Tata Power proposes to sell 51% equity in loss-making Mundra UMPP at Re 1

Saddled with losses, Tata Power has approached the ministry of power and Gujarat Urja Vikas Nigam Limited (GUVNL) to sell 51 per cent equity in the 4,000-Mw Mundra Ultra Mega Power Project (UMPP) to them. Tata Power has offered a price of Re 1 for writing off the UMPP from its books.

In a letter written to GUVNL, also marked to the ministry of power’s secretary, the chief secretary to the Gujarat government, and the principal secretary to the prime minister, Coastal Gujarat Power Limited (CGPL) has suggested two options – renegotiating the power purchase agreement and selling equity. CGPL is the holding company for the UMPP.

“The procurers take over 51 per cent paid-up equity shares of CGPL for a nominal value of Re 1 and grant relief to the project by purchasing power at a rate to fully address the under-recovery of fuel costs at CGPL. Tata Power shall continue to operate the plant under an O&M (operation and maintenance) contract and provide all required support to the project as a 49 per cent stakeholder,” said the letter reviewed by Business Standard.

 

This comes at a time when the Tata Sons board is questioning the company on why it had to go ahead with its investments in Mundra when it knew the plant would not be viable at the cost structure present in 2008.

A senior government official said that in a meeting chaired by the Minister of State for power, Piyush Goyal, with bankers and state government representatives, a committee of banks has been set up to look into the imported coal-based projects which have been hit by the adverse judgement on compensatory tariff. “The government has clarified that it will act as a facilitator. It’s the banks and the states that are procuring power from these units that will take the final decision,” said an official. The State Bank of India would lead the committee.

He added that the meeting was attended by banks, lenders, the Power Finance Corporation, the Rural Electrification Corporation, and the chief secretaries of Gujarat, Punjab, Haryana, and Rajasthan, along with representative from Tata Power, Adani Power, and Essar Power.

Sources said that Tata Power was also contemplating retrofitting its Mundra plant to suit domestic coal so that the capacities could be utilised to supply power to neighbouring countries such as Bangladesh. This is in line with the new coal linkage policy, which will offer coal supply to imported coal-based projects as well.

“Certain sections of investors have been informed about the possibility of having to take a full write-off of investments made in Mundra UMPP. Lenders have expressed their dissent in wanting to fund even the working capital needs of the plant post the Supreme Court order,” said an executive requesting anonymity.

The accumulated losses of CGPL is to the tune of Rs 6,547 crore and with a paid-up equity of Rs 6,083 crore. In a project outlay of about Rs 17,900 crore, CGPL has a total outstanding long-term loan of Rs 10,159 crore and an additional loan of Rs 4,460 crore taken by Tata Power to meet CGPL’s cash requirements.

In its letter, Tata Power also informed that the project lenders have stopped disbursal of loans beyond what is already disbursed due to non-viability of Mundra UMPP. “Due to cash losses, CGPL has gone into a breach of covenants and, after much effort, the project lenders have given an extension of time to meet the covenants, but now there is no hope to correct the situation. Due to continuous cash losses and downgrade from credit agencies, CGPL has lost its ability to arrange from financial institutions its short-term funding/working capital requirements for its day to day operations,” said the letter.

In April this year, the Supreme Court disallowed any grounds of relief to Tata Power and Adani Power in the five-year-old contentious issue of compensation for their respective power plants.

The matter pertains to the 4,000-Mw Ultra Mega Power Plant of Tata Power (Coastal Gujarat Power Limited, or CGPL) in Mundra, Gujarat, and the 1,980-Mw power plant of Adani Power at the same location, both of which are based on imported coal being sourced from Indonesia.

The case was being fought between the two companies with the state utilities of Gujarat, Rajasthan, Maharashtra, Punjab, and Haryana.

The case was regarding pass-through of cost escalation due to change in imported coal prices and regulations in the Indonesian coal market. According to the directions of the Appellate Tribunal of Electricity (APTEL) and the apex court, the Central Electricity Regulatory Commission (CERC) computed the relief for the two companies in its order dated December 2016.

But the apex court set aside the judgement of both APTEL and CERC, hence quashing any relief. It has directed CERC to “go into the matter afresh and determine what relief should be granted to those power generators who fall within clause 13 of the PPA as has been held by us in this judgment.” CERC is yet to compute the same.

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Tata Power proposes to sell 51% equity in loss-making Mundra UMPP at Re 1

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