Tata Power may be unable to challenge Indonesia’s decision

Ahmedabad: Tata Power Co. Ltd, which is building a 4,000 megawatts (MW) power project in Mundra, Gujarat, may be unable to challenge an Indonesian government decision that will raise the price of coal, despite holding a stake in the mine in the Southeast Asian nation from which it’s getting the fuel.

According to the minutes of a joint monitoring committee meeting on Coastal Gujarat Power Ltd (CGPL), as the power project is known, which was held in February and has been reviewed by Mint, a CGPL representative said it has “contacted the Indonesian government through the Indian consulate in Indonesia in the matter. However...lawyers have opined that CGPL does not have any case.” The CGPL representative was responding to D.J. Pandian, principal secretary, energy and petrochemicals, of the Gujarat government, who co-chaired the meeting.

Pandian had said: “Tata Power has one-third share in the Indonesian coal mine and as a shareholder should try to impress upon the Indonesian government to reconsider the applicability of the new coal-pricing regulation with prospective effect and request the Indonesian government to exempt existing contracts (contracts already executed) from being affected.”

According to the minutes, Pandian said: “Any regulation can be challenged and there is no restriction on the same. Further, all the procurers are of the consensus view that CGPL should take judiciary’s help in Indonesia since it is actually the affected party who has to file an appeal.”

Pandian confirmed the exchange in a telephone conversation.

“A committee member first suggested that CGPL should look for legal remedy in Indonesia,” Pandian said. “To this, the CGPL officials said that they have consulted their legal advisers and found that it is difficult for them to challenge the Indonesian government. CGPL also said that since they have only 30% stake in the blocks, they will need to get approval of all other partners to go for a legal remedy.”

Tata Power had signed power purchase agreements to sell electricity to Gujarat, Maharashtra, Punjab and Rajasthan at ₹ 2.26 per kilowatt hour (kWh). A recent article in Businessworld magazine cited Anil Sardana, Tata Power’s managing director, as saying that the cost of production at Mundra was closer to ₹ 2.90 per kWh.

The generation cost has risen with coal prices?having shot up to $110-120 per tonne from $30-40 a tonne at the time the purchase agreement was signed, said an expert tracking the power sector.

Coal secretary Alok Perti said on Tuesday that India plans to raise concerns with Indonesia over Jakarta’s plan to raise export taxes on coal and base metal. “The government will take this up with Indonesia,” Perti told Reuters.

Rising demand has prompted Indian and Chinese firms to invest in the coal sector in Australia and Indonesia, causing prices of thermal and metallurgical coal to rise and leading governments there to seek a greater share of revenue. While Indonesia has implemented price benchmarking to gain greater royalty and tax, Australia will impose a minerals?resource?rent?tax?from?1?July.

A Tata Power spokesperson said CGPL had been advised against challenging the Indonesian decision.

“It is correct that CGPL clarified to beneficiaries that it has been advised not to contest the presidential decree in a foreign country, as the decrees are generally not contestable,” the spokesperson said.

The first 800MW unit of the project has been commissioned and is generating power, the spokesperson said. The firm’s course of action will depend on stakeholders’ response, he said.

An external spokesperson for Tata Power said in an emailed response: “Tata Power is only a minority shareholder in the said Indonesian mines. This does not give Tata Power any mining rights. The investments are only strategic in nature.”

Mint had reported on 6 March that customers refused to consider any move to allow a higher tariff because of the rise in fuel prices. This may affect the financial viability of the project as fuel costs have escalated. The customers had instead asked Tata Power to approach a higher competent authority, including the power ministry, to look for a way to resolve the issue.

India is confronting its worst coal shortage. With power firms consuming 78% of the total domestic production of coal, about 50 million tonnes of the commodity needs to be imported for electricity generation in India, a number that’s expected to double by 2012 as more thermal power projects come up.

maulik.p@livemint.com