Riders to Tata Power compensation

CERC order for Mundra rate says concession must be offset with profit sharing, cut in return on equity

The compensatory rate of 52p a unit allowed by the Central Electricity Regulatory Commission (CERC) to Tata Power for the latter’s Ultra Mega Power Project at Mundra, Gujarat, would be offset by at least three factors.

These are the sharing of profits earned by Tata’s Indonesian mining companies, sacrificing one per cent Return on Equity (RoE) and lower auxiliary consumption of 4.75 per cent allowed by CERC. The three together are likely to bring down the effective compensatory rate to 47p a unit.

According to rating agency ICRA, the retail rate from the Mundra project for consumers in the five procuring states – Gujarat, Maharashtra, Punjab, Haryana and Rajasthan — after the compensation is expected to increase by 0.4-1.8 per cent or 3-10p a unit. The least impact would be felt by consumers in Maharashtra, who get only four per cent of their power supply from Tata’s Mundra.

In the case of supply by Adani Power, also allowed a compensatory rise, the average rate for the buying utilities is estimated to increase by an average of 1.7 per cent (7-10p/unit) in Gujarat and Haryana.

Also, the regulator has ruled the company should “share the burden of hardship” by sacrificing RoE, based on equity investment of contracted capacity. This could impact the earnings by an estimated Rs 50 crore annually. In addition, auxiliary power consumption of the plant as decided by an independent technical consultant (7.75 per cent) has been disallowed and is to be maintained at 4.75 per cent. Auxiliary power refers to the initial load consumed in the start-up operations.

Tata Power holds 30 per cent stake in three coal mines in Indonesia which supply fuel for the imported coal-based Mundra project. “The sharing of actual profit from coal mining operations in Indonesia shall be calculated on the total incremental revenue after payment of taxes and royalty as per Indonesian regulations and incremental mining cost in proportion to the coal used for generation of contracted power,” CERC said in its order.

The Indonesian government had in September 2010 announced its decision to link mineral exports from that nation to market rates -- a mix of domestic benchmark and global coal price indices. The decision, taking effect in September 2011, increased the price of coal supplied to plants such as Mundra. Procurers had demanded discounting the compensatory rate to the extent of profits earned by Tata Power from its mines in Indonesia.