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Home News Power Sector News Tata Power agreeable to breakeven tariff for Mundra project

Tata Power agreeable to breakeven tariff for Mundra project

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Mundra UMPP"Absolutely. No issues." This was Tata Power Ltd MD and CEO Anil Sardana's response when asked if the company is willing to settle for a tariff for the 4,000 MW Mundra project that will just cover costs and leave the company with no profits.

The Supreme Court is scheduled to hear next week the issue of awarding a compensatory tariff to Tata Power-owned Coastal Gujarat Power Ltd (CGPL), which operates the Mundra ultra mega power project (as well as a similar project of the Adani Group).

The outcome of the apex court's order will put an end to an issue that began in 2010, when the Indonesian government changed the regulations relating to pricing of coal mined there, effectively increasing the cost of coal fed to the Mundra project. Since then, parties on either side, viz, CGPL and the bunch of electricity distribution companies that would buy CGPL's power, have taken the matter to the Central Electricity Regulatory Commission (CERC) and the Appellate Tribunal for Electricity (APTEL).

Tata Power won the mandate to set up the Mundra project through a competitive bidding process in 2006, quoting a tariff of ₹2.26 a kWh. After the change in regulations in Indonesia, it sought a compensatory tariff raise to defray the higher cost of coal.

If Tata Power wins, as it did in CERC and APTEL, it would mean life for the 4,000 MW power project; conversely, a failure at the Supreme Court might mean shutters down for the project.

When BusinessLine caught up with Sardana in Bengaluru on the sidelines of the inauguration of the expanded facilities of Tata Power Solar, he agreed with the view that the compensatory tariff could be fixed at a level that lets the company only recover costs, but allows no profits.

"I am willing to go one step more," Sardana said, adding that the company is willing to extend the term of the power purchase agreement (PPA) beyond the agreed 25 years so that the consumer will be compensated for the higher price of electricity he pays on account of the compensatory tariff. "I will extend the PPA term to give consumer cheaper power even after the 25 years are over," he said.

Sardana agreed that the sanctity of bids should be maintained. "But what can you do? You tie up for coal on a long-term basis, put your investments, but the country changes rules," he observed.

Tata Power has requested the Indian government to impress upon Indonesia to exempt the company's coal contracts from the purview of the changed regulations, but the former took the view that it is too small a business proposition for "diplomatic reasons", he added.

If it had happened only in Indonesia, we could have gone to another country, he said, noting that even Australia and South Africa had made similar changes in their regulations. Between them, Australia, South Africa and Indonesia control 99 per cent of seaborne coal. "Where do you source coal from?"

In documents submitted to the courts, Tata Power has said it will lose ₹47,500 crore over the 25-year term if it has to supply power at the agreed rate of ₹2.26 a kWh. Even if a compensatory raise is added to the tariff, it will work out to ₹2.50-2.60 a kWh, which is "still the cheapest".
Coal vs renewable

Asked if Tata Power believes it is the end of the road for coal power, Sardana pointed out that Tata Power has not added any coal power capacity in the last six years. All the capacity additions in that period came only from hydro, wind and solar, he said, noting that, with 3,050 MW of operating capacity, Tata Power (with its arms) is the largest renewable energy company in India.

However, the company has "not taken a vow" to add no coal power capacity. The company will not take such a decision unless it is confident that storage systems, which can store electricity produced by wind and solar, are reliable and cheap.

Source- The Hindu

 

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