Tata Power is set to commission the country’s first ultra mega power project unit this quarter. This comes with the challenge to overcome the rise in fuel cost due to a regulatory change by Indonesia, where it sources coal from and owns mines. The company's Executive Director, Finance, S Ramakrishnan, in an interview with Katya B Naidu and Arijit Barman, tells how they plan to cope with the situation. Edited excerpts:
There are a lot of reports on coal shortages and project delays. How has your project pipeline been affected?
The acute shortage of domestic coal is a concern for the sector as a whole. Only two of our units are based on domestic coal — Jojobera and Maithon. In Jojobera, we also get supply from Tata Steel in case of any deficiencies, but we have not seen any. In Maithon, the railway infrastructure may take six-nine months to get ready. Once that is done, we can import and pass on the fuel costs. The first 800 megawatts (Mw) unit of Mundra should come in by this financial year.
Does Mundra paint a dismal picture with the change in coal import regulations? Indonesia indexed exported coal prices to international prices, and that changes the cost dynamics.
While the Mundra project is on schedule, it may be impacted by changed specifications and cost dynamics, since the law in Indonesia changed. The regulation pulled us back by $500 million in those five years, as compared to a situation where the contracts were honoured. As the coal price goes up, we benefit as owners, and lose as consumers. Our last two years' performance reflects the benefits of coal ownership, without consumption exposure. From now, the coal ownership benefit will be reduced to the extent of consumption.
With mines in Indonesia, we have the hedge in terms of performance of the company. But Mundra, by itself, will lose money. Power developers have requested the government to look into the larger issue of dealing with imported fuels and evolve a mechanism to compensate producers, in rates.
What is the comfort level of bankers on the issue?
We use the dividend from coal mine for Mundra loan servicing. We will pass the benefit of the ownership to Mundra, so that they can financially look after the servicing. It’s a corporate subsidy to Mundra. We are also experimenting with low grade coal to save costs. The savings can be around 20-25 per cent. But efficiency could be affected.
It looks like you have taken care of most of the worries regarding the project. Will you still seek help from the government on Indonesian coal imports?
It is an issue of policy. We say we don't have enough domestic coal and need to import. If we need to have imported coal-based projects, you also have to encourage these. We can set-up imported coal-based projects, if our price increase risk is protected.
More From This Section
In the bidding process for power supply to buyers, imported coal-based projects compete with that of domestic coal. How can they compete? They can never compete. When you make them compete, what do developers do? In their over anxiety, they ignore some of the escalation clauses, and bid. Whether it is Krishnapatnam or in the coast of Gujarat, that is what happens. If you don't fix this problem, will imported coal projects survive and thrive? And, who will set-up these projects?
In this state of flux, does it make sense to go for expansion in Mundra to the tune of 1,600 MW?
It’s a question of what you are going to do. Is India going to stop dead, and stop setting up imported coal-based projects? That's one approach. The other way is to expect a solution would be found, and take a little bit more time. Since the infrastructure is ready, it would be a very competitive project. We are not going to invest the money, until the imported coal policy issue is resolved. We are only planning and getting approvals.
How have the renewables sector performed?
Wind power has done well this year. This year, many of our units generated plant load factors of around 21-23. Some even higher. Last year, they were between 18-19. It's one of those high wind years.
What are your capacity addition plans beyond Mundra and Maithon?
We are working on the 114 Mw Dagachhu hydro power project in partnership with The Royal Government of Bhutan (RGoB). There is another hydro project of 236 Mw in Himachal Pradesh, by Tata Power-SN Power consortium. We are working on a 487 Mw power project for captive use for Tata Steel in Kalinganagar. There is another 660 Mw Naraj Marthapur power project in Orissa, and a 1,980 Mw Tiruldih power project in Jharkhand.
Will you look at buying coal mines, internationally?
Yes. No decision, however, has been taken. We are selectively looking at smaller mines, which produce 6-12 mt a year, in Indonesia and Southern Africa.