Tata Power posts losses on impairment charge

Mumbai:Tata Power Co. Ltd, India’s largest power producer outside government control, was plunged into losses after having to bear an impairment charge of Rs 2,460 crore, bulk of it related to its Mundra power project because of an increase in costs of imported coal and foreign exchange volatility.

The charge was partly on account of “prudent” provisions the company made for its ultra mega power project in Mundra —a clear pointer to the toll imported coal prices and rupee depreciation are having on infrastructure projects in the country.

In a late evening announcement on Tuesday, Tata Power reported a loss of Rs 1,087.7 crore for the year ended March and Rs 628.75 crore for the fourth quarter, battered by a Rs 1,800-crore provision for the 4,000 megawatts (MW) Mundra power project and Rs 659.44 crore “due to deferred stripping costs”. The company had posted profit of Rs 625.02 crore in the year-ago quarter and Rs 2,059.60 crore in FY11.

Sector analysts said the cost of imported coal has to be passed on to power buyers for projects to remain viable.

“If government wants to push imported coal-based projects then cost of fuel should be made pass through and even in the case of existing projects like Tata Power’s Mundra project, where it had long-term contracts in place with Indonesian miners, the government should consider revision of tariff as change in the norms by Indonesian government was beyond Tata Power’s control,” said Arvind Mahajan, a partner at consulting firm KPMG India, who leads its energy practice.

Tata Power and industry lobby group Association of Power Producers (APP) had sought to persuade the central government to allow a tariff revision. The central government said this would have to be decided by the states that are to buy power from the Mundra project. The states, which include Gujarat, Maharashtra, Rajasthan and Haryana, have so far refused to consider any tariff revision.

The power producer, which crossed 5,000MW in generation capacity this quarter, reported a revenue of Rs 7,169.85 crore for the quarter, up 44% from Rs 4,985.84 crore last year. For the full year, revenue rose 34% to Rs 25,868.87 crore from Rs 19,348.21 crore.

Referring to the “non-cash impairment provision”—an accounting practice in which a company decides to write down the value of an asset and includes the loss in its profit and loss account—managing director Anil Sardana said in a statement: “We look forward to early resolution on imported coal compensation issue for long-term sustenance of power sector” and added that the company believes “it’s prudent to make such provisions”.

Even as Indian power producers scramble for fuel linkage from Coal India Ltd, the monopoly coal producer that’s unable to plug the supply deficit in the country, major global suppliers such as Indonesia and Australia are raising regulatory barriers for coal exports, making it harder—and costlier—to procure the fuel.

Changes in the pricing norms for export of coal by the Indonesian government in September last year put Indian power generation companies such as Tata Power, Reliance Power Ltd, Adani Power Ltd and others in a spot. Indonesia said all exports of coal would be linked to international spot rates.

Tata Power had even taken a 30% stake in an Indonesian coal mine to assure feedstock supply. The policy change, however, neutralized any advantage that long-term contracts may have given Indian power producers, increasing fuel costs by around Rs 1,500 a tonne.

In November, Australia imposed a carbon tax of $24.70 per tonne on coal exports.

Imported coal costs have more than doubled to around $120 per tonne since FY09, an indicator of both surging demand and increasing protectionism by countries of their natural resources.

Tata Power, however, has kept the door open on reviewing its “assumptions” for the impairment charge.

“Given the volatility of coal prices and forex, the assumptions will be monitored on a periodic basis and necessary adjustments will be made if external conditions... indicate that such adjustments are appropriate,” according to the statement.

Coal-fired projects of 46,000MW capacity have been plagued by issues such as costly imported coal, state electricity boards’ refusal to pass through higher costs and lack of assurance on cheaper domestic coal linkage. An additional 26,000MW of generation capacity in greenfield projects that were on the drawing board may just stay there, Rabindranath Nayak, an analyst at Mumbai-based brokerage SBICAP Securities Ltd, told Mint in a 26 March report.

bhuma.s@livemint.com