‘New resolution may help cut Mundra losses by half’

The Supreme Court on Monday directed the Central Electricity Regulatory Commission (CERC) to relook power-purchase agreements (PPAs) signed by states with Tata Power, Essar Power, and Adani Power for a power unit in Gujarat’s Mundra.

PRAVEER SINHA, chief executive officer and managing director of Tata Power, tells Amritha Pillay that he expects the new resolution will help cut down Mundra losses by half. Edited excerpts:

How did various stakeholders in the project arrive at the latest resolution?

A committee was formed and asked to examine various things. It met a number of times and heard all stakeholders. To be fair, they said not only should coal be a pass-through, which is the practice, but producers should also take a hit. They said we take a hit on the finance cost and profits. For example, though we have just a 30 per cent stake in the coal mine, we take into account 100 per cent benefit on profit (from the coal mine). Similarly, when the PPA is extended from 25 years to 35, the plant is fully depreciated; there is no other fixed cost, except some operational cost. So it is beneficial for the states as power will be available at variable cost. The increased capacity utilisation will also be made available at variable cost and, thus, reducing the average cost paid for the entire capacity.

How much does it help Tata Power reduce its Mundra plant’s per unit under-recovery?

Our current under-recovery is at 90 paise per unit, and may help reduce it by 50 per cent, so roughly 40 to 45 paise per unit. There is also another benefit coming in from increasing the capacity utilised, in the form of an extra 10 per cent of plant load factor.

Are lenders to the Mundra project willing to take a haircut?

Banks so far have not mentioned anything. We need to negotiate it with them.

What is the accumulated loss on account of Mundra so far and how does this change in the light of the latest Supreme Court order?

The accumulated loss is at ~90 billion and we have already provided for what was required. We do not know what the final supplementary PPA is, so it is difficult at this stage to estimate what the change would be. If we were making X number of losses, we may be half of it.

What is your expected timeline for the resolution?

The court has given eight weeks, and within this time states need to get necessary approvals from their respective cabinets and approach CERC, which has to clear it.

Are all states on board for this resolution?

During a consultation process, they have shared their views. Now that the final report has come, the states will have to go to their respective cabinets and come back on it.

Is there a possibility that one PPA with a particular state gets revised, for instance Gujarat, in the event of not all five states agreeing to it?

The PPA is similar with all states and all of them need to get revised. But of course, the PPA has a lead procurer and there is certain responsibility with Gujarat.

Mundra has been a major concern for the company with a resolution in the offing. What is the larger business strategy for Tata Power?

The remaining parts of the business are stable and only improving. There are certain things which happen and are not in our control, like issues with coal supply to Maithon unit, which has now been taken care of, some orders for Tata Solar were pending. Other than these market-driven problems, our business has been stable.

What is your target for expansion in the renewable space?

The renewable portfolio is expanding, we keep on bidding regularly and it is expected to expand by about 1,000 megawatt every year. Today, renewable is becoming very popular and competitive. Going forward, we will have more renewable and less thermal in terms of new capacity additions.

What is the update on the sale proceeds for the Indonesia mine stake?

We got $22 million in the past six months. At present, we are at $150 million, and the remaining $250 million should come in the next two years. The partner has come out of a huge financial crisis it was in. So, we should see payments coming in.