Tata Power may re-look at investment plans on rupee slide

The company had planned to spend around Rs 1,200 cr for the financial year 2013-14

The rapidly sliding rupee is making Tata Power go back to the drawing boards and take a re-look at its investment plans.

The company had planned to spend around Rs 1,200 crore for the financial year 2013-14. Tata Power might re-think its investments if rupee slides further down. More pressure from foreign exchange side would mean that its flagship power project at Mundra, based on imported coal, will need more funding from the company's kitty.

“The foreign loan liability of Mundra is $1.4 billion. And servicing this debt will be a problem,” admitted Anil Sardana, managing director of Tata Power, speaking to reporters on the sidelines of the company's 94th annual general meeting.

In the last two quarters, the company had taken impairment on its balance sheet on account of Mundra, which were non-cash. These impairments were made on account of change in Indonesian regulations, which changed the project's fuel cost structure. Added to this, exchange rate fluctuations have turned these into cash impairments.

The only options left for the company is to go for more and longer hedges against headwinds. Even if the company were to hedge all its forex exposures, costs of hedging will be 'phenomenal', said Sardana. “The way it is going, there is no liquidity with the banks that is possible to hedge it with,” he said.

The costs of hedging will add on to the consumer tariffs, as well. The company also claims that is not possible to assume that the consumers would take on additional costs as well.

“Consumers are already vexed. Will they be able to take 50-60 per cent tariff hikes,” said Sardana. Tata Power had earlier hedged its liabilities to a certain extent of fluctuations in the rupee. However, in the first quarter, the Indian currency fell by Rs 5. It made operations tougher for the company that runs 4,000 megawatt coal-based power plant in Mundra.

Sardana feels that state electricity regulators which are already facing pressures with regards to increasing tariffs might have tougher times with forex fluctuations. “It is a challenge how it will even out the odds,” he said.