Tata Power says loans for Mundra plant almost secured

Tata Power Ltd, India's third- biggest utility by value, is close to securing all the loans needed to build a $4.2 billion (about Rs 1,600 crore) plant in India to meet electricity demand.

The company plans to borrow from lenders including South Korea's Exim Bank and the Asian Development Bank to build a 4,000 mw, coal-fired generator in Mundra on the west coast, said Ashok Mitra, chief financial officer of PT Kaltim Prima Coal. Kaltim is a unit of Indonesia's PT Bumi Resources, in which Tata Power has a 30 per cent stake.

"We will fund 75 per cent of the cost by debt," Mitra said in an interview today. The Mundra plant is part of Tata Power's plan to add more than 9,350 mw of capacity to gain from rising electricity demand in Asia's third-largest economy. India's economic growth of more than 8 per cent in the past four years has caused power demand to exceed supply, leading to blackouts.

"India's power market is very price sensitive," T N Thakur, chairman of PTC India Ltd, said in an interview in Singapore today. "Utilities are unable to offer high-cost power in India."

The power producer last year agreed to pay $1.3 billion (about Rs 520 crore) for a 30 per cent stake of two coal mining units in Indonesia to secure supplies of the fuel.

"We have tied up supplies for 25 years from Indonesia at prices linked to our electricity price," Mitra said today. "Securing coal supplies at competitive prices is critical for large power plants."

Tata Power has set up a company in Singapore that will buy and lease ships to transport coal between Indonesia and the power plant, Mitra said.

"Freight costs are pretty high at the moment and having a shipping unit of their own will give the company significant control over a major cost," Anjan Ghosh of ICRA Ltd, an affiliate of Moody's Investors Service, said today. "We may actually see other companies following similar strategies to cut costs in the case of ultra mega projects."

Land for the plant has been acquired and construction will begin by October, he said. Tata Power has placed orders to buy boilers from Doosan Corp and turbines from Toshiba Corp.

The ADB may buy shares in the Mundra project, Mitra said.

Tata Power gained over one per cent on Wednesday to close at Rs 1,187.05 on Wednesday.

The Mundra plant in Gujarat state is one of three projects of 4,000 mw each that the government has awarded. The government plans 12 of these so-called ultra mega projects to meet a shortfall in electricity.