Tata Power pulls plug on Rajasthan discoms as payment arrears mount

Jan 04 2013, 09:03 IST
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Tata Power said it has decided to stop supplying power to three state-owned distribution companies in Rajasthan. (Reuters) Tata Power said it has decided to stop supplying power to three state-owned distribution companies in Rajasthan. (Reuters)
SummaryTata Power is seeking a higher tariff at Mundra to pass on rising fuel costs.

Tata Power said it has decided to stop supplying power to three state-owned distribution companies in Rajasthan, citing consistent failure to meet payment obligations.

The three Rajasthan discoms account for 10% of the total capacity from the 4,000 MW Mundra plant.

Tata Power, which is seeking a higher tariff at Mundra to pass on rising fuel costs, said it had sent several notices to discoms, which had failed to fulfill their obligations including collateral arrangements, despite repeated and regular reminders.

The company said it would make alternative arrangements for contracting and selling this power, alleging that Rajasthan discoms have been defaulting on payments, leading to “large outstanding dues.” Tata Power did not specify how much money it is owed by the Rajasthan discoms.

As a result of the defaults, Tata Power said “it finds it difficult to manage payment for its obligations to buy fuel and discharge its various obligations.” Shares of Tata Power were down 1.39% on the BSE on Thursday to close at R110.10. The announcement on the Rajathan discoms came in after market hours.

Tata Power, India’s largest integrated power company, reported a consolidated net loss of R83.80 crore in its most recent quarter as it took a hit of R250 crore on an impairment charge for its unit, Coastal Gujarat Power Ltd (CGPL), the holding company for its flagship Mundra plant. Ratings agency Moody’s downgraded Tata Power last year, saying the company was breaching debt to equity covenants for its CGPL unit because of impairments resulting from coal price increases and forex losses.

India’s state-electricity boards have been facing mounting losses and debt, prompting the government to clear a R1.9 lakh crore-debt recast package last September. The bailout, largely similar to an intervention in 2003 when losses of SEBs were taken over through RBI-guaranteed bonds as a “one-time” financial clean-up exercise, aims to ease SEBs’ immediate cash flow problems and stem recurring losses.

In an interview with FE in November last year, Tata Power managing director Anil Sardana criticised the plan, calling it “bad money chasing bad money.”

“Such large losses can be corrected through complete efficiency improvement. There is nothing in the plan which will do that,” he had said.

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