Uncertainty looms over Tata Power’s Mundra project

Indian private-sector utility Tata Power has threatened to shut its loss-making 4GW Mundra coal-fired power plant, unless the company is allowed to raise tariffs.

Tata's Coastal Gujarat Power (CGPL) subsidiary, which operates the plant, has already served closure notices to five Indian states that buy electricity from the plant, seeking amendments to long-term electricity supply contracts to pave the way for tariff revisions.

CGPL expects a decision by tomorrow, although the plant, which runs on imported coal, is currently operating normally, Tata said.

Of the five states only Gujarat has approved the amendment to its 2007 supply contract. Haryana, Rajasthan, Punjab and Maharashtra states have not made a decision, despite Tata wanting to ensure the plant's future viability

Tata previously planned to shut the plant progressively from 11 March but decided to postpone the closure, citing "positive discussions" among stakeholders earlier this month.

India's power ministry, which is leading the discussions, did not respond to a request for comment. Tata is expected to release an update tomorrow.

The Mundra plant has been running at a loss after a 2012 regulatory change in Indonesia required suppliers to sell coal at a regulated benchmark price, which raised Tata's coal costs. The regulatory change resulted in imported coal prices rising by as much as 150-200pc from the time when Tata began the bidding process for the project in 2006, the company said in 2015.

The steep increase in costs prompted Tata to petition India's power ministry, approach the Central Electricity Regulatory Commission (CERC) and take court action to try and resolve the issue while also engaging with the relevant states. If and when the state governments approve the amendment to the contracts, CERC will be required to give a final approval to the changes.

The plant started operations in 2012, while its five 800MW units began commercial operations the following year.

The plant's losses narrowed in October-December 2019 to 1.64bn rupees ($21.8mn) from Rs4.64bn a year earlier, helped partly by lower coal prices at the time, the company said. But its losses in the 2018-19 fiscal year that ended 31 March increased by 15.1pc from a year earlier to Rs17.2bn.

CGPL won the bid to develop the Mundra plant in 2006 and the following year entered into 25-year supply contracts with the five states, with prevailing tariffs based on its winning bid for the project.

By Saurabh Chaturvedi

source: Argus Media