Indian Energy Exchange Limited (IEX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q3 FY '21 Earnings Conference Call 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 Limited. Thank you, and over to you, sir.

Thank you, Mallika. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Indian Energy Exchange Q3 FY '21 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, Chairman of Board, Interim Managing Director and Chief Executive Officer; Mr. Vineet Harlalka, Chief Financial Officer; and the entire management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.

Thank you. Good afternoon, everyone. Wishing you all a very happy, healthy and prosperous New Year. I welcome you to the quarter 3 fiscal year 2021 earnings call. Present with me today are my colleagues, Mr. Vineet Harlalka, Mr. Rajesh Mediratta, Mr. Rohit Bajaj, Mr. Indranil Chatterjee, Mr. Amit Kumar, Mr. Sangh Gautam; Mr. Samir Prakash, Mr. Deepak Mehta, Ms. Shruti Bhatia and Ms. Aparna Garg. I hope all of you, your teams and families continue to stay safe and healthy. The past year, undoubtedly, had been a tough year for all of us. The collective resilience which the mankind has shown to go beyond the adversities and focus on new opportunities for growth and development is truly remarkable. The year 2021 has begun on a very encouraging note. The industry and economy continue to sustain growth and for revival. The news of vaccine rollout is also a positive development and supports fast-track move towards normalcy. As India watch the road to recovery, the Exchange continues to make significant contributions toward transforming the energy ecosystem. To support India's growth as a sustainable energy ecosystem, IEX remains committed to providing uninterrupted access to each platform to facilitate the distribution utilities and industries in procuring uninterrupted 24/7 power in the most competitive flexible transparent manner. Moreover, as a technology-led energy market players, we are constantly striving to leverage existing technology to its fullest potential and provide new and customer-centric solutions to our market participants. The quarter 3 of the fiscal year 2021 has been the most significant one for the Exchange since its inception in the year 2008. Continuing the spirit of launching a new contract or a product every quarter in this fiscal year and in quarter 3, we successfully introduced 2 new contracts in the green market, daily and weekly contracts. Additionally, during the quarter, we signed a licensing agreement with MCX. Under this agreement, MCX will launch electricity derivatives in the market using IEX price as a clearing. After approval from the -- this will be launched only after approval from the government and the regulators. Even more importantly, our subsidiary, IGX, Indian Gas Exchange, secured the affiliation from PNGRB as the first gas exchange in India which will bring in further credibility to the platform, enabling greater participation in the gas market. We continued our customer outreach efforts through various workshops and webinars, especially to build awareness and capacity around electricity markets, green market as well as the gas markets. We continued to enhance our technology platform to support new contracts under green market. We are now gearing up towards building capability for our forthcoming new market segments like long-duration delivery contracts. These efforts, coupled with invaluable support from our members, clients, partners and employees, have helped us to sustain a positive momentum as well as deliver remarkable business growth. In quarter 3 this fiscal year, we could accomplish the highest quarterly volume ever. So I express my gratitude to our stakeholders as well as all our energy ecosystem partners for their continued support. I will now share with you the overall economic and industry highlights for the quarter. The industrial activities and electricity consumption continued to rebound in the third quarter of the fiscal year 2021, led by the revival of the consumer sentiments as well as the demand. In October '20, the manufacturing PMI rose to 58.9%, the highest ever in the last 8 years. While in November and December, the PMI sustained momentum at 56.3% and 56.4%, respectively. With increase in industrial activities, the national energy consumption increased 7% on year-on-year basis during this quarter. As on 31st December 2020, the installed power capacity in India was at 375 gigawatt with a growth of 1.8%. The renewable capacity grew faster at 6% on year-to-year basis. The cumulative renewable capacity is now at 91 gigawatt. The steady growth in renewable is testament to India's sustained efforts towards decarbonizing the economy and increasing the share of green energy in the country's energy mix. On the policy and regulatory developments during the quarter, the Ministry of Power introduced a draft proposal on December 4, 2020, to -- enabling the distribution utilities to exit from the power purchase agreements after completion of the term of the PPA. This initiative will enable more buying by the utilities and sale of power by the generators on the exchange platform. On December 20 -- 22nd December 2020, the Ministry of Power notified Electricity Rules as part of the major reforms in the Power sector. This was a significant step that aimed at strengthening, streamlining and enhancing the quality of electricity supply and services being provided to consumers across the country. The rules will also ensure consumers' right to round-the-clock electricity supply. Amidst this development, the role of power exchanges market will become more critical as it will allow distribution utilities to fulfill their power supply obligation and address demand-supply variations in a seamless and cost-effective way. On the gas market side, as mentioned earlier, PNGRB authorized IGX as the first delivery-based gas exchange in India. Additionally, the PNGRB notified the regulators -- regulations for unified tariff structure for over a dozen pipelines that form the national grid -- national gas grid today. The simplified 2-zone tariff structure will lead to a reduction in transportation charges for distant users of the natural gas, thereby making it more conducive for development of markets in the country. PNGRB also notified final regulations regarding access code of CGD entities post exclusivity period wherein 20% of the pipeline network will be available for open access. Further, PNGRB also notified the imbalance management services regulations during the quarter. These developments together will help increased competitiveness in the market and increased consumption of natural gas in the country. We have been working with few large strategic players in the gas sector for equity participation in Gas Exchange. Today, I'm happy to announce that Adani Total Gas Limited and Torrent Gas Pvt Ltd have acquired 5% each in Indian Gas Exchange. We are also working for strategic divestment with a few more prominent partners. Let me now discuss about the financials and the business performance. On a stand-alone basis, the revenue for the quarter grew by 37.9% on year-to-year basis, over INR 69.39 crores in quarter 3 of FY '20 to INR 95.68 crores in quarter 3 of FY '20. Further, the PAT at INR 60.08 crores, increased by 42% year-on-year basis with respect to quarter 3 of FY 2020, and the PAT margin was at 62.8%. The company has announced an interim dividend of INR 2.5 per share. Owing to the significant uptick in electricity demand, Q3 of FY '21 registered highest-ever volume on the exchange platform. Even despite the subdued market conditions, the company remains debt-free and showcases robust performance led by strong business and governance model. The electricity volumes in quarter 3 of FY '21 at 20.17 billion units when compared to 12.47 billion units in quarter 3 of FY '20. It witnessed 61.8% growth. Due to the delays in resolution of impending matter in APTEL regarding the REC, the trade in REC market did not take place even during quarter 3. Consequently, total volume, including REC registered 48.2% year-on-year growth. Despite 43% growth in the day ahead market, the price on the exchange remained subdued and saw a decline of 2% on a year-to-year basis. The average market clearing price in the day ahead market during the quarter was INR 2.8 per unit. The real-time market registered an all-time high monthly volume of 1,129 MUs in December since its commencement on June 1, 2020. On a cumulative basis, in quarter 3, the RTM market traded 2,837 MUs. The green market cumulatively traded 473 MUs during the quarter. As mentioned earlier, technology and innovation are the key importance to us. As a technology-led energy marketplace aspiring to shape the future of the India's energies -- India's energy, we are continuously investing in technology. This has helped us to position IEX platform as a highly customer-centric and scalable, proactively meeting the dynamics -- dynamically varying needs of the market participants. We are now gearing up to launch the web-based trading platform, which will offer user-centric, easy-to-use interface and self-service online capabilities to provide ease of trade and best-in-class customer experience. We are constantly innovating and also ramping up our technology infrastructure, enabling IEX to lead the way to the next chapter of India's energy evolution. While the last few quarters have been turbulent for the economy as well as Energy sector, the opportunity to build a competitive and efficient ecosystem with enabling policy framework is now. The government has already initiated several reforms and likely to sustain the core momentum in the coming months. At IEX, we believe that energy markets are key to transform the sector in the best -- in the post-COVID-19 era. This new market-based energy order will be driven by efficiency, competitiveness, flexibility and sustainability, and we are working towards it in a proactive and collaborative manner. Thank you all. I and my colleagues would be available now and will be pleased to answer your questions. Thank you.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

Congratulations on the excellent quarter. Sir, I have 2 questions. The first is on REC market. Given the REC market nothing has got traded in the last 9 -- last 5 to 6 months, the question is, what is the inventory right now? And do you expect this trading to start sometime in this year, or do you think it will get rolled over to next year? Given all the information, what is available right now? That's the first question. Secondly, sir, on the gas exchanges, you just announced that you have divested 5% stake. I'm assuming that this is a secondary sale and this is -- is it done on a par basis? Can you just comment on that? And how much you intend to divest going forward? Is there any strategic plan to how much you want to hold over the next couple of years?

Yes. As far as REC market is concerned, every year, almost about INR 80 lakhs, INR 90 lakhs kind of transactions happen in the REC market. So this year, this is hardly about INR 10 lakhs. So rest of the RECs which are there available on the sell side, I'm sure will be available in future in addition to the yearly RECs issued. So on sell side, there should be good quantum available. And RPO obligation that will be -- that continues. So I'm sure distribution companies and industries who are obligated entities, this RPO obligation of this year will have to be fulfilled in the subsequent period. Regarding whether the REC market will start in this financial year, very difficult to say because what I understand is the rehearing of the case will happen in APTEL. Only thereafter, the order will be issued. So whether the order will happen in this year or not, difficult to say.

And sir, on the gas exchanges?

Yes, on the Gas Exchange, we are looking for strategic partners. So for strategic partners, the sale is at par only. So we are not divesting. We are only looking for strategic partners. And we have identified a couple of strategic partners, and we are only talking to them. And whoever is interested in coming to join the IGX platform, yes, as equity investor, we'll only divest -- we will only sell the equity to those strategic partners.

Understood, sir. My last question, sir, what was the open access volume in this quarter and 9 months?

In percentage.

In percentage terms, if you can provide us?

The increase in the open access volume is 14%, and the number term...

24% of the total demand, volumes wise.

Volumes wise?

This is for quarter or 9 months?

Quarter.

24% of the total volume, right, in the quarter?

Yes, 24% of the volume and 14% increase on a year-to-year basis in the open access.

This only includes DAM market. It has nothing to do with RTM market, am I right?

So very little in RTM market. Majority of the open access is traded through day ahead market only. But yes, some part is there in RTM as well. So in the total volume that we have done, which is about 20 billion units, in Q3, almost 24% is through open access, remaining is all distribution company by. 76% is distribution companies by.

The next question is from the line of Sujit Jain from ASK Investment Managers.

Goel and team, congratulations for stellar numbers. A few queries. On REC, I want to probe more if the RPO obligation for this year FY '21, is there a chance of relaxing that because if that happens because of COVID situation, exceptional situation, then the demand that could have come once the trading starts actually will not come and the new set of obligations in FY '22 will kick in. ESOP trading should have happened this year. Any update on that? I also want to understand the software that we have. It is our own software, we purchased it from the vendor. So it becomes our property. So whatever new segments, et cetera, come, such as GTAM, et cetera, they also become our IP. Is there a scope of monetization? For example, the vendor who sold us this software and this platform, he is one of the largest providers of audience to brokers in equity market. And at the same time, Gas Exchange also, we understand that the team will be in-house since you purchased the software and correct us if that is not the right understanding. Equity -- sorry, the electricity derivatives that you talk about, signing up with MCX, would you be providing an index to them? If yes, what is the progress in terms of forming that index and how big is that opportunity? And one last question is that, you had spoken that if solar generator part leaving some capacity outside the PPAs that becomes an opportunity. On the same lines, I just wanted to look at a broader perspective as to what is the business development initiatives a regulated entity like IEX, an exchange can do? To what extent we can take this business development effort?

Boss, I will answer one by one. Let me first respond to your first question and you will have to then remind me about the subsequent questions. REC, I -- so far, no regulator has waived off the RPO comp requirement. They have only allowed distribution companies to fulfill this in the subsequent years. So I don't think this requirement will be waived off. Only thing is the carryover will be allowed. As far as industries are concerned, states before giving NOC are insisting for the RPO. Since REC market is not happening, they are allowing them NOC. But the moment REC market starts, the industries will have to comply with the RPO obligation of the last year also. Can you tell me your second question?

The ESOP trading which has not happened and...

Should have happened this year. ESOP trading should have happened this year. We are interacting with BEE. There are certain issues because there are a couple of new, I mean, industry sectors which have been included in the ESOP. So in fixing the benchmark for them for deciding the performance norms, I think there are some discussions going on. We are still hopeful that maybe in the month of February or March, maybe 2, 3 sessions should happen. But then again, difficult to say because till this approval from the Ministry is given, it will be very difficult to say.

Software monetization opportunity?

Yes. See software what we bought, it is our property. And any development work on that which we are doing, it is IEX property. That is number one. Number two, we can monetize that. But the point is the software is our USP for the Exchange. So we are getting a much larger value by using it in IEX platform. Why should I give it to somebody else? So I don’t' see...

Sorry to interrupt Mr. Jain. Sir, I would request you to limit your questions to 2 per participant and should you have a follow-up question.

Yes, I'm already done. Sir, you can just mention about the electricity index and the last question about business development.

Yes, yes, yes. See, MCX, we have signed an agreement with MCX for introducing derivative as and when that is allowed by the regulator, and IEX price will be used as a clearing price.

You don't have to come out with a separate index for that?

No, no. That will be used by them for clearing -- for the purpose of settlement of the contracts.

That will be physical settlement?

See, if any contract results into a physical settlement, that will be settled on the IEX platform. But if it is financially settled, then the IEX price will be the best price for that.

And last question on that business development effort. How much an Exchange can go out and do this activity under the regulations?

The point is what we can do is to make our participants aware about what values we provide. And second is understanding the problem, finding out solution for their problems and interacting with them. It is thereafter, it is a neutral platform, it is left to the participants. And if they find any value in this platform, they will use this platform. Our business development activity is mainly creating awareness about the platform and values what we provide.

The next question is from the line of Devansh Nigotia from SIMPL.

Congratulations on a very good set of numbers. I just had couple of questions. Sir, one is, if you can just throw some more light on what is causing the strong demand on DAM and RTM? So unlike earlier where there were contention that weak power demand is making DISCOMs choose lower prices on the exchange. But now even when the demand is strong, the volumes are exchange or hold and are actually better than before. So if you can just throw some light on what are the factors which is causing that? Second is, post-RTM commencement, I mean, it was expected that DSM volumes would shift. But when we look at the run rate of DSM volume, we are still there with pre-RTM commencement. So what are the challenges when we are going to DISCOMs to convince them that you should prefer RTM over DSM? Why are they not switching their decision in terms of how they should procure power? Third is, when we look at the TAM volumes, there has been some market share loss to PXIL. So even if I adjust it for the intraday loss that has gone to RTM, even after that there has been significant loss of market share. So why is that? And -- so that's it from my side.

Yes. Strong demand, I think that's a good thing. Demand in the country is increasing. That shows that the economy is reviving. And Government of India also under the Saubhagya Scheme did 100% rural electrification. The impact of all that is coming. So if you look at last quarter 3, the demand increase was 7%. And I'm sure, going forward, in this year, the demand is going to increase at a rate of 8% to 9%. If GDP has to grow at 8%, 9%, electricity demand also has to grow. So strong demand is a good thing for the market. In spite of the strong demand, the prices are competitive, and that is another good thing to the market. And that is mainly because today, there is no shortage of coal. Predominantly, we have coal-based generation in the country. And earlier, we used to have coal shortage. This year, there was no coal shortage. The rate of coal in the e-auction market was available at a premium of hardly 5%. Earlier, I have seen -- I mean, there were days when the premium used to be more than 100% also. Average premium for the full year was 30%, 40% higher than the notified price. So coal is available in plenty at a reasonable rate. So that led to competitive price discovery. And I'm sure, today, also, the coal stock at the power plant, plus the mine head, is more than 100 million tonnes, which is almost 40% more than what it was there 1 year back. So the coal position is very, very comfortable. I'm sure going forward, also, this situation will continue. So that should give us, I mean, competitive price discovery for the market participants and good volume in the market. DSM and RTM, you said DAM or DSM?

Sir, DSM -- so DSM, when we look at the monthly volumes, even after RTM commencement, that has not changed. It basically signifies that earlier our contention was that RTM launch would help DISCOMs to not have DSM volumes and avoid those penalties. But even after RTM commencing, that volume is still there. So if you can just throw some light, what are the challenges, why that cannibalization is not happening?

Number one, the RTM market itself is very liquid now. There is a large participation of the participants, almost about 500 participants participate in this market. And volume, we are doing almost about 40 MU per day kind of volumes every day. So that is one thing. Second is, DSM is also reducing, not significantly. If you look at the trend in the last 2, 3 months, there has been some decline in the DSM. Whatever DSM was happening within the range of 150 megawatt which is allowed when there is no final rate, I think that will continue because that is happening at the market price only. But whatever DSM was happening with the penalty was involved, I think there that quantum is reducing. And our effort also is to do analysis of the distribution companies, DSM analysis, tell them what kind of penalties they have paid and was there a case for them to reduce that by participating in the RTM market. We are also working with them. So I think it is a slow process, it will happen. TAM market, TAM market is a very, very small market. I think it is only about 4% of the total electricity market. And in that 4% market, there are only 3, 4 participants who are active. So if one participant is going to one Exchange, that itself can change the share of the 2 different exchanges. So I don't want to comment on this, anything beyond that.

Okay. Okay. And sir, there has been significant slowing in the GTAM run rate. So that has to do with the current relaxation in the green energy norm, if that's the right interpretation? So the run rate in -- is trending down, if you look at last 20 days in comparison to last quarter. So that would be the reason or is there something else which is causing the run rate to slow down? So I'm talking about 1st Jan to 20th Jan in comparison to December quarter.

In the green market, the sellers are mainly distribution companies, distribution companies of Telangana and Karnataka. Generators mostly have the long-term contracts, and they don't have any free capacity for selling in the market. These distribution companies, their own demand is increasing now. So their sell quantum in the green market is also going down. We are working with the more distribution companies where our green power available with them is beyond RPO obligation. If they can also participate in this market, we are working with them. We are also working with the generators. If you look at the green market clearing price, it is plus INR 3.50. It is around INR 4. It is much higher than the price which they get on the bidding route. So there is a good case for them to keep some capacity for market -- seller in the market, maybe 30%, 40% or 20% kind of capacities. I mean maybe they can contract 70%, 80% to fulfill the requirement of the bankers for the purpose of debt obligation, debt servicing obligation. But they can definitely keep 20%, 30% capacity for sale in the market. And I'm sure they can get good returns on that. So we are working with the participants.

[Operator Instructions] The next question is from the line of Lavina Quadros from Jefferies.

Congrats, again, on the good set of results. Just 2 questions. One is, what is the annual fees included in the turnover for this quarter? And secondly, just a follow-up on the previous participant. Sir, just wanted to sense on what is the state-wise contribution in the volumes? I mean is it like Gujarat and Maharashtra 25%, 30%? I'm not sure of the numbers, but if you could give us some color on that? And is there any particular state where you think it might be more of a one-off for 3Q or there's no such trend?

Yes, annual fees -- annual fee, in this quarter is INR 4.2 crore. And in comparison to last quarter, it is almost flat, I believe. So because annual fees, it is these clients and the members, the numbers are not changing. So the active clients are same. So that is why there is no variation in the client fees. And I think the participation of DISCOMs is -- almost all DISCOMs are participating. And the quantum of our purchase by the DISCOMs is dependent on the total load of the DISCOMs. I mean states like Maharashtra, Andhra Pradesh, Telangana or Tamil Nadu where the demand is high, naturally their quantum of power purchase will be more. So on the exchange platform, we have seen active participation from Maharashtra, Andhra Pradesh, Punjab, Telangana, Gujarat, Rajasthan, Tamil Nadu, Delhi, Haryana, J&K. And top 10 DISCOMs contribute almost about 75% to 80% of the total buy.

The next question is from the line of Ankush Agarwal from Stallion Asset Management.

Sir, my first question was the stakes that we have done on the IGX. Given that the valuation that we have sold at is around INR 70 crores, which is similar to what the kind of money that we have invested in IGX till now. So what is the sense of selling it on the face value given that we have been building the business for the last -- almost a year now? And similarly, like, since given that we have to divest the stake down to 25% over the next 5 years, so would it be a fair assumption that we will first grow the business and then towards the end of the 5 years, we'll look to divest majority of the stake in order to unlock value or we would be looking to sell majority stake in the initial years? That was my first question. And secondly, on the contract that we have done, the agreement that we have done with the MCX, so what kind of revenue stream that will accrue to IEX? Would it be a fixed fee or would it be based on the volumes?

Yes. See, for any business, you need some strategic partners. So IGX stake sell by IEX is only for the strategic partners to build up this institution. This sell is not for anyone in the market. And we have identified 5, 6 strategic partners who are large players in the gas market, and we are only going to sell it to them. And if you also take them on board, I think this is a sacrifice we are doing to give them -- give MCX the pass. Basically, it is just to have that cooperation in building the market.

Right. So we would be looking to divest majority stake in near term or towards the end of 5 years?

No, no, no. IEX still will have the significant shareholding. And as long as we are allowed to retain that, we will do that. Maybe in the next 5 years, we'll bring it down to 25%.

All right. And on the MCX agreement?

MCX agreement, they will be using our price for the purpose of settlement and maybe with them, we will be getting some revenue out of that -- revenue sharing.

Yes. So it would be based on volumes?

See, they are variable contracts, based on the fee earned by them.

Sorry?

Sir, this contract -- this arrangement is like linked to MCX plus transaction fee, it's not fixed fee. It's variable.

Okay. Right. Got it. Sir, just one clarification over here. So the spot exchange will still remain -- the long term -- long duration spot exchange will remain on the IEX and there will be just parallel derivative market on MCX, right?

Yes, yes. See, if you look at the decision which has been taken by Government of India, all delivery-based contracts will be regulated by CRC and all financially settled contracts will be settled by -- will be regulated by SEBI.

True. True. My confusion was just based on because you said that MCX contract goes into delivery, that would be settled on IEX. So I was just trying to clear -- get a clarification on that.

If there is a contract which has been entered in the MCX platform and if finally, the party wants to take delivery of that power. So it is a part of the contract specification of that MCX contract, but delivery will happen through the IEX platform. But in such contracts, delivery is hardly 1% or 2%. Most of the contract -- 99% of the contracts are financially settled.

The next question is from the line of Swarnim Maheshwari from Edelweiss.

Congrats for the record quarter. I have 2 set of questions. Sir, first is, if you really look at the bilateral traders market, they have been actually losing kind of market shares because they have actually seen about 20%, 25% kind of a volume decline. So if you can just explain reason for that. Is it really to do with the DISCOMs or the open access customers really moving closer to the real time or is it more to do with the fact that the DISCOMs because of the poor demand, they were really not scheduling the power with the traders? What is it exactly? So that's my first question.

DISCOMs will go only to the platform where they find cost efficiency and flexibility. So they have seen in the past that exchange provide a competitive price. If you look at the price, DISCOMs, this platform is always lower than the bilateral transactions. They also get a lot of flexibility on the exchange platform. You don't have to get into a contract -- a fixed quantum contract for a particular duration. You can buy power basically based on your need. So that is why -- and there is enough liquidity. The participants are also comfortable now that there is enough skill available and without transmission congestion. So because of these factors, the participation on the exchange is increasing.

Okay. Sir, but the price on the exchanges, when you compare with the bilateral prices, they have been much lower over the last 4 years also. So it's like not a new phenomenon. But why is it -- does that -- in this first 9 months that we have seen the bilateral markets actually losing that market share? Is there some trend shift that's happening?

If you look at the share of the exchange with respect to bilateral market, the exchange share is increasing in all the years. It's a gradual increase. This year, there is a significant upside. And that upside was also because during the COVID time, they were not really aware of -- sure about what kind of demand pattern they will see, so they have not entered into any bilateral contract. And they met the demand for the exchange.

Well, sir, point well taken. But this demand decline for bilateral is happening in the last 3 months, specifically. It was there in the first 6 months also. But if you just observe October, November, December also, where, I think, the demand is actually firmly robust, and it's actually holding up well. But despite that, we have seen that decline. So I mean, just wanted to understand, is it something which is changing really in the bilateral market where the DISCOMs are really not willing to go with them and really trying to play near term -- closer to the real-time market?

In the 6 months when they actively participated on the exchange platform, they found that there is very high liquidity, they were able to get power. So that has really given them a lot of confidence that they can depend on this market, and they're doing so. See, these kind of things...

Yes. I can add one more thing. See, now the times which are coming, there will be more uncertainties because of renewables because renewables also are now seeing lower prices as we reach new year. So that also will keep that uncertainty of market and their demand will always be there in the minds of distribution company. So the trend what you saw last 3 months actually is going to stay there for the future because people will be happy to do trade on more flexible manner on the exchange rather than having a bilateral contract. So this trend, I see, at least is more permanent. It's not only temporary for 3 months. It is going to stay there for long time.

That's very clear to me, sir. Sir, my second question is actually with respect to the GTAM. Now for you to really show some volume growth, we need to earn more merchant capacity than the renewal which is right now not there. And there was a proposal from the government that the incremental capacities could be something like a 80-20, wherein 80% could be on long term and 20% could be on merchant. So what's really the progress over there?

We are working with government. We are also working with IPPs. So these things will take time. I can only say that, yes, there is a positive development in that. And we should see significant capacity in the open -- for open market also in the next 1 year.

The next question is from the line of Varun Goenka from Nippon Mutual Funds.

My compliments for the performance, I think, you've been delivering for the last 10 years. So really good. I have 3 questions. First, on our Gas Exchange, what would be your best estimate to how could the adoption play out over the next 3, 4 years, either regulation wise because this is a center subject? If you could help us understand how fast the adoption of this exchange could be? And what are the impediments to this accelerating?

Yes. Gas Exchange, we started in June. We knew it at that time also that a lot of policy advocacy has to be done because there are a lot of enablers which have to be put in place. So we started this exchange basically to interact with the government and regulator to create all those enablers. One of the enabler is the taxation system. Unfortunately, Gas is still not under the GST, and each state has their own taxation system. I mean it is varying from 4% to 26% in different states. So on a Gas Exchange, you have to have standard contracts. And for standard contracts, you need a uniform taxation system. So GST has to be there. Ministry of Petroleum and Natural Gas has already forwarded that proposal to Ministry of Finance to the GST Council for including Gas under the GST, and I'm sure there was a media article also in the recent past that GST Council is considering this proposal. Second is the rationalization of the gas transportation tariff. We used to have zone 1, zone 2, zone 3, zone 4, somebody sitting in zone 4 has to pay a very high charges, and that also has been rationalized by the PNGRB very recently, I think, about 2 months back only. So that is another good step which has taken place. Third is, there are many pipeline operators today. And there is no system operator, like in electricity, we have a POSCO, NLDCs, RLDCs, they're all the system operator, independent agency doing the energy accounting and everybody has confidence in them. So that system operator concept is, as of now, not there in the gas sector. So for developing market, I think we need a system operator. And good thing is that we were interacting with Ministry of Petroleum also and with the regulator, and now they have decided that there will be a system operator in the gas sector also, which will be known as gas transportation system operator. And they are probably going to create a separate company who will do all this and the allocation of the pipeline capacity to different participants and also doing the energy accounting for the gas. Then there is a need for the infrastructure also. See, today, we have 2 active LNG terminals, and these are running at 100% capacity. If somebody wants to import gas in the country and sell in the market, there is hardly any capacity available. So new LNG terminals are coming up now. At Mundra, there is a new LNG terminal that has been set up. There are some pipeline issues which are being augmented now. Then another Ratnagiri terminal, that is also augmentation is happening there. Kochi terminal, Ennore, Andhra, I think lot of LNG terminals are getting commissioned now, and a lot of pipeline works are being -- pipeline commissioning is also happening. So I'm sure in the next 1, 2 years, you will see a lot of -- a strong infrastructure in place. So Gas Exchange will need some time to see significant volume increase. I think maybe next 1 year will be a year where we will be doing all these kind of policy advocacy with the government and the regulator to create all these enablers and when these enablers are in place, I'm sure there is a very high potential for the gas market. I mean if you look at the power sector, in the power sector, our participants are distribution companies who are our regulated entities. But in case of Gas sector, the gas consumers are mostly in the private sector, and they are very price sensitive. So I'm sure opportunity in the Gas Exchange is going to be much larger than what we have in the Power.

That's very, very helpful, sir, the way you've explained it. Just 2 more questions here. One, the long-duration contract, hearing on that, if you could just update us as to where do we stand in terms of starting the LDC?

We have already filed our petition with CRC for approval of the contract. But there are 2 things. One is the CRC itself was not functional from December -- from August and now Supreme Court was kind enough to allow the functioning of CRC. So that petition will be taken up by CRC.

Sir, the hearing was in December, so has the hearing been postponed or...

The petition is now listed for hearing in CRC in the month of February. So that is progressive development. But then this before -- I mean, even after CRC approves our contract, there is a case pending in the Supreme Court and parties who had filed the case, they have already filed an application in the Supreme Court that we have settled the jurisdiction by intervention of Government of India. And in fact, Government of India also has filed application in Supreme Court to dispose of that case. But again, unfortunately, in Supreme Court, also because of the COVID, that case has not come up for hearing. And once that is disposed of by Supreme Court, then I think the issue also will get resolved about the jurisdiction of CRC and SEBI, and we will be able to introduce this long-duration contracts.

Great. A final point on open access. I wanted to clarify, there were a lot of states with policies not aligned for open access. Is there any changes or some of the states you might want to mention? Is there any movement there to become more friendly towards open access?

See, our job is basically to do policy advocacy, and it's a continuous process. We are doing it from the last 12 years. And we have seen -- yes, changes taking place. So we are continuing to do our part of the job, and then it is left to the state government and the state regulators. But one thing...

In the last 3 months, any state that might have...

What I can only say is the states which have allowed open access are the states where industrial development is taking place. It's one of the requirement of industries for ease of doing business also that open access should be in place. I mean state like U.P. where the open access was not there in place, they also have allowed open access now. And I understand -- how many industries, Rohit?

Sir, U.P., we have more than 30 now.

There are more than 30 industries who are buying power through the Exchange.

The next question is from the line of [ Ashutosh from Centrum ].

Sir, first of all, in the opening comments, you mentioned that now some sort of regulations that have come in that. Now the DISCOMs can shift once their PPAs expire, they can shift for -- their demand to the Exchange. Could you give some clarity on that? How do you see the conversion rate from PPA to Exchange once this PPA is expired?

No, no, I did not say regulations are in place now. I only said that Government of India has come out with a discussion paper that said that distribution company can exit the PPA after 25 years. If you look at the PPAs by the central...

Sorry to interrupt, Mr. [ Ashutosh ], sir, I would request you to mute your line while the management answers your question.

Okay.

These PPAs have a kind of perpetual supply provisions. And some of the PPAs have a defined time period. So now government is saying that, let the DISCOM have the option to exit after 25 years. So it is just a discussion paper, I mean, they have issued inviting comments of the different sector participants. And thereafter, they will decide what is to be done.

Okay. Okay. Understood. Sir, my second question is more of a business-related question. I would like to know that as I have understood that -- how does RTM market work -- as I know that RTM -- in the RTM market, the delivery takes place within hours. So what I have understood is that all these DISCOMs have to inform prior to the RLDC, NLDC and all the dispatch in terms about their delivery that is going to happen the next day. So how does RTM delivery actually takes place?

Let me tell you the time line for the RTM market. Suppose you want to purchase power from 12:00, then at 10:30 the market opens. At 10:30, you will have to submit your bid. There is a 15-minute window for submission of bid by buyer and seller, from 10:30 to 10:45. 10:45, the market closes, and then we do the price discovery and find out the transmission system requirement. We send these details to NLDC. NLDC will check availability of transmission line. And if the transmission or load congestions are there, then we will, based on the details given by NLDC, we will rework the solution and find out the final result and send this result to NLDC for implementation. All these activities are done in the next 15 minutes. So by 11:00, the schedules are sent to RLDCs, SLDCs and NLDC for implementation, and power will be delivered at 12:00. So in case of real-time market, we are doing 48 such activities. Every half-an-hour the activity takes place. So this market, the time lines are very, very tight. And I'm happy to say that we have been able to implement this market very successfully and in a very reliable manner. Initially, there were couple of instances where -- I mean there were because of technical reasons there were glitches in the system and couple of sessions were aborted. But now we are running with 100% reliability.

Okay, sir, understood. And sir, my last question would be on account of the long duration contracts and the cross-border trading. What is the progress on that front, sir? Could you just throw some light on that?

Long duration contracts, I just mentioned that we have filed our petition with CRC and that case is in Supreme Court. It is yet to be disposed of. It can be done only thereafter. Cross-border, again, we are doing the policy advocacy with the government and also with the neighboring countries. And I also understand that in the recent past, there were some activities on that. And we are expecting the cross-border transactions through the exchange also to start in the near future, maybe in a month or 2. But very difficult to say till Government of India approves that. The procedure has to be approved. So once that is approved, then only this can start.

The next question is from the line of Noel from Ashika Group.

Sir, so most of my queries have been answered, but I just wanted to just get a clarification on 2 points. So regarding the PPAs which will be probably going to essentially expiring or crossing the 25-year mark over the next 2 years, is there any kind of a figure that you can give guidance on as to what exactly -- what is exactly the demand shift that could potentially happen? And my second question is regarding the future divestments. So if we are to see any kind of divestments going forward, it would be at a similar valuation of 5% per say, INR 3.6 crore. I mean what would be that exact figure? Those are my 2 questions.

As far as PPAs are concerned, I think it is too premature to discuss in detail about that. Let government notify the rules, then only, I think, there is a point in discussing about that because any plant which is more than 25 years old is a fully depreciated plant. So it depends where the plant is located. If the plant is located away from the mine head, then the variable cost is high and maybe distribution company would like to exit. But for the plants which are located at the pithead, they'll not like to exit at all. So I think this will have to be seen on case-to-case basis and only after the rule of the game are notified. So for the time being, I will -- I mean, I think that we should keep our discussion only up to this space. And second is about?

I couldn't get it all. IGX. And the 5%.

IGX, yes. See, I told you IGX stake sale is only for strategic partners. And we have identified the strategic partners. We are only talking to them, and it will be given to them at the face value. Beyond that, we will not do any divestment at the moment -- as of now.

The next question is from the line of Aniket Mittal from Motilal Oswal.

Sir, my first question was actually on the open access front. If you could tell me which are the top 3 states that are buying on an open access perspective on the IEX? And secondly, with prices now crossing INR 3 in January, is there any impact that we are seeing on open access? And how do you see it evolving?

The top 3 states for open access are Gujarat, Tamil Nadu and Telangana. And as you are aware, open access transactions are very price sensitive. Open access consumers have option to purchase power from distribution companies. They will purchase power from the exchange only if the landed cost to them is lower than the distribution company. So there is a breakeven rate for them. Because on that rate, they have to pay cross-subsidy surcharge, transmission charges, billing charges, et cetera, et cetera. So if the rate is lower than breakeven rate, they will buy from the exchange. And in many of the states, this breakeven rate is around INR 2.80, INR 2.90, INR 3.30, INR 3.40. From state to state, this breakeven rate is varying, depending on the cross-subsidy surcharge, et cetera. So if the price increase, definitely, the open access volume get impacted. But when the price increase because distribution company buy increases. So as far as the clearing volume is concerned, I have seen that whenever the price increase, the clearing volume also increases because of the storm by the DISCOMs.

Sure. And sir, just on the buying perspective and from DISCOMs, I think what's happened is this quarter, we've seen a very sharp buying from Andhra Pradesh that's coming in. Prima facie it actually seems to be on the pricing opportunities that could be available out there. So just wanted to get a sense, are there any other states that you feel are not making use of your platform from a price opportunity perspective and can possibly drive volume from us? Any states where you feel in the scope for them to increase volumes over here?

In case of Andhra Pradesh, they have a couple of generating plants where the variable cost is higher than the exchange clearing price. So they optimally utilize this platform. They reduce generation from those costly plants and purchase power from the exchange. And I'm happy to say that I understand Andhra has saved more than INR 1,000 crores by replacing costly, by the way, exchange power. Similarly, states like Maharashtra, Gujarat, many of the states are doing these kind of things. It depends on the opportunity available with them. State like Chhattisgarh, Orissa, West Bengal, there the plants which they have, the variable cost is very low because those plants are located at the pithead. But the states where the -- which are -- the states which are away from the mine head, maybe in those cases, there is opportunity to do the optimization. And most of the states are doing it, depends on how much? I mean are they doing it 100% or 70% or 80%, that depends from time to time and depending on the market clearing price also and depending on the demand also.

Okay. Okay. Sir, one question actually on the RTM front I wanted some clarity. Now we've obviously been seeing a good amount of sell bids coming on the RTM. But despite that, a very large quantity of the cheaper URS power is still going through SCED. So just wanted to know as per maybe your interaction with the Ministry, is there a thought process of not extending this SCED scheme beyond March '21 because then that can help the RTM further, right? We'll have more cheaper URS power coming in?

Yes, that is our policy advocacy. We are working with the government. Let's see what happens.

Okay. And sir, SPO discussions, would the SCED scheme will be extended by March '21 or is there a case for that not being because the RTM has been evolving pretty well, right?

Yes, yes, yes. I mean when RTM was not there, there was a case for SCED. But now with RTM and RTM having a good liquidity, there is no case for SCED because of course, I mean, objective function of the regulator is to promote the market. So you have a market now. So we are working with the regulator and the government. Let's see what happens.

Sure. And sir, one last question, if I may. Sir, I just wanted to understand the DSM regulation. Now earlier, there is this DSM regulation which was supposed to come in and then post stricter penalties in terms of the sign change. I believe this was supposed to come in effect from December 1. Has that happened?

Yes, yes. I think it has been implemented. But then these days, the frequency variation is not significant and distribution companies also have become quite disciplined. And the penalty on account of noncompliance with the sign change also was reduced significantly.

The next question is from the line of Lokesh Manik from Vallum Capital.

My question was on the revenue side. So specifically to the transaction fees, if you can just throw some light on how do we charge that? Is it when the volumes are down, we can increase these transaction prices and vice-versa? So just some clarification on that.

Our transaction fees is constant for the last 8 years. We are charging INR 0.02 from the buyer and INR 0.02 from seller.

Okay. Okay. So the variation that we see, if we calculate on the top line as of -- on the volume side would be probably on the annual fees that you charge another transaction.

It is -- that is because of the annual fees.

The next question is from the line of Gokul Maheshwari from Awriga Capital.

Sir, just a couple of things. One is on the REC volumes which are not there this year, you are saying, will they be -- the shortfall of this year will be -- have to be made up in FY '22?

Yes, that is my understanding because no regulator has waived off that requirement. They have only rolled over that to the next year.

And the green TAM volumes will not make up for REC. Is that a substitute for REC volumes?

No, sir, it is not a substitute, and there is no -- there is not that kind of a liquidity in the green TAM end market. And REC, REC was used by even industries who have the capital generation. So they don't need power, but they have to comply with RPO. So they buy REC to comply with that. So -- and there are states who have enough energy available with them. So they have to meet the RPO obligation.

Okay. And with respect to -- are there any -- is there any update on the regulations on market coupling?

Market coupling?

What was proposed first few months back and there was some discussion which was happened...

It was discussed in the CRC hearing. And in fact, during the hearing itself also, we were given to understand that the market coupling is something with MBEDs it has a case. And when will MBED happen, that is something we'll have to work out. And we'll have to see what -- when it's going to happen. Market coupling without MBED has no case.

Okay. Great. Okay. And just lastly on the -- in your initial comments indicated that the volumes are sustainable and you see -- sorry, your demand trend still being quite strong. So going into Q4 also you are seeing markets and exchange volumes holding up the way they have done in Q3?

So far, yes. Exchange volumes in the 21 days of January also, they are doing good. And demand is also -- in quarter 3, the demand was 7% up. In January, it is already more than 8% up now. We are reaching new peak demand heights every day. Today -- yesterday, the demand was 187 gigawatt.

Today, also.

In fact, today morning. So demand is increasing.

The next question is from the line of Tejas Mehta from Old Bridge Capital.

Sir, just wanted to understand from your perspective, how do you rate the health of the DISCOMs today after going through this entire stress of the COVID? What do you rate because in a couple of other calls that I have attended, people are really worried about the health of the DISCOMs even after the INR 1 lakh crore of dole out that the Central Government has given? What's your sense?

I'm not competent to comment on that.

Okay. All right. And sir, the other question was on the market share gains that is possible for you from hereon. So we are at 6.5% broadly market share, and we have consistently been about 6% for the last few months now. How much of the end market are you addressing today? And how much share gain is possible from here onwards? If you can just throw some light there.

At the exchange, our job is to interact with the market participants, tell them what kind of value we provide, how can we solve their problems, how can we address their power requirement in a most efficient manner and rest is left to the participant. I think volume increase, market share, these are all outcome of the activities of the participants. So -- but I can only say one thing, because of this continuous policy advocacy and continuous interaction with the participants, because of that, every year, there is an increase in the market share. It is a continuous process, and I'm sure the increase will continue to happen in the future also.

Okay. Okay. And sir, just one more question. In the last 3, 4 days, there has been a sudden surge in the power demand and on the exchange also we are seeing the prices suddenly shoot up beyond INR 3.5. Any sense whether this is kind of a temporary or it could last for a couple of months? Do you have any -- can you give some idea on that?

See at present, there are a few generating stations which are not operating because their variable cost is high. Now if the market clearing price is high -- maybe those stations will also start operating and selling power in the market. So...

Right. And this would make a case for merchant power also to make a comeback, right, which was almost not generating for the last few months? It makes a strong case for merchant power to come back?

Yes, yes, yes. A lot of -- lot many generating merchant plants are already on par now.

The next question is from the line of Amey Kulkarni from Candor Investing.

In turn had marked but as of now, what I understand is that all power plants, renewable energy, commissioned before June 23 don't have to pay any transmission charges and transmission losses to the -- power grid or the central transmission utility does not allow the construction of transmission lines without a -- from LTA side, right, and a firm PPA side. So stage 2 connectivities are not given at all. So what is the road map for this green TAM ahead market merchant capacity developing unless these regulations are changed? Is there any proposal to change the transmission regulations or what is it?

There is a change in the transmission planning offline. Now the transmission planning is more dependent on the generation and demand. It is being done based on that, not based on the long-term open access. So availability of transmission line for the merchant plants I suffice that is going to be an issue. And in fact, this is something which even government is also looking because government also wants to develop a market for the renewable power. And that can only happen if there is a transmission capacity available to that.

Okay. So what you are saying is that the transmission lines developed for green corridor then such that have enough capacity right now itself for the merchant capacity to be dispatched?

Yes.

Okay. And sir, just one more question. Could you just kind of -- you have already elaborated on the regulations required on the development of the gas market. Could you kind of give some tentative time line of what you expect these regulations to come in place? For example, will it take like 1 year, 1.5 years, 2 years for the system operator to be in place or can it happen in 6 months or?

Yes, Rohit, you were adding something.

So I was adding to the earlier point. See there was one amendment which came about 2 months back. now this particular amendment, this particular provision allow all the renewable generators to create more capacity, to apply for connectivity beyond their PPA capacity, which means that now any generator, they can keep aside some 15%, 20% volume as a merchant sale and create a plant and keep this capacity open for market. This is just I wanted to add.

Enablers for the gas exchange, I think a lot of work has been done -- long work has been done. I think things should happen in the next 6 months. But then again, these things will have to be done by the government. So can't give you any definite time lines, but our estimate is that the next 6 to 8 months these enablers should be in place.

That's quite fast. So that's quite fast.

And they have spent a lot of time on these things, not very fast. I mean these things are going on from the last couple of years.

Yes, I understand, but government works at its own pace. So even -- I mean, given the energy time line -- the energy sector time lines, I think, next 6 to 12 months, even 12 months is quite fast for the government to act. These are big changes, right?

Amey, you can see that, see, we have been asking for gas exchange regulation since last few years. Same thing is we were waiting, but nothing was happening. But when we actually started gas trading platform in June, and you could see that in 3-months' time the regulations were put in place and in 2-months' time we would get the approval also. So because now there is some agency for market development and there's institution being created by government, we hope that the regulators will also be -- we will also work towards it, the gas sector participants work towards it. So maybe we should be able to achieve faster than had we been not there. We are also trying on the market side that today, the domestic gas is not coming to the market, and we are working very hard to bring that gas also because -- to discover a good price in the market, not only imported RLNG but domestic gas should also contribute to the market. And for that also we are very keenly -- with all the participants also and with the government also.

The next question is from the line of Manan Shah from Moneybee.

Yes, my all questions are answered.

The next question is from the line of Ravi Srikant from Muthoot Family Office.

I just had 2 questions, sir. One was on your sort of product basket that you currently have. So after you are sort of done with the long-term contracts and, I think, GDAM is also one thing that you were looking at earlier. So does that sort of complete your product basket or are there any further sort of opportunities or contracts that you can look at? And the second question was on the gas exchange. So after this open access for the CGD companies, I mean, if you've spoken to some of the industrial sort of main clusters like Morbi, et cetera, I mean, have they shown any interest on taking gas from the exchange?

Number one, this new product from the gas and the electricity exchange, I think long-duration contracts and GDAM, these are 2 important new products. And after launching our products, also, we have to do a lot of marketing awareness with the participants to bring enough liquidity in these products. So these kind of products, I don't think we can launch every quarter a product like this because -- like RTM. RTM is a product which was launched after a very -- couple of years. So -- but then we continue to interact with the market participants, understand their need and try to find out what else can be done. So this is a continuous learning for us also and developing things for the market participants. So I think as of now, it is long duration contracts and GDAM. And thereafter, depending on how market evolves, we will see what new products can be developed.

The second part of the question was on CGD exclusivity when they are -- they -- we will be allowed to buy from the third party. Now Morbi is the hub where CGD exclusivity is not going to be over in the near future because the CGD -- the access to CGD customers will be there for those CGDs where exclusivity period is going to be over. So mostly, it would be IGL, MGL. So that part, we are anyway working that such customers, how we can bring them to exchange that we are working closely with them. Only thing is still that final -- this exemption part is going to be further given by PNGRB. It is yet to happen. The only thing is the broad regulations are already there. So we are working closely with those clients who will get this access to the market.

The next question is from the line of Sumit Kishore.

Yes, just one question from my side. There was an expectation that short-term open access charges would be removed for DISCOMs and that would help DAM volumes. Is there any progress around that front because we thought it would be a catalyst for the short-term market?

See, there is a transmission sharing regulation which has come. As per the regulation, distribution companies are not required to pay any short-term open access charges, and all short-term transactions will be covered under the long-term and medium-term open access which they have taken. If there is any deviation with respect to that, then that will be charged under the transmission deviation charge. So that is already in place.

Okay. And has that resulted in any incremental benefit for volumes in the short-term market?

In fact, that has the -- prices under that has been implemented from 29th of December. And yes, there is some shift happening, but I think, it will need some time.

Okay. Okay. So that was the last question. Mr. Goel, would you have any closing comments?

No, I think we have discussed enough. I can only assure that this next quarter also should be a good quarter because demand is increasing. And right in the month of January itself, demand growth has -- I mean energy subsidy is 8%. And in terms of the peak demand, I think the demand has increased almost by about 9%, 10%. So with this kind of indications, I'm sure exchange volume also will be significantly higher than what we did last year. So we should have a good financial year.

Thank you so much, sir. Thanks for allowing us the opportunity to host this call at Axis Capital. Over to you, operator.

Thank you, sir. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.