Tata Power sells mine in Indonesia for $500 mn

Revised data show GDP rose just 4.5% last fiscal, as FY12 rise was higher than estimated

Faced with losses from the Mundra power project, Tata Power on Friday said that it has sold its 30 per cent stake in one of its Indonesian coal mines for $500 million (Rs 3,135 crore).

The company, which has acquired 30 per cent stake each in two coal mines that belong to Bumi Resources, signed an agreement with one of the entities of the Bakrie group, promoters of Bumi, to sell the stake. Tata Power will continue to hold its stake in Kaltim Prima Coal.

“The current coal price scenario has presented a challenge to the entire coal mining sector. The proceeds from the sale of Arutmin will provide cash to meet the company’s current challenges,” said Anil Sardana, managing director of Tata Power. The company also said that Arutmin is a mine that is spread over a number of pits in South Kalimantan in Indonesia. “It had started posing production and cost viability challenges in its operations,” Tata Power said in a press release.

MUNDRA’S POT OF TROUBLES

• Indonesian govt changes laws increasing its fuel costs
• Mundra was bid and won on fixed power sale prices
• Co applies to CERC for tariff hike, regulator yet to decide
• Forex fluctuations bring down Tata Power even more
• Coal mining earnings impacted by lower global coal prices

The mines supply coal to the 4,000-Mw imported coal-based Mundra power project in Gujarat, but the company assures that this supply will not be affected. “We do not expect any impact on the supplies since we stay invested in KPC mines and our coal supply agreement continues as it is,” said Sardana.

The cash flows will help service the consolidated debt of the company. The company has borrowed as much as Rs 17,000 crore for Mundra alone. The ultra mega power project painted the company's balance sheet red as it took three impairment charges worth Rs 1,800 crore at the end of 2011-12 and made two similar provisions worth Rs 600 crore, and another worth Rs 250 crore in the last financial year.

The company's net worth was eroded by the provisions it made on account of Mundra losses. It also said that it would transfer its coal mines' stake to the lenders of the project, to offer them 'comfort'.

The Indonesian coal mines were acquired as Tata Power hoped to control the costs of the fuel fed into Mundra. The Indonesian government, however, changed its laws benchmarking its exported coal prices to international indices, toppling the financials of the project. The Indian central power regulator, CERC, which has constituted a committee to look into increasing the sale price of power, is yet to expedite the process and the asset continues to stress the company's balance sheet.

Forex fluctuations also made it tougher for Tata Power. The earnings for the coal mines had also decreased in the last nine quarters, as the international coal prices were on a decline.

Experts, however, believe this sale will be more of a no-profit, no-loss transaction for Tata Power. Tata is receiving $500 million for one of the mines which were sold at $1.1 billion. However, the rupee was around 45 to a dollar, bringing in some advantage.

“It is very clear that they are selling the asset under pressure. But, I do not think that they will get any forex advantage as they had taken foreign debt from a Singapore subsidiary to acquire the mine. That debt will now go away,” said Mehul Mukati, an industry sector expert.

When Tata Power acquired the mine in early 2007, the company had plans to build as much as 7,000 Mw of generating capacity. The company, like most power companies, truncated its capacity expansion plans, reducing its need for more coal.