Tata Power reported losses at the consolidated level for the second time in three quarters. Losses were aggravated by two exceptional items. One, the company wrote down the value of its Mundra power project by Rs 815 crore to account for higher costs due to rupee depreciation. Two, it decided to account for stripping cost (the cost of preparing a mine) when incurred. This cost was earlier amortised.

Tata Power's profit before tax would have been Rs 812 crore instead of the Rs 327 crore loss which it reported, had the company not incurred these costs. Rupee depreciation has forced Tata Power to ‘impair' or write down the value of its assets under the Mundra power project.

This has hurt consolidated profits despite the company adopting the AS11 accounting standards that keep foreign currency variations out of the profit and loss account.

On Mundra power project, the sharp depreciation in the rupee over the last few months has prompted Tata Power to change its exchange rate assumptions on costs from Rs 42/dollar to Rs 45.5 a dollar over the life of the project. As per the company's power purchase agreement, it can pass on escalation in coal costs due to rupee depreciation, but not escalation on borrowing costs.

Now, the company expects that the cost of servicing debt will rise due to depreciation of the rupee, impacting cash flows. With realisations capped by fixed tariffs, it has decided to take the hit upfront by calculating the net present value of future cash flows.

Tata Power already took a Rs 985-crore write-down towards coal costs in the September quarter, when Indonesia imposed its mining tax on coal.

With the latest write-down, Tata Power has cumulatively reduced the cost of its Rs17,000-crore Mundra power project by a total of Rs 1,790 crore, after ‘impairment'.

>mvssantosh@thehindu.co.in

Related Topics
comment COMMENT NOW