Tata Power proposes to sell 51% equity in loss-making Mundra UMPP at Re 1

Power Ministry sets committee under SBI to look into assets of Tata and Adani

Tata Power has approached Gujarat Urja Vikas Nigam (GUVNL) to buy 51 per cent equity in the 4,000 Mw Mundra Ultra Mega Power Project (UMPP) for Rs 1. Adani Power and Essar Power, which also have power projects based on imported coal, are contemplating similar moves. 

An official said Union Power Minister Piyush Goyal met banks and state government representatives this week to discuss power projects using imported coal and a committee had been set up to look into the fallout of a Supreme Court ruling on compensatory tariffs.

“The government has clarified that it will act as a facilitator. Banks and states that are procuring power from these units will take the final decision,” an official said. The State Bank of India will lead a committee of banks to evaluate the assets.

The meeting was attended by banks; Power Finance Corporation; REC; the chief secretaries of Gujarat, Punjab, Haryana, and Rajasthan; and representatives of Tata Power, Adani Power, and Essar Power.

In a letter to GUVNL, also marked to the Union power secretary, the chief secretary to the  Gujarat government, and the principal secretary to Prime Minister Narendra Modi, Coastal Gujarat Power (CGPL) has suggested two options: Renegotiating the power purchase agreement and selling equity. CGPL is the holding company for the Mundra UMPP.

“The procurers take over 51 per cent paid-up equity shares of CGPL for a nominal value of Rs 1 and grant relief to the project by purchasing power at a rate to fully address the under-recovery of fuel costs at CGPL,” said the letter reviewed by Business Standard.

The letter added: “Tata Power shall continue to operate the plant under an O&M contract and provide all required support the project as a 49 per cent stakeholder.”

The Tata Sons board has questioned Tata Power why it went ahead with investments in Mundra when it knew the plant would not be viable at the cost structure available. 

Sources said Tata Power was also contemplating retrofitting the Mundra plant to use domestic coal to supply power to neighbouring countries such as Bangladesh. This is in line with a new coal linkage policy, which offers coal to projects based on imported coal as well. “Certain sections of investors have been informed about the possibility of having to take a full write-off on investments made in the Mundra UMPP. Lenders have expressed their dissent in wanting to fund even the working capital needs of the plant following the Supreme Court order,” said an executive.

“Bankers have made a suggestion that if 51 per cent equity is taken over, the procurers will have the advantage of competitive power for the full life of the plant,” said a statement by Tata Power.

Accumulated losses of CGPL are Rs 6,547 crore and its paid-up equity is Rs 6,083 crore. In a project outlay of Rs 17,900 crore, CGPL has a total outstanding long-term loan of Rs 10,159 crore and an additional Rs 4,460 crore loan taken by Tata Power to meet cash requirements of CGPL.

Tata Power said the project lenders had stopped disbursal of loans beyond what was disbursed due to non-viability of the Mundra UMPP. “Due to continuous cash losses and downgrade from credit agencies, CGPL has lost its ability to arrange from financial institutions its short-term funding/working capital requirements for its day to day operations,” said the letter. The Mundra UMPP and a 1,980 Mw power plant of Adani Power at the same location, which used coal imported from Indonesia, had sought to pass on escalated coal costs due to changed regulations to the state utilities of Gujarat, Rajasthan, Maharashtra, Punjab and Haryana.

On directions of Appellate Tribunal of Electricity (APTEL) and the Supreme Court, the Central Electricity Regulatory Commission (CERC) computed relief for the two firms in an order in December 2016. But the SC in April set aside the judgments of both the APTEL and CERC, hence quashing any relief. It directed the CERC to “go into the matter afresh and determine what relief should be granted to those power generators who fall within Clause 13 of the PPA as has been held by us in this judgment”. The CERC is yet to compute the relief.

Mundra UMPP Saga

• 2007: Centre floats tenders for UMPP in Mundra, changes fuel source from domestic to imported coal; Tata Power wins the bid 
• 2010:  Indonesian energy regulation changes coal benchmark price, leading to a cost escalation
• 2012:  Mundra UMPP commissions the project; Tata Power moves CERC, asking for relief
• Feb 2014: CERC comes out with compensatory tariff of 52p per unit; APTEL allows firms to charge higher tariffs
• Aug: State govts move the Supreme Court, contesting it
• Dec 2016: CERC allows Tata and Adani to charge the extra cost of coal from states, disallows other costs
• 11 Mar: SC denies Tata and Adani any compensatory tariff