 "Anil Sardana")
With four buyouts thus far in 2014, the power sector is abuzz with activity. But when Tata Power announced the acquisition of Ideal Energy's 540-Mw thermal power project in Maharashtra earlier this month, everybody was surprised, given the company's conservative approach to business.
Promoted by DP Mhaiskar, Ideal Energy had been trying to exit the project for three years now. It had commissioned 270 Mw of the project in May 2013 and was said to have shelved the remaining phase because of coal issues. Controversies over the promoter's alleged links with Nikhil Gadkari, son of Union minister Nitin Gadkari, who held a stake in Ideal Energy till 2011, too had taken their toll on the project's valuations. Besides, the serious problems that the power sector has been facing (shortage of fuel, the poor health of the distribution companies in most states) had made exits difficult for even bigger players like Lanco and Jaypee.
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Details of the acquisition have not been disclosed but with about Rs 6 crore required to put up one megawatt of greenfield generation capacity, Tata Power would have needed around Rs 1,620 crore to put 270 Mw of new capacity. For power generators, capacity alone holds little attraction - the real worth of a power company is its fuel linkage. The advantage in buying the Ideal Energy project at Bela in the Nagpur district lies in the fuel linkage - it has to draw coal from state-owned Coal India. At a time when allocation of captive mines has been cancelled, following allegations of impropriety in their allotment, and given that imported coal is costly to ferry to an inland plant, units like Ideal Energy that have coal supply assurance from Coal India are at a distinct advantage.
The acquisition comes at a time when Tata Power is struggling with tariff related issues for its 4,000-Mw Mundra ultra mega power plant (this is under a subsidiary called Coastal Gujarat Power). Tata Power, on a consolidated basis, has been in the red for four consecutive quarters now, though its losses have been coming down for two quarters. Its losses stood at Rs 32 crore for the quarter ended September 2014. The loss has been primarily on account of high interest burden and low returns from its coal business. Its interest outgo was Rs 980 crore in the quarter ended September 2014, compared to Rs 803 crore in July-September 2013.
Earlier this year, to ease cash flows and reduce its consolidated debt, Tata Power decided to sell its stake in one of its Indonesian coal mines, Arutmin. According to the company, the mine, spread over a number of pits in South Kalimantan, had started posing production and cost viability challenges in its operations. It signed an agreement in January, to sell its entire 30 per cent stake in Arutmin and associated companies in coal trading and infrastructure to the Bakrie group for $510 million. The company did not comment for this report. Tata Power Managing Director Anil Sardana had said the proceeds from the sale would provide cash to meet the company's current challenges.
At that time, the company said it would not sell its stake in Kaltim Prima Coal, another of its coal properties in Indonesia, since it is a part of the group's coal supply chain. However, by July, Tata Power decided to sell 30 per cent shares in Kaltim Prima Coal's related power infrastructure for $250 million. The proceeds would again be used by the company to retire its debt, Tata Power said in a statement to the stock exchanges. The July agreement was also to sell its entire 30 per cent stake in power infrastructure companies related to Kaltim Prima Coal. "The option to partially sell Kaltim Prima Coal and its related power company has the potential to provide the company the flexibility to raise additional funds to meet the current challenges," Sardana had said in a statement. But even after the option is exercised, Tata Power would stay invested in Kaltime Prima Coal mines to the extent of 25 per cent.
A change of plan
The mines were acquired to feed the Mundra UMPP but changes in the Indonesian laws, foreign exchange fluctuation and the drop in earnings from coal mines impacted not just the coal project but also the viability of Mundra tariffs. The Rs 18,000-crore power project has been a drain on the company since it finds it difficult to supply power at a levelised tariff of Rs 2.26 a unit. The company even took an impairment of Rs 2,650 crore because of the project.
Tata Power in February did manage to get a favourable order from the Central Electricity Regulatory Commission on the compensatory tariff of 52 paise a unit for the 4,000 Mw plant. The order also allowed Coastal Gujarat Power to recover Rs 329.45 crore in arrears from five procurers in proportion to their contracted capacity. Though higher tariff would fetch Rs 25,000 crore to the company over the plant's life, the compensatory tariff mechanism is not yet in place because the procurers have gone for an appeal.
Mundra, along with Maithon Power, has contributed substantially to the increase in the company's generation capacity. Tata Power generated 45.21 billion units of power collectively from all its power plants in 2013-2014, an increase of more than 24 per cent over the previous year. Besides thermal, the company also has a significant presence in the clean energy space with gross installed capacity of 1206 Mw, of which 461 Mw is in wind farms and 54 Mw in solar generation. In addition, the company has 447 Mw of hydro and 240 Mw of waste gas-based generation capacity. By 2022, it is aiming to boost production capacity to 18,000 Mw from 8,885 Mw now. But maintaining its position as the country's largest power company in the face of steady loss may not be easy.
