Iran Energy Exchange; Taking Steps Forward
By Mahdi Goodarzi & Mojde Rezaee
As a self-disciplined commodity exchange with the possibility of physically trading energy carriers, including oil, gas and electricity along with commodity-based securities, Iran Energy Exchange (IRENEX) was established in 2011 licensed by the High Council of Securities & Exchange as the fourth official exchange of the country and as a public company under the supervision of the Securities & Exchange Organization.
The IRENEX has 3 main sections of Physical, Derivatives and Side markets, whose sub-markets along with the current and future instruments can be seen in the table below:
In contrast to the current existing whole-sale electricity market of Iran, where buyers may not affect the electricity pricing strategies, the energy exchange was in fact established to enable both buyers and sellers to interact through a two-way bidding system in a comparative atmosphere until both parties reach an agreement to execute a deal, having achieved equilibrium prices. The significance of such a market for buyers (i.e. distributors) would be reflected in potentially reduced cost of energy ownership based on different energy offering packages.
Among its major suppliers are National Iranian Oil Company, Bandar Abbas and Lavan Oil Refineries, Shazand and Kermanshah Petrochemical Companies in the oil, gas and petrochemical field along with Mapna Parand Power Generation Company, Damavand (Pakdasht) Powerhouse and Abadan Power Plant amid the electricity generators.
Referring to the materialization of IRR 320,000 bn in the IRENEX over the 10-month period ended 20 January 2017, IRR 17,870 bn (56%) belongs to the physical market, IRR 3,470 bn belongs to the electricity market and IRR 10,512 bn has been realized via the Standard Parallel Salam Contracts.; the trading value for the physical market and Standard Parallel Salams have registered 42% and 66% growth compared to the same time last year. At the end of the said period in the derivatives market, Persian Gulf Star Refinery and Mapna Sanandaj Power Plant Salam Contracts were issued.
Taking into consideration the need to finance among companies, it is to remind that the Energy Exchange is ready to finance any project/company being interested in raising funds through the financial market, in addition to the said industries; in this regard, new instruments, including project funds are to be launched started by Mapna Project Fund.
To Host Foreign Investors
Right from its establishment, the IRENEX was aimed at creating a competitive environment for suppliers to export energy carriers and become a reference for pricing; a part of this target has been materialized through the IRENEX international ring, which is now estimated to host a growing number of foreign buyers. This way, Iranian brands presented in the international ring may attract the attention of foreign investors, where local energy producers can offer their commodities at higher prices. In addition, developing the international ring will make branding possible for Iranian commodities and also make foreigners familiar with such products.
According to the Central Securities Depository of Iran (CSDI), trading codes have been issued for foreign investors and currently, more than 20% of the value and volume of daily trades belong to the IRENEX international ring. Besides, foreign investors are allowed to apply for tenders put up by the energy exchange; they will face no restriction in their activities and no limitation in the amount of their investment, although they will gain access to the products via proxy in case of any difficulty.
Based on data and statistics, more and more trades are conducted in the export ring, signaling foreigners’ interest in doing trades with Iran in the post-sanctions era. Over the summer, international floor of the IRENEX accounted for 65% of trades with only 35% left for local investors.
The table below demonstrates the value of products, mainly kerosene, gas oil and jet fuel, exported during March 2016 – January 2017:
Foreigners who were interested in Iran’s oil and gas products used to directly contact the National Iranian Oil Products Distribution Company (NIOPDC) to start negotiations; they are now, however, referred to the Iran Energy Exchange, for which getting a trading code is a necessity.
To do this, required forms along with company documents, including the article of association, certificate of incorporation, gazette, board resolution as well as the authorized signatories’ passports must be completed, translated and verified by the Iranian embassy and posted to the broker. To become aware of the offering in this exchange, one must review the messages released by the market supervisor, which are issued 3 days before the offering is going to take place; such messages contain the requirements as well as the considerations to conduct trades. It is worth mentioning that 10% of the total value of each trade is paid upfront and the rest will be settled depending on different purchase models.
Being rich in oil and gas resources, powerful in the electricity generation along with enjoying unique geographic and strategic location have turned the IRENEX into a strategic and important organization in the country, calling for more attention and support by policy and decision makers, including ministries of Oil and Gas and Energy plus the Security and Exchange Organization. All being said, attempts are underway to add to the market depth by improving financial health, transparency and disclosure level; this will eventually result in the entrance of new players from other countries, which itself will lead to the introduction of new products to the market, and hopefully, materialize the goals set in the first place, i.e. organizing, listing plus supervising trading of energy carriers and energy carrier-based securities to provide members with fair access to trading platforms and cooperation with financial institutions and organizations.
DISCLAIMER: This report has been prepared and issued by Agah Brokerage Firm on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. Agah does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. Any expressions of opinions are subject to change without notice.
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