Tata Power moves regulator on Rs 18K cr Mundra UMPP tariff revision

* Cites net worth erosion in 2.5 years; SBI,IIFCL,OBC among investors

Written by Anil Sasi | New Delhi | Published: July 17, 2012 2:22:37 am

The skyrocketing prices of imported coal has forced Tata Power Company to seek regulatory intervention. Tata Power,the promoter of the country’s first ultra mega power project at Mundra in Gujarat,has petitioned the central electricity regulator asking for an upward revision in tariffs citing “unprecedented and peculiar circumstances” in the fuel supply arrangements that it had firmed up at the time it submitted the winning bid for the 4,000 MW project six year back.

At the current tariff,the developer has claimed that the entire net worth of the Mundra project could be eroded within just two and a half years. For the Mundra project,being developed by Tata Power subsidiary Coastal Gujarat Power Ltd (CGPL),the company had quoted a 25-year levelised tariff of Rs 2.26 per unit. To restore the viability of the project,the developer is now pitching for a tariff of over Rs 3 per unit. The Mundra project entails an estimated investment of around Rs 18,000 crore — equity of Rs 4,500 crore and debt financing of Rs. 13,500 crore,with Rs 7,700 crore as foreign debt,with State Bank of India (Rs 2,000 crore),India Infrastructure Finance Company Ltd (Rs 1,800 crore) and Oriental Bank of Commerce (Rs 500 crore) among the key domestic investors in the project. Global investors include the Manila-based Asian Development Bank and International Finance Corporation (both with commitment of $450 million or Rs 1,800 crore each),BNP Paribas ($326.67 million or Rs 1,306.68 crore) and the Export-Import Bank of Korea ($500 million or Rs 2,000 crore).

Tata Power had bid for the project in December 2006 and was banking on imported coal,seemingly a sound decision at that time considering that it had tied up firm fuel supplies from Indonesia prior to committing a delivered electricity price. At that time,the international coal prices were around $40 a tonne.

But changes in coal mining laws by Indonesia,brought in with retrospective effect,has resulted in higher costs due to a change in the way royalty and income-tax would be computed for the coal producing company. The subsequent surge in global coal prices to $110-120 per tonne in 2011 and a supply volatility in coal — virtually unheard of till about three years ago — have upset the calculations of developers such as Tata Power,which promised aggressive low tariffs in power purchase agreements (PPAs) with distribution utilities,based on initial calculations of the cost of imported coal. Reliance Power has already shelved work in June last year on its 4,000 MW Krishnapatnam project,citing higher coal costs. JSW Energy’s 2,000 MW expansion of the Ratanagiri project has been reportedly delayed for the same reason.

“The Petitioner,in spite of having been forced into a life-threatening situation,has spared no effort to progress the project’s construction and commissioning and has continuously and scrupulously adhered to all its commitments under its PPA,keeping uppermost the critical power generation situation in the country,” Tata Power-arm CGPL said in the plea. Claiming that the commercial unviability of the unit has reached such magnitude as to make it impossible to operate in the long term,CGPL has said it has no choice but to “seek relief”.

“In these peculiar circumstances the Petitioner is seeking intervention of the Commission to establish an appropriate mechanism to offset in tariff the adverse impact of the unforeseen,uncontrollable and unprecedented escalation in the imported coal price and change in law by Government of Indonesia. This means that the fuel cost escalation will be adjusted as a pass-through and the monthly tariff adjustments will be permitted to allow a cushion to the Petitioner from unprecedented fuel cost escalations.”

Price Pressure

* For the Mundra project the company had quoted a 25-year levelised tariff of Rs 2.26 per unit

* To restore the viability of the project,the developer is now pitching for a tariff of over Rs 3 per unit

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