Indian Gas Exchange’s (IGX) plans to launch long-term contracts may get delayed as the Petroleum and Natural Gas Regulatory Board (PNGRB) has flagged concerns over the contracts not sufficiently addressing risks related to defaults by sellers or buyers, a source close to the development told Moneycontrol.
The regulator has sought additional data and clarification from the gas exchange before approving the launch of long-term contracts on the exchange, the source said. The exchange has already missed its earlier target of launching the long-term contracts by May.
“In case of default by the buyer or seller, IGX needs to be prepared on how it will mitigate the exposure. What would the seller or buyer do in case of a default, that needs to be looked into,” the source said.
The regulator has concerns over the gas exchange's plan to reduce risk of loss to either party entering into a long-term gas contract.
IGX, which is the first gas exchange in India, had applied to PNGRB in early 2024 for approval of introduction of three-month, six-month, and 12-month or yearly contracts on the trading platform. Currently, IGX provides day-ahead contracts and five term-ahead contracts including daily, weekday, weekly, fortnightly and monthly. Longer term contracts could significantly boost the volumes that are traded on the exchange.
The source added that the security ensured by IGX in case of a default is minuscule in comparison to the total volume of the order and would not be enough to recoup losses, raising concerns over the launch of the long-term contracts on the exchange.
Commenting on PNGRB’s concerns, Rajesh Mediratta, MD & CEO of IGX told Moneycontrol, “We are thankful to PNGRB for considering our application and sharing useful suggestions to make it more market friendly, at the same time covering exchange risks. We are continuously interacting to improve our proposal for the markets.”
Mediratta, however, did not comment on how IGX would mitigate risk related to defaults by participants.
The IGX head had earlier told Moneycontrol that he expects PNGRB approval for long-term gas contracts by early May. Mediratta had said volumes of IGX are expected to increase by 30 percent after the exchange launches the sought contracts.
Promoted by the Indian Energy Exchange (IEX) and NSE, IGX allows multiple buyers and sellers to trade in spot and forward contracts at designated delivery points. The gas exchange's strategic investors include GAIL (India), Indian Oil, ONGC, Adani Gas and Torrent Gas.
IGX trade volumes
IGX has witnessed high trade volumes in recent months primarily on account of higher gas demand from the gas-based power plants amid scorching temperatures in the country.
In June, IGX traded 4.36 million MMBtu (million British thermal units) gas volumes, higher by 169 percent on a year-on-year (yoy) basis. Similarly, IGX reported an increase of 480 percent in gas volumes in the month of May.
The company also launched small-scale liquefied natural gas (ssLNG) contracts in April on the platform, after receiving PNGRB approval. The company said ssLNG contracts would aid in the supply of the cold fuel in areas which are not connected to the gas pipelines.
IGX, launched in 2020, has plans to launch an initial public offering (IPO) by the end of 2025 once its parent company Indian Energy Exchange (IEX) has brought down its equity to 25 percent. IEX currently holds 47 percent equity in the gas exchange.
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