Tata Power is concerned about the UMPP becoming an NPA and has therefore written to the Prime Minister’s Office and Power Ministry offering to sell the said stake to Gujarat government for a token amount of Re 1, ET Now reported.
However, the power generating company’s offer is contingent to the government helping to cover production costs at the Mundra UMPP. Tata Power has also assured to stay on as a 49% stakeholder in the project after the stake sale. The UMPP has been in losses for over years due to higher Indonesian coal prices during the initial years of operation and the delay in grant of a compensatory tariff.
“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),” Tata Power MD & CEO, Anil Sardana, had said in an e-mail interview with FEs Sumit Jha in March 2016.
In April 2017, the Supreme Court quashed the ruling of the Appellate Tribunal for Electricity Regulation (APTEL) which allowed the company to charge compensatory tariff from consumers. The case was being fought in Appellate Tribunal for Electricity (APTEL) by Tata Power and Adani Power against the state electricity distribution companies of Gujarat, Rajasthan, Maharashtra, Punjab and Haryana.
Both companies had cited the term and conditions of the power purchase agreement (PPA) between them and the electricity distributors, to claim that the change in Indonesian regulations in 2010 that increased the cost of coal imported by the companies was a force majeure event and therefore the companies can pass on their increased costs to their consumers.
APTEL had ruled in April 2016 that both the power companies needed to be compensated because the change in Indonesian laws was beyond the control of these companies. It further ruled that as per the terms and conditions of PPA between the power generating companies and distributors, this change in Indonesian laws was a “force majeure event” hence the power generating companies can pass on their cost due to their consumers.