Tata Power Company (TPC) Ltd’s acquisition of a 30% stake in three coal firms in Indonesia will likely be fast-tracked by the country’s government, according to a diplomat. “The Tatas came to Indonesia following an invitation by our vice-president, Jusuf Kalla. We are confident that they will get approval from our government for the acquisition quickly,” said Baptista Tito Dos Santos, consul general of the Republic of Indonesia.
Tata Power announced last week that it is buying a 30% stake in two mines and a coal marketer from PT Bumi Resources Tbk for $1.1 billion (Rs4,840 crore).
Approval from the Indonesian government is critical to the progress of the acquisition process; the government’s policies have traditionally encouraged domestic firms.
The mines are particularly crucial to Tata Power’s growth plans. “If we had to open a new mine, it would have cost us $300 million for a three-million-tonne per annum (mtpa) facility,” said Prasad Menon, managing director of TPC.
The mines in which the company is acquiring a stake produce 60mtpa, giving them a replacement cost of around $6 billion in total and $1.8 billion for TPC’s 30% stake.
However, not everyone sees it that way. Analysts and credit-rating agencies believe the company is stretching itself with the acquisitions. Moody’s Investors Service announced on Monday that it continues to review TPC for a possible downgrade. The acquisition gives TPC access to up to one billion tonnes of coal. The coal supply agreement between it and Bumi is for 20 years and TPC has the option of getting 30% of the total coal produced by the mining company, in line with its shareholding.
Notably, the coal-pricing formula agreed upon by both the companies is an exact replica of the pricing worked out between TPC and the government of India for the supply of coal to the Mundra ultra-mega power project. Tata Power had won the bid for the 4,000MW project by quoting a per-unit tariff of Rs2.26 (as opposed to Rs2.9 for its existing projects). However, this price depended on its ability to secure fuel (coal) at the right price, which it has now done.
TPC gets to appoint two of the five commissioners and directors on the Indonesian company’s board, and name the chief financial officer.
The company’s coal requirement could increase to around 21mtpa over the next four to five years as it increases generating capacity from 2,323MW to 9,323MW. The company is looking to bid for more ultra-mega power projects.