Global credit rating agency Moody’s today gave a “credit negative” to Tata Power’s Mundra Power Project saying it will increase losses.
Last Monday, Tata Power Company Ltd’s wholly owned subsidiary Coastal Gujarat Power Ltd (CGPL) synchronised the fourth 800-megawatt (MW) unit of its Ultra Mega Power Project (UMPP) in Mundra.
“This is the final step before commissioning a power generation unit, which will increase its losses and is credit negative Ray Tay, Assistant Vice President – Analyst and Ivy Poon, Associate Analyst, Moody’s Investors Service said in the credit outlook.
In a separate development on January 3, CGPL terminated its power purchase agreements (PPAs) with three distribution companies in Rajasthan after they had repeatedly failed to provide the required payment security under the PPAs.
The distributors subsequently settled all their outstanding payments. By severing the PPAs, 10% of CGPL’s capacity will be available for sale at higher prices – although the added revenue will not be sufficient to offset the profitability drag associated with commissioning the UMPP.
“CGPL’s losses will mount as additional units at the UMPP are commissioned because the company can only partially pass through this coal-fired plant’s fuel costs to customers, given the terms of the PPAs,” the rating agency added.
While the tariff structure for CGPL’s PPAs includes fixed and variable elements, only 45% of the variable portion relating to coal fuel costs can be passed on to customers.
The Mundra project relies entirely on coal imported from Indonesia. The Indonesian government’s directive to export coal at market rates in 2011 exposed CGPL to considerably higher costs than the project contemplated at its inception.
In 2007, TPC won the Mundra project by bidding a 25-year levelised tariff of Rs 2.26 per kilowatt-hour (kWh), which was based on forecasts of coal prices below current market rates.
“Given India’s power deficit, we expect the freed-up capacity to be sold to alternative buyers at prices higher than the PPA tariff,” Moody’s said.
In December 2012, the average wholesale power market tariff was Rs 3.5/kWh, and it had generally stayed above Rs 3/kWh in 2012.
