Tata Power sells stake in Arutmin Coal for $500 m

Sale subject to certain conditions and restructuring actions

Tata Power, facing under-recovery challenges in its Mundra UMPP operations and cash flow concerns, has decided to exit from PT Arutmin Indonesia (“Arutmin”) to get additional cash flow and to reduce its consolidated debt, the company said today.

Accordingly, Tata Power, through its wholly-owned subsidiaries, has signed an agreement to sell its 30 per cent stake in Arutmin and associated companies in coal trading and infrastructure, to a Bakrie Group entity.

The aggregate consideration for Tata Power’s stake is approximately $500 million, subject to certain closing adjustments. The sale is subject to certain conditions and restructuring actions, which the company targets to complete in the next three months.

Considering the present coal price scenario, Arutmin, which is a mine spread over a number of pits in South Kalimantan, Indonesia, had started posing production and cost viability challenges in its operations. "Tata Power, however, continues to hold its equity stake in PT Kaltim Prima Coal (“KPC”), which owns one of the largest thermal coal producing mines in the world. KPC will also continue to be a part of the supply chain for Tata Power group’s coal off-take requirements," said a company press release.

Anil Sardana, managing director- Tata Power stated, “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. We do not expect any impact on the coal supplies to our plants since we stay invested in KPC mines and our coal supply agreement continues as it is.”

With an installed generation capacity of 8521 mw in India, Tata Power is one of the key private sector players in the country. Though it commissioned the first ultra mega power project in India at Mundra, the plant has been making losses due to high cost of coal. Under an order of Central Electricity Regulatory Commission, the power purchasers are currently discussing a possible tariff hike for the plant.