Tata Power plans to scale back major investments, over the next two years, as it looks to reduce debt, a company official told FE. In the last five years, Tata Power has invested heavily to expand power generation, but has been hit by a change in laws in Indonesia that made importing coal more expensive. This in turn has squeezed the company?s cash flows that have consistently remained negative.

Between 2008 and 2012, the company spent nearly R35,000 crore on capex, according to data from Tata Power?s annual reports. According to the company’s cash flow statement for FY12, the company had negative cash used in investing activities of R1,664.56 crore compared with negative cash of R2,584.45 crore in the previous fiscal.

?The next major plant investment will not happen in the next two years or so, as most projects are in the land acquisition phase and the debt levels will start to come down,? said S Padmanabhan, the executive director, operations at Tata Power. The company, which is set to report fourth quarter and FY13 results on May 30, had a total long-term and short-term borrowings of nearly R32,000 crore at the end of March last year. It has not yet disclosed debt figures for the current year.

?We are planning to sequence our investment to lower debt levels. Between 2007 and 2011, we made lots of investments that are now slowly starting to generate cash. The recent CERC order on Mundra plant should provide relief,? he added

Tata Power and Adani Power, largely dependent on imported fuel to run their Mundra ultra mega power projects that together generate around 8,600 MW of power in Gujarat, received a major boost last month after the Central Electricity Regulatory Commission (CERC) ruled the companies be awarded a compensatory tariff to counter the unexpected rise in fuel costs.

Tata Power currently sells power from its flagship 4,000 MW Mundra plant at around R2.50/unit, while the cost of producing power is around R3.10/unit. It hopes to make up the 60-65 paise gap through the proposed tariff hike. The company in Mundra, which cost R18,000 crore to set up, should also start generating cash once CERC raises power tariffs to compensate for higher fuel costs.

A committee formed by CERC to decide on the compensatory tariff for Tata Power’s Mundra plant was supposed to have submitted its report by May 15, but there is no clarity on whether the report has been submitted.

When Tata Power won the Mundra bid in 2007, it had planned to secure fuel for the project with investment in coal mines in Indonesia, but changes in tax laws in the Southeast Asian country upset the company?s plans. The losses at Tata Power?s Mundra plant prompted a downgrade by Moody’s last year on fears it was breaching debt to equity covenants for CGPL unit because of impairments resulting from coal price hikes and forex losses. The company was hit by impairment charges of R1,800 crore in FY12 and charges of R850 crore in the first nine months of FY13, as a result of high fuel costs and a weaker rupee.

The company, which plans to add another 1,320 MW at Maithon, racked up after-tax losses of nearly R2,500 crore from Maithon and Mundra plants in FY12, as they were still under capital expenditure.

Padmanabhan said the company;s 1,050-MW Maithon plant in Jharkhand started generating cash flow in October-November. The plant is operated by Maithon Power Limited (MPL), where Tata Power holds a 74% interest, and Damodar Valley Corporation (DVC). Tata Power, which currently has a capacity of 8,500 MW, has set itself an ambitious plan to generate 26,000 MW by the end of this decade. However, as the company curbs spending over the next couple of years, major capacity additions are only likely after 2015, Padmanabhan said.