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.
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 (OGXPY, OGXP3.BR) on the exchange, where he expects
to get better prices.
Previous attempts to create this kind of trading platform have
failed due to low participation by the industry, said Reginaldo
Medeiros, president of Abraceel, Brazil's association of energy
commercializers.
"The idea is good, but the question is whether companies will
adhere to the system," Medeiros said. "The companies involved in
setting up BRIX aren't big players in Brazil's free energy market,"
said Medeiros, adding that his group, an advocate for the expansion
of the free energy market, wasn't contacted by executives.
BRIX has been in talks with huge Brazilian energy consumers,
including oil company Petroleo Brasileiro (PBR, PETR4.BR), iron-ore
mining company Vale SA (VALE, VALE5.BR), steelmaker Cia Siderurgica
Nacional (SID, CSNA3.BR), and construction and engineering group
Camargo Correa, executives said. BRIX executives didn't say whether
those companies will participate.
"This market may take a while to consolidate," said Joao Carlos
Mello, president of energy consulting firm Andrade & Canella in
Sao Paulo. "There is a lot of demand from buyers, but sellers may
have to get used to this" after getting accustomed to operating in
a "seller's market," he said.
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 and Paulo Winterstein, Dow Jones Newswires;
diana.kinch@dowjones.com, paulo.winterstein@dowjones.com
--Jeff Fick and Jacob Bunge contributed to this article.
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