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No clarity on resolution of Mundra plant issue: Tata Power

Our Bureau Mumbai | Updated on July 30, 2020 Published on July 30, 2020

Says its subsidiary in Gujarat may need further financial support

Despite extended talks with five state governments, it is not seeing any clarity on resolution of the stand-off with regard to the Mundra power plant, Tata Power has said.

Addressing shareholders at the company’s AGM, Chairman N Chandrasekaran said that Coastal Gujarat Power Ltd (CGPL), a subsidiary of Tata Power, continues to be a drag on the financials and will likely to require further support. “While a number of discussions have happened with the five state government procurers, it is unfortunate that we do not yet have clarity on a resolution. However, for now, we see some relief from lower coal prices,” he added.

The issue relates to CGPL’s power purchase agreements (PPAs) with Gujarat, Maharashtra, Haryana, Rajasthan and Punjab. CGPL runs the Mundra ultra mega power plant, the coal for which was sourced from Indonesia. With the rise in price of coal, the company had sought an increase in power tariffs. Apart from Gujarat, none of the states has approved tariff hikes. Praveer Sinha, CEO, Tata Power, had earlier told BusinessLine that the revised rates would be around ₹3 per unit, up from ₹2.7 per unit. In Mundra, Tata Power has invested ₹24,000 crore.

This has come at a time when Tata Power is looking to reduce net debt, which in March was ₹43,559 crore.

Debt reduction plan

Going ahead, Chandrasekaran said, the company will look to bring down the debt to around ₹25,000 crore. As a part of this, it will sell off non-core assets which would help it to raise around ₹1,500-2,000 crore. “We have already announced the restructuring of our renewables business by transferring it into an InvIT, and with your approval, Tata Sons will inject ₹2,600 crore through preference shares,” he said. With this, Tata Sons’ shareholding will increase from 35.27 per cent to 45.21 per cent, and consequently, Tata Group’s shareholding will increase from 37.22 per cent to 46.86 per cent.

“With these measures, we will bring down the debt-to-equity ratio of the company to close to one. This will also move the net debt to EBITDA ratio to closer to three, significantly strengthening our balance sheet and lowering financing costs,” stated Chandrasekaran.

In its renewables business, Tata Power plans to add additional capacity of 10 GW in the next five years. Also, in its distribution business, Tata Power will look at acquiring more utilities such as the recent acquisition of Central Electricity Supply Utility in Odisha. “Our aim is to grow the current 2.5 million consumer base to 10 million consumers in the next five years,” said Chandrasekaran.

He added that Tata Power will continue to focus on building scale into its new consumer-facing businesses like EV charging, microgrids, home automation and others.

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Published on July 30, 2020
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