New Delhi: India’s apex power sector regulator plans to pronounce judgement on the vexed issue of allowing a tariff hike on electricity from Tata Power Co. Ltd’s 4,000MW Mundra project this month.
Adani Power Ltd and Tata Power had approached the Central Electricity Regulatory Commission (CERC) to consider increases in their power tariffs after customers declined to pay higher rates for the electricity generated from their imported coal-based power plants in Mundra, Gujarat.
“In Tata Power’s case, we have had substantive hearing. Their lawyer said that there is no case of moving Indonesian government… we should come out with the order in January,” said Pramod Deo, chairman, CERC in an interview.
The financial viability of power plants fuelled by imported coal has been affected because fuel costs have exceeded projections. Companies such as Tata Power bought coal mines in Indonesia to feed their plants. But coal imports became expensive for the firms when the Indonesian government last year started levying higher royalty and income tax.
On whether the Tata Power case will have a bearing on the Adani case, Deo said, “There are some similarities. It will have bearing. It is a matter of detail.” He declined to comment further.
An Adani Power spokesperson declined to comment.
Tata Power’s special purpose vehicle, Coastal Gujarat Power Ltd (CGPL), has signed agreements to sell electricity generated from its Mundra plant to Gujarat, Maharashtra, Haryana, Punjab and Rajasthan at Rs.2.26 per unit.
Adani Power has entered into two power purchase agreements of 1,000 megawatts (MW) each with the Gujarat government at Rs.2.35 per unit and Rs.2.89 per unit for its 4,620MW plant in Mundra. It entered into a similar accord with the Haryana government at Rs.2.94 per unit.
“The hearing on CGPL petition to the Central Electricity Regulatory Commission is on-going and the next session of the hearing is scheduled for January 10, 2013…,” a Tata Power spokesperson said in an email reply. “So far the Central Electricity Regulatory Commission has heard the submissions of the petitioner Coastal Gujarat Power Limited, the respondents. CGPL is hopeful of an early resolution of the issue.”
“The Mundra ultra mega power project (UMPP) remains an overhang for the (Tata Power) stock,” wrote UBS Global Equity Research in a 27 November report. “After the Indonesian government decided to link the price of exported coal with a benchmark based on international prices, the profitability of this 4,000MW project is under risk.”
Indonesia is the source of coal for the Mundra project and if the spot price is above $70 a tonne, it may not be profitable, UBS Global added.
Tata Power acquired a 30% stake in two coal mining units and a trading company from Indonesia’s PT Bumi Resources Tbk for $1.1 billion in 2007 to source fuel for its Mundra plant, the country’s first 4,000MW power project.
The overall cost of the project is estimated at about Rs.17,000 crore, with 75% funding through debt, and Tata Power has been lobbying the power ministry for allowing higher rates for the power generated from the facility.
“The power sector went through a lot of turbulence in the year that passed by,” Anil Sardana, managing director, Tata Power, wrote in an year-end statement. “There were clear indications of the sector struggling with a number of factors, like fuel supply shortage, unprecedented hike of coal prices in the international coal markets and the dismal financial health of the distribution sector.”
Domestic coal mining has been unable to keep pace with the growing demand for the fuel in the country. Coal demand in India is expected to grow from 649 million tonnes per annum (mtpa) now to 730 mtpa in 2016-17, making the country heavily dependent on imported coal, given the projected local availability is only 550 mtpa.
A FICCI-PwC report (Federation of Indian Chambers of Commerce and Industry-PricewaterhouseCoopers India Private Limited), titled Rising above the sub-optimal: Exploring ways to find energy solutions, released lastmonth, said, “India ranks third in the world in consumption of coal and its demand continues to grow much faster than the world average. The demand grew at a CAGR (compound annual growth rate) of almost 7% from 2001 to 2011, while the production grew by only 5%.”