Compensatory tariffs: Tata Power’s Mundra under-recovery to nearly halve

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Mumbai | Updated: November 23, 2018 4:55:53 AM

The under-recoveries at the plant are, however, expected to come down to Rs 0.35/kWh, reducing the annual losses at Mundra by nearly half.

Nearly 25% of Tata Power’s total capital employed is invested into CGPL, which continues to make losses on account of unviable project economics and also adversely impacted Tata Power’s credit risk profile. (Representational photo)

The proposed compensatory tariff for Tata Power’s Mundra ultra mega power project in Gujarat is unlikely to completely wipe off the under-recovery of Rs 0.80/kWh currently borne by the company on account of higher imported coal prices. The under-recoveries at the plant are, however, expected to come down to Rs 0.35/kWh, reducing the annual losses at Mundra by nearly half.

Coastal Gujarat Power (CGPL), the subsidiary that owns the Mundra ultra mega power project in Gujarat, had an under recovery of Rs 0.80/kWh in Q2FY19 that led to a net loss of Rs 463 crore, and an accumulated loss of Rs 8,000 crore in the seven years of the plant’s operation. The plant load factor for the plant in the second quarter was down by 327 basis points to 66%, while the plant availability was down by 1647 basis points year on year to 71% in Q2FY19.

The Rs 0.35/kWh under-recovery post the compensatory tariff is expected on account of Rs 0.20/kwh to be written off by lenders and Rs 0.15/kWh to be taken as subsidy by the company on account of profit from Indonesian coal mines.

The high-powered committee that proposed tariff relief for companies asked them to recover the increase in cost of coal at a maximum of $110/tonne of monthly average. Besides, it asked the lenders to write off a part of their loan to the projects to lower the fixed component in the tariff by Rs 0.20/kWh and reduce the debt to a sustainable level. The proposal further specified project owners to absorb accumulated losses of a combined Rs 23,800 crore incurred till September 2018 and discount any profits from coal mining in Indonesia in tariffs.

A JP Morgan report dated October 30 said, “The Rs 0.20/kWh to be written off by lenders, may have to be borne by Tata Power, as the Tata Group may not allow their Mundra asset to be classified as a non profitable asset (a haircut on loan exposure or debt service by lenders would require the asset to be declared an NPA).”

The CERC has been ordered by the SC to rule in the matter within eight weeks. “In our view, the 8-week deadline for CERC may get extended if the petitioning states delay in approaching the regulator with the amended PPA. Seeking approval of respective state cabinets (including Maharashtra which is due for state elections in near-term) could cause delays,” the JP Morgan report said. Edelweiss Securities in a report said the SC judgment paves the way for reducing under-recoveries through a formula recommended by the high powered committee, which could allow for a tariff hike of Rs 0.30–0.40/unit (depending on FOB prices) after considering the benefits from the reduction in capacity charge (Rs 0.20 hair cut by lenders) and profit-sharing in coal mines (Rs 0.25–0.30/kWh; a minimum of Rs 0.15/kWh). “This would lift CGPL’s EBITDA by about Rs 750 crore,” the Edelweiss report said.

Nearly 25% of Tata Power’s total capital employed is invested into CGPL, which continues to make losses on account of unviable project economics and also adversely impacted Tata Power’s credit risk profile.

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