Tata Power's ambitious plan to generate 25,000 MW, with about Rs 1 lakh crore investment, will largely depend on sale price of electricity from its 4,000-MW Mundra project amid concerns that its costs could become commercially unviable due to higher price of coal.
The Tata Group firm is staring at an annual loss of Rs 500 crore from the very first year of Mundra Ultra Mega Power Project's operations, as higher prices of coal, which was to be imported from Indonesia, have derailed the company's cost calculations.
"Now all our investment portfolio will depend on decision on solution to Mundra UMPP. We are very clear that unless this issue is settled, we should not decide as far as our future capacity addition is concerned," Tata Power Managing Director Anil Sardana told PTI.
At current coal prices, the cost per unit of electricity generated from Rs 17,000 crore Mundra UMPP, would go up by 60 to 65 paise from the present tariff -- fixed at Rs 2.26 per unit through competitive bidding in 2006.
"Suppose at current price of USD 120 per tonne, we will have huge losses in the variable side and which could mean that we will have a first-year loss of Rs 500 crore," Sardana said.
The Tata Group firm, which currently has power generation capacity of 3,797 MW, has ambitious plans for 25,000 MW capacity by 2017. Of this, 4,000 MW will come from Mundra, the first Ultra Mega Power Project (UMPP) in the country.
According to industry standards of Rs 4-5 crore cost for 1 MW power generation, the company would require investments of Rs 85,000 crore to Rs 1,00,000 crore to achieve the target.
However, a new Indonesian law has deprived the Tatas from the cost advantage on coal imports from the East-Asian country as it will not be able to source the Indonesian coal at discounted rates.
The Indonesian Coal Price Regulation (ICPR) of last year requires benchmarking of coal sales to an index-based price linked to global rates and entailed the modification of all sale contracts by September, 2011.
This has restricted mining companies from selling any coal below the set minimum price, unlike previously, when the prices were determined mutually by buyers and sellers.
Tata Power has sought a meeting with all the buyer states and the Centre by month-end to find a solution, Sardana said, adding that "they (the buyers) have to find out the answers. We don't know what view they will take".
Five state, Gujarat, Maharashtra, Punjab, Haryana and Rajasthan, are to buy power from the Mundra UMPP. The options before Tata Power include increasing the tariffs or getting compensated by the buyer states among others.
"We will decide our future strategy and investments in India according to the outcome of the issue," he added.
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