Margin cap stunts power trading firms' growth

The country's power trading companies are going through a rough patch on account of capped margins and declining volumes. While the bigger ones like PTC India Ltd are fighting back through diversification, the smaller ones are resting their hopes on removal of the cap on trading margin.

"It has not been a good year," said TN Thakur, the chairman and managing director of PTC India. The country's largest power trader saw its market share decline to around 60 per cent from 70 per cent in 2005-06. Its market share dipped to an all-time low of 30 per cent in the October-December (2006) quarter.

The power trading market is getting crowded. There are over 20 licensed traders, though only about half-a-dozen manage significant volumes of trade.

PTC is, therefore, diversifying into other businesses like coal trading and advisory and financial services to keep its revenue streams flowing.

The traders are limited by a 4 paisa per unit cap on inter-state trading margins, which they have challenged in the Supreme Court. Price caps have also been imposed on power sales within the state. This means increasing volumes is the only way the companies can grow. 
 

HOW THEY STACK UP
Company	Market share in Oct-Dec 2006 (in %)
PTC India	30.13
Adani Exports	22.34
NTPC Vidyut Vyapar Nigam	11.61
JSW Power Trading Co	10.47
Adani Exports	22.34
Tata Power Trading Co	9.91
Lanco Electric Utility	6.68
Karamchand Thapar & Bros	1.00

To secure volumes, PTC has signed long-term power purchase agreements for trading 7,000 Mw from various plants to be commissioned in the next couple of years and agreements for trading 16,000 Mw. "We realise that the short-term seasonal market will always be tricky," said Thakur.

Through a subsidiary company (a non-banking financial company), PTC will have a 51 per cent equity participation in some of these projects.

Deviating from power trading, the company has also formed a new business development group to look into energy audits and renewables. The group was able to procure orders worth Rs 3 crore last year. "PTC is not just about electricity trading. We are positioning ourselves as complete solution providers," explained Thakur.

The company hopes to soon bag orders to manage supplies of imported coal. PTC imported 150,000 tonnes of coal in four consignments last year. It is talking to foreign coal companies in Indonesia, South Africa and Australia for importing coal.

Meanwhile, smaller and newer players in power trading like Tata Power Trading Company, Reliance Energy Trading Ltd and Subhash Kabini Power Corporation have yet to show profits. These companies hope the removal of the 4 paisa cap on the margins will enable them to do so.

"The company did not make any profits this year," said an executive of Tata Power Trading Company. "If the 4 paisa cap continues, the company will have to think of an alternate business model," he added.

Tata Power Trading Company traded around 10 per cent of the overall power traded in the last quarter (October-December 2006). This year it expects the figure to be 8-9 per cent.

Analysts say a stand-alone trading company will find it difficult to survive.

Adani Power, the second-largest power trader, with a market share of 23 per cent, is already diversifying into generation, transmission and distribution, according to CEO RK Madan.

It is building a 1,320-Mw plant in Mundra in Gujarat, which will be commissioned by 2009. It has already signed a power purchase agreement with Gujarat Vidyut Vikas Nigam.

It is also eyeing the 14 mega transmission projects, for which nodal agencies are Power Finance Corporation and Rural Electrification Corporation. There is another power project of 1,000 Mw in Chhattisgarh in the pipeline.