India's oldest private-sector power producer Tata Power Co. Ltd is focusing on overseas projects as its 4,000 megawatt (MW) Mundra power plant in Gujarat remains stuck in a tariff dispute that has reduced its appetite for domestic projects.
As of February, 70% of Tata Power's project execution was outside India. The company plans to invest $600-700 million in a proposed 1,200 MW power plant in Vietnam. It may seek a partner for the project, which will cost $2.5-3 billion, at a later stage, said Ramesh N. Subramanyam, chief financial officer of Tata Power.
The first phase of its 240 MW wind power project will be commissioned in South Africa in 2016 and 187 MW of new hydropower capacity in Georgia, the former Soviet Republic, in early 2017, said Subramanyam.
"These projects, the company says, have regulated returns. In India, at present, it is very difficult to make money," an analyst from a foreign securities house who tracks the company said on condition of anonymity.
India remains the natural choice and a preferred geography of the power company, which has consolidated debt of around Rs.40,000 crore, according to Subramanyam.
"Our balance sheet is stretched, we have to be careful, but that does not mean we are not looking around (in India)," Subramanyam said in an interview on 15 April.
Tata Power first needs to get the financials of its money-losing Mundra power in order at the earliest.
The Supreme Court on 14 August stayed an order by the Appellate Tribunal for Electricity (Aptel) allowing Tata Power (and Adani Power Ltd) to charge higher prices for electricity produced from their plants in Mundra. The hike was sought to compensate for an increase in the price of coal imports that fuelled the Mundra plant.
An apex court bench directed Aptel to dispose of the matter speedily.
"Losses at Mundra have already eroded Rs.3,817 crore of Tata Power's net worth in the past three years," analysts Chirag Shah and Anuj Upadhyay wrote in a ICICI Securities Ltd's note in February. For the December quarter, the loss due to operations at Mundra was at Rs.243 crore.
Rating agency Standard & Poor's (S&P) on 22 April revised down its rating outlook for Tata Power from positive to stable due to the delay in a final Aptel order on the compensatory tariff plant and pending the receipt of proceeds from the sale of a stake in its Indonesian coal mine.
Tata Power first approached the Central Electricity Regulatory Commission (CERC) for a compensatory tariff in 2012.
"If the legal battle goes longer, the plug has to be pulled on the Mundra plant," said the analyst from the foreign brokerage firm cited above.
Following a drop in coal prices, any new compensatory tariff would be 35 paise per unit lower than the earlier expected 62 paise per unit, according to Subramanyam.
The company raised debt of Rs.13,000 crore for the Mundra plant, of which only Rs.2,500 crore has been paid back.
"We could lower the rating if Tata Power faces difficulty in rolling over its debt maturities or we sense lenders' discomfort that could affect a meaningful part of the company's debt," S&P cautioned in its report.
Subramanyam said standard sponsor support is in place for the Mundra project, as required in any project finance debt.
"We have asked banks to reduce interest rates for Mundra and banks are willing but are wanting finality (on the compensatory tariff order) before taking to their board for approval," said Subramanyam in the interview.
Once there is a final compensatory tariff order, Subramanyam said Tata Power could explore various options. The Reserve Bank of India's (RBI's) new 5/25 rule, which allows commercial banks to extend long-term loans of 20-25 years to match the cash flow of existing infrastructure projects while refinancing them every five or seven years, is one of the options.
In a debt reduction exercise, Tata Power entered into an agreement to sell its 30% stake in the Arutmin mine in Indonesia to a Bakrie Group entity for $500 million in January 2014. In July, another "option agreement" was signed to sell a 5% stake in coal miner PT Kaltim Prima Coal (KPC) to the same group. The concern S&P has raised is that the sale proceeds are yet to trickle in.
Also, Tata Power has not yet decided whether to exercise its option to sell the 5% stake in KPC. "Will need coal from these mines for Trombay (power plant), Mundra (power plant) and for the new plants. Not exiting coal, right now nor looking to sell everything. We have an option of selling a small portion of KPC, not really decided on that," said Subramanyam.