Tata Power CMD Praveer Sinha.
Tata Power CMD Praveer Sinha.

Tata Power aims to turn around Mundra plant in next 2 years

Tata Power is also negotiating with power procurers in five states to allow it to sell surplus power produced in the open market

Mumbai: Tata Power Co. Ltd on Monday said it is working to revive its troubled 4,000 megawatts (MW) Mundra power plant, dropping previous plans to sell it for a token Re1.

“We are looking at three-to-four things to be done simultaneously to optimize costs," said Praveer Sinha, chief executive officer (CEO) and managing director (MD) of Tata Power. “We are taking initiatives to reduce costs operationally. We’re also using a higher percentage of blended coal in the plant (mixing in coal of lower calorific value with higher quality coal)," Sinha said in an interview.

In 2006, Tata Power’s bid for producing electricity at Rs2.26 a unit by building a coal-based power plant at Mundra won long-term purchase agreements from a host of state-run buyers. Plans to import cheap coal from mines in Indonesia to fire up the plant fell through in 2010, when the Indonesian government linked coal export prices to international rates.

“We’re blending at 40% right now, and can go up to 50:50 ratio. This way, we reduce overall losses with the savings we get by using lower calorific coal. We’re seeing good initial trends without compromising on output or the life of the plant," Sinha said.

“Necessity is the mother of invention," Sinha said. “I think in two years, we should be able to come out of this and make Mundra profitable."

The change in strategy has to do with the power producer’s expectations that global coal prices will begin to fall in the next few years. “Globally, a lot of countries are phasing out thermal plants. We expect this to happen by 2022. As demand for coal globally falls, prices will go down as well, making Mundra viable," he said.

Tata Power is also negotiating with power procurers in five states to allow it to sell surplus power produced in the open market.

“We started talks with the state government two weeks ago and asked if we can produce more than 80% (from the plant), can we sell the surplus at the exchange tariff? This will be without comprising on the 80% commitment we have given to the existing beneficiaries. This way, I am not diluting my commitment to my existing beneficiaries but trying to offset some of the negatives on the plant," Sinha said.

“Prima facie, they (the state government) feel an arrangement should be beneficial to both sides and that it cannot be negative for one party in perpetuity."

In FY18, the Mundra plant operated at a load factor of 74%, producing 26,686 million units of power. Cost of coal inputs touched a high of $61.5 a tonne, as opposed to $49.5 in the previous year. The plant reported a net loss of Rs1,719 crore last fiscal.

For the full year, the company reported consolidated net profit of Rs2,679 crore against Rs1,099 crore in FY17. Consolidated net debt as of March 2018 was Rs46,600 crore.

Sinha took over as Tata Power CEO on 1 May, after Anil Sardana resigned as CEO earlier this year. Sinha was, at the time of his elevation, MD and CEO of Tata Power Delhi Distribution, which has power distribution rights in some circles of the national capital. During his tenure at the subsidiary, technical and commercial losses fell from 84% to 9%.

Given his experience in the transmission and distribution of electricity, Sinha’s immediate goals as CEO focus on exploring more opportunities in this space. “A lot of cities will come up (for private sector participation in distribution) after the 2019 elections, either in the PPP or the franchisee model. Rajasthan has already done this in four cities—I expect it will do the same in a few more. Uttar Pradesh and Jharkhand—these are states that face huge challenges in distribution," he said.

Tata Power also distributes power in Ajmer and Mumbai.

“We are also looking at buying transmission assets if there is a good opportunity," Sinha continued. “We’re scanning the market for good bids to set up new transmission lines." Smart metering, micro grids in rural areas and setting up electric vehicle-charging units are other areas of focus."