Rajasthan glitch could help Tata sell power in open market

Tata Power cuts supply to Rajasthan discoms for payment default

Tata Power's move to snap power sales to three distribution companies of Rajasthan yesterday could help the company open new avenues for its sales. Tata Power said it is looking to make alternate arrangements to sell this power from its 4,000-MW Mundra power plant, which accounts for around 400 MW after the project is completely commissioned. It now operates three units with around 2,400 MW. The fifth unit is under construction.

The power, which is available after the power purchase agreement (PPA) is cancelled, is now free to be sold, said company sources. This could give them the opportunity to go-ahead with short-term sales of power, which is sold at market prices. “They have an option to sell power at merchant prices. But it may not stay for a long time,” said Rupesh Sankhe, power sector analyst at Karvy Broking.

Some sector experts said if a PPA was terminated, existing buyers could also be sold the power. Apart from Rajasthan, the project also supplies to Gujarat where the project is located, Maharashtra, Haryana and Punjab.

Tata Power terminated a PPA with three discoms--Jaipur Vidyut Vitaran Nigam, Jodhpur Vidyut Vitaran Nigam and Ajmer Vidyut Vitaran Nigam, which is around 10% of the total capacity of Mundra. The discoms have not been paying their dues to the company, and the outstanding accounts to Rs 96.29 crore.

Payment default is an extra pressure on the company, which is already losing money on the current sales. After the new coal export regulations of Indonesia came into effect, the 4,000-MW power project that imports coal from it, lost its cost competitiveness. Mundra currently loses 60 paise per unit, by selling power at Rs 2.26 per unit, a price which was fixed before the regulatory changes took away Tata's ability to control fuel cost.

“With continued non-payment in a timely manner and non-availability of payment security, the company finds it difficult to manage payment for its obligations to buy fuel and discharge its various obligations,” said Tata Power in response to a questionnaire. Payment defaults for the Jaipur discom has been from July 2012, since August 2012 for Jodhpur and since October 2012 for Ajmer.

“Coastal Gujarat Power Ltd (Mundra) decided to discontinue the supply of power to the three Rajasthan state-owned distribution companies due to non-compliance on payment security related issues. This is due to consistent failure on the part of Rajasthan discoms as procurers to fulfill the obligations including collateral arrangements in spite of repeated and regular reminders,” Tata Power said.

The stock of Tata Power fell around 1% in early trade today on the BSE. However, it recovered and closed unchanged to its last closing price of Rs 110 per share.

The payment default to the company in itself is not a long-term risk, said analysts. “It [receivables] is a new risk for Tata Power, as market had factored only losses from Mundra. But, it is not a long-term risk as it makes sense for Rajasthan to buy Mundra's power which is cheap,” said Sankhe.

Rajasthan's current average power purchase cost is around Rs 4 per unit. If they lose a cheap source of power, their purchase costs could go up. Rajasthan discoms are already under financial distress, and  they went through a debt restructuring process last year, accounting to as much as Rs 35,000 crore. The state also raised its power tariffs twice, last year.