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BW Businessworld

Tata Power Snaps Power To Rajasthan Discoms

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Tata Power's troubles with the Mundra Ultra Mega Power Project (UMPP) are taking a turn for the worse. The project, already unviable due to high prices of imported coal, is now faced with poor financial health of power procurers who are not in a position to pay for the power they bought.

On 3 December 2012, Coastal Gujarat Power Ltd (CGPL), the wholly-owned subsidiary of Tata Power Company (TPC) which runs the Mundra project, invoked its rights under the Power Purchase Agreement (PPA) and discontinued supply of power to three Rajasthan state-owned power distribution companies. The decision — following several notices sent by Tata Power to the discoms as required under the PPA — effectively terminates its contract.

Tata Power has PPAs in place with seven procurers (distribution licensees) from five states - Gujarat, Maharashtra, Haryana, Rajasthan and Punjab. The Rajasthan discoms account for 10 per cent of the 4000-MW Mundra project, India's first UMPP. The company is planning alternate arrangements for contracting and selling the power which was given to the Rajasthan discoms.

So far, three 800 Mw units of Mundra have been commissioned, and the fourth unit was synchronized last week. Tata Power says the fifth unit is under construction and is on schedule.

"Rajasthan discoms have been in default of paying its dues in a timely manner leading to large outstanding dues", said a Tata Power press release.

A Tata Power official declined to reveal the quantum of money to be recovered from the procurers.

CGPL had posted an operating income of Rs 647.9 crore in the first half of 2012-13, but had a net loss of Rs 625.9 crore for the period. Operating profit for the period was just Rs 8.6 crore. The company says loss in CGPL for the first half year is mainly due to impairment (Rs 250 crore) and high fuel charges reducing margins making operating profit inadequate to cover interest and depreciation.

Mundra became a burden for Tata Power after Indonesia changed its coal policy last year and decided to sell coal at prevailing international prices. In 2006, Tata Power had bagged Mundra by offering the lowest tariff of Rs 2.26 per kilowatt hour, banking on Indonesian coal which was then selling at $35-40 a tonne. The new rules caused coal from Indonesia costlier, at a very high $120 per tonne.

Tata Power has 30 per cent equity stake in Indonesia's coal mines - PT Kaltim Prima Coal and PT Arutmin Indonesia. Recently the company bought a 26 per cent stake in another Indoensian mine PT Baramulti Sukses Sarana Tbk (BSSR) for an undisclosed amount.

Anil Sardana, managing director of Tata Power had told Businessworld earlier that the cost of production has shot up to over Rs 2.90 per kilowatt hour, making Munndra an unviable project. While Tata Power was lobbying for revising the 25-year valid PPA upwards by at least 70 to 90 paise, the power procurers had vehemently opposed the move.