more than INR 3, and INR 0.04 if the rate is less than INR 3. Since the power rate has increased to more than INR 3, regulator feels that the second option is redundant now. So they have made it INR 0.07. Very simple.
In case of gas -- in case of exchanges, they feel that this is a technology platform-driven process. So -- and exchanges are charging INR 0.02 on either side from the last 11 years. So this is a market-accepted practice, so they are specified to conform either side.
And although there have been questions regarding the competition and the pricing and everything, and it does it very well. You provide much more value to the ecosystem. Are there possibilities that they could have an upward revision in exchange fees? Or is that very remote?
Upward revision will take place only if we ask for it. We don't intend to...
You don't intend to ask it. Okay.
The next question is from the line of [ Lokesh Shetty ], an individual investor.
And this happens to be my first question. I read some time back in one of the interviews that there is a plan to launch an IPO for IGX. Do you think now is the right time? Or do you think that we should -- I mean, the plan is to wait for things to get regularized in terms of GST and the other bottlenecks that we are facing with the gas exchange?
I think you haven't read the fine print in that. What I said was as per the PNGRB regulations, we will have to bring down our stake in IGX to 25% within 5 years of the issue of regulations. So yet, our exchange got the PNGRB approval in the first week of December 2020, so by 2025 December, we will have to bring it down to 25%. So that means we will have to divest 25% equity. And I mentioned that the best option to divest this equity is through the IPO process. That means though IPO -- I mean, we would like to hold the equity as long as we are allowed. And whenever we have to divest it, we'll explore this option of IPO.
Right, sir. So there is a possibility that you can explore the other routes also, like tying up with...
Depends on the market conditions 3.5 years down the line. How can I say today what will be the best option? But as of now, what we understand, what we see that the IPO is probably the best of option.
As there are no further questions from the participants, I now hand the conference over to Mr. Sumit Kishore for closing comments.
Thanks a lot, folks, for your time and for giving Axis Capital the opportunity to host this call. Mr. Goel, would you have any closing comments?
Yes, I would like to thank each one of you for being part of today's con call. There have been many significant developments in the fourth quarter and fiscal year 2022. However, there are a few challenges, too, especially the increase in energy prices, including the commodity prices driven by various factors, including the global sector.
We are working proactively to further develop that and strengthen the recently launched market segments, which have immense potential for the growth. At IEX, we remain committed to doing our bit towards facilitating India building a sustainable and efficient energy future.
Thank you. I look forward to our next interaction with you. Till then, take care and stay safe. Thank you very much.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.