3rd UPDATE: Batista, ICE To Launch BRIX Electricity Exchange

Brazilian billionaire Eike Batista and other local investors said Tuesday that they will team with IntercontinentalExchange Inc. (ICE) to launch a trading exchange for electric power, saying the existing system for negotiating contracts is inefficient.

Uncontracted electric power in Brazil is currently sold under private contracts between producers and large consumers, which makes it hard or even impossible to determine a spot market price. The exchange aims to bring those negotiations under one roof, and make the pricing public, which will also allow for derivatives such as futures contracts to be developed down the line.

The move is the second this year by a U.S. exchange company looking for expansion in Brazil, with BATS Global Markets already looking to launch a new stock trading platform..

ICE is also pushing ahead with organic initiatives as the energy-focused company pursues the derivatives arm of NYSE Euronext (NYX) through an unsolicited $11.3 billion break-up plan in partnership with Nasdaq OMX Group (NDAQ).

The new energy trading platform, to be called BRIX, aims to triple trading of contracts in Brazil's free energy market over the next three to five years to about 75 billion Brazilian reais ($47.5 billion), up from an estimated BRL25 billion in 2010, the investors said in a press release to announce the deal.

"I'm an efficiency warrior," Batista told reporters in Rio de Janeiro. "I'm seeking to bring efficiency to the sector. This is the Facebook of the Brazilian electrical sector."

BRIX expects to serve the more than 1,400 companies allowed to trade in the free market, where consumers can negotiate directly with suppliers to purchase any amount of energy. This market accounts for 25% of the country's energy consumption, according to backers of the planned exchange.

BRIX "will help form prices in a transparent way, and through that it will enable the launch of derivative products," said Paulo Pedrosa, president of Abrace, the country's association of large industrial energy consumers. The new exchange will provide an additional measure of security for electric power investors, said Pedrosa, whose group had been in talks with BRIX.

During its first phase, due to begin in June, the BRIX platform will provide daily pricing via a spot index, and contracts would still be registered with the CCEE.

In the second phase, for which executives didn't give a timeframe for launch, futures contracts would be traded in which electricity would be bought for delivery in three months, six months, or annually.

The platform may be extended to other countries in Latin America, BRIX Chief Executive Marcelo Mello said in Rio de Janeiro. Moreover, BRIX may also move into contracts for oil, ethanol, biodiesel and "any other kind of energy," Batista told reporters.

Batista, who made his fortune in mining but has moved aggressively into the energy sector in recent years, said he hopes to eventually sell oil produced by his OGX Petroleo & Gas Participacoes (OGXP3.BR) on the exchange, where he expects to get better prices.

To handle trades the company may partner with BM&FBovespa (BVMF3.BR), Latin America's biggest exchange, or Brazil clearinghouse Cetip SA - Balcao Organizado de Ativos & Derivativos (CTIP3.BR) to provide clearinghouse services. BRIX also could set up its own clearinghouse using ICE's experience, said Roberto Teixeira da Costa, a BRIX partner and former president of Brazil's securities regulator CVM.

ICE's advance into Brazilian power trading echoes the company's origin as a bank-supported platform for trading power in California. The initiative will also see ICE set up shop in territory friendly to much-larger rival CME Group Inc. (CME), which maintains cross-equity holdings and an order-routing arrangement with BM&FBovespa.

While the CME provides electricity futures contracts in the U.S., its agreement with BM&FBovespa didn't mention plans to bring electricity trading to Brazil, though it allows the Sao Paulo exchange to negotiate all CME contracts.

According to Costa, a possible partnership in the clearinghouse business with the BM&FBovespa exchange poses no conflict with the bourse's partnership with CME.

-By Diana Kinch, Dow Jones Newswires; diana.kinch@dowjones.com

--Jeff Fick and Jacob Bunge contributed to this article.

CME (NASDAQ:CME)
Historical Stock Chart
From May 2024 to Jun 2024