The country’s largest integrated power company, Tata Power, will not undertake large-investment projects until it gets compensatory tariff for its 4,000 MW Mundra plant, whose economics has been upset by changes to Indonesian law that mandates all coal exports be benchmarked to international prices.
The company had entered into a long-term contract at $30-plus a tonne. But the new law led to the trebling of the fuel price, and the Mundra plant has been posting losses of Rs 1,600 crore annually.
S. Ramakrishnan, Executive Director, spoke to Business Line on the financial difficulties in running the Mundra plant, the compensatory tariff set by the Central Electricity Regulatory Authority, and what may make the project financially viable.
Excerpts from the interview:
What is the update on Mundra? What about the two more 800 MW units you were planning alongside the five you have there? Will that not help set off losses?
Today, to run Mundra, we lose money. What we are saying is that the compensatory tariff only helps us to cover the deficit in terms of variable cost.
It does not give us any return on our original investment. Two more units will definitely help us to get some returns, but without the compensatory tariff nothing can be done. The new units too need investment.
What are your options if procurers do not agree to the compensatory tariff?
There is no option. No organisation can survive if it incurs losses continuously.
The Tatas have managed to run it for over a year despite the losses...
It is temporary. It is not a question of we (Tatas) doing something. We too cannot survive. Temporarily you can manage, waiting for some solution or resolution.
Will your overseas focus remain?
Unless and until the Mundra issue is resolved, it is very difficult for us to look at anything major anywhere.
Does it mean that even though you participated in the pre-bid process for the two new ultra mega power projects, you are not very serious?
How can you be? How can we put up a Rs 20,000-crore project when we lose Rs 1,500-1,600 crore every year in an existing venture? Is it possible?
Tata Power is into all three segment — generation, transmission and distribution. What is the single most important issue you would like resolved in each?
Today, many distribution companies are not providing adequate power to their customers. Maybe they are under financial difficulties or do not have a proper tariff.
If you see the power exchange tariffs one would think India has enormous excess power.
Only load shedding ensures the availability of power at such low prices. We believe this will improve only when discoms (distribution companies) start meeting customer requirements.
From the generator’s point of view, there is a huge uncertainty regarding fuel.
Nobody knows where the fuel is coming from, be it gas or coal. If the uncertainties are resolved, many of the capacities already planned or implemented can start producing power.
On transmission, we find that capacity has become a problem for merchant power to reach from one part of the country to another following last year’s grid failure.
The carriers have re-graded the systems as they do not want to take a risk. Hence, available capacity from merchant power has come down. This has to be addressed.
Discom tariffs have been recently been revised, which is good, but still far from being viable. Not all discoms have reduced their losses to acceptable levels. Delhi, where we too operate, has given a hike of 5 per cent this year.
Is the Delhi hike sufficient?
It is sufficient for take care of current costs but not enough to recover the past amounts, which is about Rs 4,000 crore. We understand the regulatory assets of all discoms in Delhi total to about Rs 15,000 crore. So, in a sense, at least the deficit is not growing.
Are you not eligible for interest for the regulatory assets you hold?
Yes, our Rs 4,000 crore will become Rs 4,400 crore, but carrying costs will not be addressed.
We have spoken to the State and Central Government that some agency such as the PFC be asked to raise tax-free bonds at a much lower rate and give it to us so that we get some cash and customers are not loaded.