A working capital crunch, exacerbated by the dramatic slide in the rupee, has forced Tata Power to rethink its expansion plans, the managing director of India’s largest private power producer told FE. The company has around 11,000 MW of thermal projects at various stages of development and under consideration. At an average cost of R4-5 per MW, these projects would have required an investment of R44,000-55,000 crore.
“We’re going back to the drawing board, looking at all our expansion plans to see whether they’re still feasible,” Tata Power MD Anil Sardana said. Founded in 1906 to supply power to Mumbai, the company has set a long-term generation target of 25,000 MW, a nearly threefold increase from its current capacity of 8,521 MW.
Sardana said it has become increasingly difficult to fund losses for the company’s bleeding 4,000 MW Mundra power plant in Gujarat, and also to support the cost of carrying regulatory assets at its Delhi and Mumbai power distribution businesses. The company’s total long-term borrowings stood at around R31,600 crore at the end of March 2013. The company confirmed it would be looking at all avenues of fund-raising but did not divulge any details.
“There is big challenge on how things will pan out for us, more so there is an issue with regards to working capital,” said Sardana. “We haven’t been able to firm up how we’ll raise these funds, we’ll have to see what our best option is,” he added.
The veteran power sector executive said the company could abandon its plan to add two more units of 800 MW each (combined 1,600 MW) at the company’s Mundra plant, which would have necessiated an investment of more than R7,000 crore. Tata Power has spent nearly R18,000 crore to set up the Mundra project. Seventy five per cent of the project cost was funded through debt and the remaining through equity. As of the first quarter of this fiscal, debt drawn for the project stood at Rs 13,000 crore, while equity investment stood at Rs 5,100 crore. The project is currently averaging losses of Rs 500 crore per quarter and awaiting a final verdict from the Central Electricity Regulatory Commission (CERC) on a compensatory request to help account for increased fuel costs due to a change in Indonesia’s coal export policy.
Further international expansion has also been put on hold, Sardana said, adding that the company won’t backtrack on projects already started. The company had been scouting for coal assets abroad, but has now put further investment on the back burner.
“The rupee has completely disturbed the plan. Whatever (projects) we have already started we’re continuing with that, but we’ll have to wait on the new ones until the rupee stabilises,” said Sardana. The company is currently setting up Dagacchu 126 MW hydro project in Bhutan, a geothermal plant in Indonesia, two wind projects in South Africa and three hydro projects aggregating to 400 MW in Georgia.
The company’s trade receivables shot up 46% to Rs 3,305 crore at the end of FY13, with state-owned discom BEST in Mumbai owing it money, while regulatory assets receivables jumped 24% to Rs 6,817 crore. To protect consumers against high tariffs or ‘tariff shocks’, the regulator allows discoms to create regulatory assets, which can be recovered from consumers later.
“Locked in receivables are worrying us... Tata Power’s Delhi distribution business has regulatory assets standing at Rs 4,700 crore. Mumbai regulatory assets are also increasing as we are not getting paid by BEST in time because they are also facing a cash crunch. All of this adds up.” said Sardana.