Tata Power uses cheaper coal to cut costs at Mundra project

SIDDHARTHA P SAIKIA, THE HINDU BUSINESS LINE

Power Ministry not keen on reopening old contracts to tweak tariff

NEW DELHI, JULY 2:
Under financial pressure, Tata Power Ltd is blending up to 70 per cent of its fuel requirement at Mundra Ultra Mega Power Project with cheaper imported coal.

This is because the Power Ministry will not consider reopening old contracts that may have given some respite against higher Indonesian coal prices.

“We have commenced using low grade imported coal to offset cost. Today up to 70 per cent blending is being done. We plan to maximise this to reduce overall cost of fuel,” Mr Anil Sardana, Managing Director of Tata Power, told Business Line.

Mr Sardana said that the company has offered to do future restructuring. In this, Tata Power will facilitate 75 per cent of the cash flow on account of dividends on the investments in an Indonesian coal mine to benefit Coastal Gujarat Power Ltd (CGPL), the special purpose vehicle formed for setting up and operating the 4,000-MW Mundra UMPP.

“This would provide protection and support cash flows for debt repayment. This is mainly being done to reassure the lenders on loan repayment for CGPL,” he added.

In 2011-12, Tata Power reported consolidated lower profit after tax at Rs 1,087.68 crore against Rs 2,059.60 crore in the previous year. This was primarily due to provisions of Rs 1,800 crore of impairment for Mundra project and Rs 659.44 crore of deferred stripping costs.

“The increase in coal cost per year has been more than 130 per cent against what would have been 17 per cent as per CERC guidelines for the intervening period under reference. Representations have been made to beneficiaries, Power Ministry, and the Prime Minister’s Office to resolve this issue,” said Mr Sardana.

However, the Power Ministry has a different view. “We understand that the power producer has bought stake in Indonesian coal mine. If coal prices have been revised upwards due to change in laws, there would be a better realisation for its stake in the project too,” said a senior Ministry official. The UMPP has been awarded to Tata Power on a levelised tariff of Rs 2.26 a unit for 25 years.

“The UMPP contracts have been awarded after bidding, where each bidder has calculated their risks. The contracts cannot be re-opened,” he added.

Tata Power announced the commercial operation of first unit of 800 MW at Mundra on March 9. The second unit is scheduled for commissioning by August. The company has 30 per cent stake in Indonesian coal mines – KPC and Arutmin.