Mundra UMPP has eroded Tata Power’s net worth by Rs 3,800 crore in three years: Anil Sardana

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March 25, 2016 12:12 AM

With a decision on allowing compensatory tariff for Tata Power's Mundra Ultra Mega Power Plant pending, the company's CEO & MD, Anil Sardana, talks about the losses caused due to higher Indonesian coal prices in the first few years of operation

With a decision on allowing compensatory tariff for Tata Power’s Mundra Ultra Mega Power Plant pending, the company’s CEO & MD, Anil Sardana, talks about the losses caused due to higher Indonesian coal prices in the first few years of operation and delay in grant of compensatory tariff. In an an e-mail interview with FEs Sumit Jha, Sardana talks about the company’s overall plans. Excerpts:

What would be the company’s plan in the event Tata Power fails to get a favorable order on compensatory tariff that is due this month?

The losses at Mundra (UMPP) have eroded approximately R3,800 crore of Tata Power’s net worth in the past three years. While there has been a considerable decline in the coal prices in international market in the recent times, the plant continues to post losses due to under recoveries on account of cost of coal (about $58 FOB), which is still higher than the cost of coal ($34 FOB) prevalent at the time of bidding (2007). However, the matter related to compensatory tariff is at present with APTEL, where a full panel heard the case and has reserved its judgement. We are hopeful that the honourable APTEL will understand our plea and will give an order that will be beneficial to both our company and our consumers.

How does the performance of Coastal Gujarat Power Limited (CGPL), impact Tata Power’s overall performance?

The under recovery on account of coal is high enough to eat away the entire margin earned in fixed cost and thus the loss incurred puts tremendous pressure on cash flows of the company. In the past few years, the company had to put in more than Rs 4,000 crore, beyond its equity contribution to maintain operations of Mundra UMPP. This impedes growth as the largest investment of Tata power doesn’t yield any return and rather continues to solicit additional funding without any return on such an investment.

What is the company’s strategy towards paring debt at the consolidated level?

The company’s strategy is to continuously work towards a healthy balance sheet by assessing financing risks in new investments and optimising the funding mix. The company is able to maintain healthy ratios.

How do you see the future of your distribution company shaping in the Capital, given the regulatory overhang that has not been liquidated?

We are working on several fronts including working with regulators to optimise tariffs and reduce regulatory assets and manage the intervening period by bridging finance. The recent tariff policy approved has clarified that there wouldn’t be any new regulatory assets formed, as also the existing ones will be liquidated in a time bound manner.

Has the focus on solar improved conditions for manufacturing panels in India for the largest domestic manufacturer?

The focus on solar had increased the demand for imported panels initially, to an extent that the indigenous industry received quite a setback. Later, this was realised and the domestic content requirement was enforced. Since then, the government has announced various tax incentives to boost solar PV manufacturing in India. The Union Budget 2014, proposed to exempt flat copper wires from customs duty that is required in manufacturing solar PV panels. Excise duty has been exempted from certain components like toughened glass used in the PV module. The Budget, also proposed to reduce customs duty on all machinery required to manufacture solar PV panels to 5% so that more and more players come to India to set up their manufacturing units. Government is also working on a policy to boost large-scale solar equipment production facilities that will promote large-scale domestic manufacturing of solar equipment for making it more competitive.

What are Tata Power’s growth plans in the medium term?

The company aims to have a 20 – 25% contribution from ‘clean power sources’ by 2022. Towards this end, the company has arranged its renewable assets portfolio of wind, solar and production gases by consolidating them under the renewable arm namely Tata Power Renewable Energy Ltd., a wholly owned subsidiary of the company. For the next 3 years, the company has sketched out a capital expenditure (capex) of roughly R2,500 crore per annum. While the Indian market continues to remain one of the key geography for business growth, however due to linkage unavailability, land-availability issues and delays in various clearances, the pace of growth is slow. The company, thus, have started making investments into projects in select international geographies to strengthen and diversify its portfolio and for greater impetus for growth. The company is setting up 2,600 MW of capacity abroad. In line with the international strategy, the company continues to evaluate investment opportunities in Africa, Turkey, Middle East, South East Asia and the SAARC region.


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