Tata Power, Adani Power crisis-Mundra units on offer at Re 1: GUVNL says ready to take 100 pct stake

By: and |
June 28, 2017 7:03 AM

GUVNL has expressed its willingness to take ownership of the troubled plants of Tata Power and Adani Power in the state but only if 100% stakes are transferred to it for a nominal Rs 1, instead of the 51% each offered by the two private companies.

Tata Power, Adani Power, Mundra units, GUVNL, Tata Power, Essar, Mundra plant's total debt, Coastal Gujarat PowerTatas and Adani had earlier offered 51% stake each, asked utility to pay full fuel costs in balance PPA period.

Gujarat’s state-run power utility GUVNL has expressed its willingness to take ownership of the troubled plants of Tata Power and Adani Power in the state but only if 100% stakes are transferred to it for a nominal Rs 1, instead of the 51% each offered by the two private companies. Also, the utility said post-takeover, it would rather have the freedom to source coal to run the plants, which are designed to run on imported coal. If implemented, GUVNL’s proposal would effectively supersede the conditions of tariff increases set by the two power producers. While agreeing to continue as O&M contractor of its units during the remainder of the power purchase agreements (PPAs), Tata Power wanted GUVNL to pay full fuel cost in the residual PPA period. Similarly, Adani Power suggested the utility purchase power during balance the PPA period of its plant “on cost-plus basis”.

GVNL’s quick and constructive response to the offers made by the power producers at a meeting convened by the Union power ministry in New Delhi bolstered the chances of salvaging the heavily indebted ultra mega power plants. These units were pushed to a corner after the Supreme Court in April ruled out compensatory tariffs on account of spike in imported (Indonesian) coal prices. While it remains to be seen whether the GUVNL’s counter-proposal is acceptable to the power producers, sources said banks present in the meeting insisted that as far the loans to these projects are concerned, the corporate guarantees must continue to with Tata Power and Adani Power.

Sources in the Gujarat government, however, refused to confirm GUVNL’s move. Gujarat minister for energy and petrochemicals Chiman Shapariya told FE: “The department has brought the matter (the offers made by Tata and Adani) to my notice today (Tuesday). Nothing has been finalised yet. The proposals are under consideration.” A senior GUVNL executive who does not wish to be identified, said: “Yes, we have received letters from Tata Power, Adani and Essar (offering equity in their troubled power units in the state to GUVNL). However, contrary to reports, we have not taken any view so far on the matter.” Sources in the Gujarat chief minister’s office too categorically stated that no decision has been taken on these proposals as yet.

A senior industry executive on condition of anonymity told FE that converting power plants designed to run on imported coal with low ash content to be conducive for domestic coal required significant capital investments. Such expenses would raise the fixed-cost component in power tariffs and might not be economically viable, he said. As reported by FE earlier, Tata Power had said in its proposal: “If the procurers take over 51% equity on a back-to-back basis they would have the advantage of competitive power for full life of the plant, that is 40 years, and can have unrestricted generation even beyond 80% availability at a very competitive price.” Electricity from the plant under the formula would still be one of the cheapest available to the state electricity board, the company claimed. Making a similar offer, Adani Power said the existing coal stock is critical and just enough for 7-10 days and the lenders had refused to “extend any further support”.

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Tata Power’s 4,000 MW Mundra plant has accumulated losses of Rs 6,457 crore and outstanding loans of around Rs 15,000 crore. The company signed a 25-year PPA with the Gujarat utility in 2007. Adani’s 4,620 MW Mundra plant’s total debt now stands at Rs 28,753 crore and its accumulated losses are Rs 7,744 crore. GUVNL had signed a purchase contract of similar tenure with Adani Power in 2007. Adani Power on June 6 approved the slump sale of its Mundra power plant to its subsidiary Adani Power (Mundra) — a move, experts said, that might be a tax-efficient way of transferring the power asset out of Adani Power. Tata Power already operates its Mundra plant under a separate unit — Coastal Gujarat Power.

The imported-coal-based plants ran into problems after Indonesian government in 2010 said that any export of coal could be done only at prices linked to international rates. The firms, in turn, sought higher tariffs for power; after months of regulatory reviews, the appellate electricity panel Aptel in 2016 ruled that PPAs’ “Change in Law” provision can’t be invoked but asked the regulator to compute the relief under force majeure. However, in April 2017, disposing of the appeal filed by discoms from Rajasthan, Maharashtra and Punjab, the Supreme Court rejected the companies’ claims for compensatory tariffs, even as it broadened the scope of “Change in Law” in the context of domestic policies.

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