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Tata Power Company (TPC) stands to benefit from the latest compensatory tariff allowed by power sector regulator Central Electricity Regulatory Commission (CERC) for the company Mundra UltraMega Power Project (UMPP) in Gujarat, according to ratings agency Moody’s.
CERC had on 21 February allowed TPC 52 paise per unit tariff over and above the project’s levelized tariff of Rs 2.26 per unit as compensation for loss incurred due to change in Indonesian coal regulations in 2011.
The company took around Rs 1,800 crore impairment on the Mundra investment in 2011-12 followed by Rs 8,500 crore impairment last fiscal.“The tariff increase will reduce Coastal Gujarat Power Ltd (CGPL)’sfinancial losses and benefit TPC’s credit quality.
CGPL is a material part of TPC group and its debt accounted for approximately 30% of total consolidated debt as of 31 March 2013,” Moody’s Investor Service said in itscredit outlook for Tata Power today.
The tariff increase will be effective retroactively from April 1, 2013. In addition, the regulator also ordered CGPL’s customers to pay back losses incurred by the company in 2012-13 through 36 monthly installments.
Moody’s,however, added in case the state distribution companies appeal the committee’s decision through the Appellate Tribunal and subsequently, the Supreme Court, tariff increase could be delayed.
CGPL owns and operates the 4,000 Megawatt project won by TPC in 2007. CGPL can only partially pass on fuel costs to customers. While the tariff structure for CGPL’s power purchase agreements includes fixed and variable elements, only 45% of the variable portion relating to coal fuel costs can be passed onto customers.
The CGPL 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 it expected at the project’s inception.
CGPLfiled its petition with CERC to seek tariff revisions under the power purchase agreements to allow it to pass through the higher costs arising from the 2011 Indonesian government directive. CGPL’s total capacity of 4,000 megawatts was commissioned in five stages, with the last 800-Mw unit fully commissioned in March 2013. TPC has a total installed generation capacity of 8,560 megawatts.
