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Home News Power Sector News Gujarat against raising tariff at Mundra UMPP

Gujarat against raising tariff at Mundra UMPP

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GujaratThe Gujarat government has refused to consider any move to allow a higher tariff at Tata Power​ Co. Ltd's 4,000 megawatt (MW) Mundra power project, two units of which are expected to be commissioned by March next year. This may affect the financial viability of the project because its fuel costs are set to be higher than seen earlier. While developers factor in risk before placing bids for big power plants such as Mundra that would be fired by imported coal, experts are of the opinion that there will be muted interest in similar projects such as the one proposed in Cheyyur, Tamil Nadu, if developers are not allowed to raise tariff on higher input costs due to a change in overseas law or regulations.

Tata Power, which has been lobbying the Union power ministry in pursuit of a higher tariff, acquired a 30% stake in two coal mining units and a trading company from Indonesia's PT Bumi Resources Tbk for $1.1 billion in 2007 to source fuel for the Mundra plant. But Indonesia has stipulated that starting 23 September, the coal that the country produces will be pegged at prevailing international prices.

"They (Tata Power) have written a letter to the Union power minister to call a meeting for discussion on the issue," said Saurabh Patel, Gujarat's energy minister. "The centre then wrote a letter to the Gujarat government to call a meeting of all procurer state governments since we are the major procurer of power (1,900MW). We have flatly refused it. Tata Power had asked for fuel increase as a pass through."

The other states that will buy power from the plant are Maharashtra (800MW), Punjab (500MW), Haryana (400MW) and Rajasthan (400MW). Mint could not contact the power ministers of these states by the time of going to press.

"The financial position of the Mundra projects was done on the basis of certain assumption of coal prices. A new regulation in Indonesia...makes it mandatory for all the coal companies in the island nation to sell coal at prevailing international (benchmark) prices. This move will impact the margins of power generation due to the fuel being secured from Indonesia," said an external spokesperson for Tata Power.

The chief executive officer of Coastal Gujarat Power Ltd, a special purpose vehicle (SPV) of Tata Power, has kept the Union government and the concerned state governments aware of the changed situation, the spokesperson added.

The progress till the end of March 2011 was approximately 77%, with total capital commitments of 100% of total equipment ordering and a total actual expenditure of Rs. 13,166 crore. The total estimated cost of the project is Rs. 17,500 crore.

The debt-equity ratio is 3:1 (75%-25%). The financing comprises equity of Rs. 4,250 crore, external commercial borrowings of up to $1.8 billion, and rupee loans of up to Rs. 5,550 crore, according to the external spokesperson.

The states are to buy power at Rs. 2.26 per unit, according to the power purchase agreements that have been signed.

"We have written to the centre. Why should the state get involved? UMPP (ultra-mega power project) is the centre's project and they have bid it out," Patel said. "If imported coal is the issue, then the government of India should take the issue up with the Indonesian government."

Tata Power may struggle to keep the project viable given the volatility of the market, said two industry experts, on condition of anonymity.

UMPPs follow a competitive tariff-based bidding process in which an SPV is set up to reduce risk perceptions and increase investor confidence. The SPV takes care of regulatory requirements such as land acquisition and environmental clearances, and transfers these to the winning bidder.

The Union government has distanced itself from the issue.

"It is between the developer and the procurers and has got nothing to do with us. We had advised the developer to take up the issue with the procurers," said a top power ministry official, who did not want to be identified.

A top executive of Power Finance Corp. Ltd, the nodal agency appointed for the award of such large projects, said: "Our job was to bid out the SPV, which we have done. Beyond that it is between the developers and the procurers."

The UMPP programme has had its share of problems, with ecological concerns and local resistance. The government wants to set up 16 UMPPs to meet the needs of the world's second-fastest growing major economy after China. Of these, four have been already awarded. India has a power generation capacity of 180,000MW and expects to add 62,374MW by 2012.

Source- Livemint

 

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