Indonesia's coal pricing norms hit Tata's Mundra UMPP

The new Indonesian coal policy is taking its toll on Indian power companies. Tata Power, which is executing the Mundra ultra mega power plant, has expressed concerns over the viability of the 4,000Mw project under the present circumstances.

Earlier, Reliance Power had raised similar issues for its Krishnapatnam UMPP in Andhra Pradesh. According to officials close to the development, the ministry has called a meeting of all buyers and Reliance Power to address issues related to importing coal price for the Krishnapatnam UMPP,

Both 4,000 Mw UMPPs are based on imported coal and the companies had made agreements with Indonesian authorities. But, recently, the Indonesian government changed its policy and decided to benchmark its coal prices to international indices (current market pricing). The new rule will apply to all the contracts, retrospectively.

In a letter to the power ministry, Tata Power said: “Despite our efforts to complete the project (Mundra UMPP) well within the targets and cost, circumstances have arisen which could result in the project becoming unviable.”

“Most developers of power projects in India including Tata Power are planning to source its long-term coal requirements from Indonesia. The new regulation by the Indonesian government imply that the long term contracts which were based on discounts/and or flat pricing will no longer be honoured and would result in steep escalation in prices, leading to significant alteration of the viability of imported coal based projects.”

When contacted, Tata Power in a statement said: “Mundra is one of the first ultra mega projects of the country that has progressed faster than schedule. Mundra UMPP had made all contractual preparations including linkages through linked mines abroad for imported coal, linked ports at both ends & shipping for reliability. Recently, Indonesia like other coal exporting countries made amendments in conditions related to exports of coal from their shores. We look forward to a discussion on how the issue of change in law in Indonesia regarding imported coal would be dealt with.”

The company, through its subsidiary Coastal Gujarat Power Ltd, had won the Mundra UMPP at a tariff-based bidding of around Rs 2.265 and will be investing about Rs 17,000 crore in the project. The main buyers of power will be Punjab, Gujarat and Haryana among others.