State utilities have asked Tata Power to legally contest the Indonesian government's decree that has raised the cost of coal for its Rs 17,000-crore Mundra project, instead of trying to raise the tariff the company had bid to win the project.
The utilities' resistance to any increase in charges by Tata Power is supported by the Central Electricity Authority (CEA), which has argued in a recent meeting with utilities and the power producer that increase in input costs is a risk the company should bear.
It would be difficult to change the tariff as other companies had lost the race for the ultra mega power project (UMPP) only because they had quoted a higher tariff, an official at a utility said.
"In any competitive bidding process, once a successful developer is selected at a bid price, it would be unfair on the other bidders if higher price is allowed to it at a later stage on any ground," a CEA official is believed to have said in a formal meeting of the project's joint monitoring committee last month, according to official sources.
Implications for Other Projects
The views of the customers and the CEA have implications for other projects that depend on imported coal, including the Krishnapatnam UMPP of Reliance Power, where construction was halted after the Indonesian government decreed that coal can be exported from the country only at international prices. Tata Power's Mundra project is unviable at its contracted tariff of Rs 2.26 per unit and wants to charge more than Rs 3 per unit to make it viable, industry officials said.
State utilities have demanded that Tata Power should first look for a solution in Indonesia. "Any regulation can be challenged in the court of law. We want Tata Power to explore and exhaust all remedies available in Indonesia before coming to us for seeking tariff revision due to increase in coal prices," said an industry official privy to the discussions in the meeting.
Industry sources said Tata Power executives had told representatives of state utilities that the company had contacted the Indonesian government through Indian diplomats, but the firm's international lawyers felt they did not have a case. Tata Power declined comment. "We will not able to participate in this," a spokesperson said in response to an emailed query from ET.
The Association of Power Producers, which represents all major private players in the sector, including Tata Power and Reliance Power, said it was difficult to legally contest the Indonesian decree, which was similar to India's move to tax iron ore exports. "It is the sovereign right of a country to impose duty or other restrictions on export of a strategic material," said the association's director-general, Ashok Khurana, who supports the move to raise tariffs. "The choice is between swallowing a bitter pill now, or sending all projects to the ICU and creating a systemic risk for the banking sector," he said.
Utilities that have signed contracts to buy power from the 4,000 mw project have also argued a company that has acquired stakes in mines in Indonesia to ship coal to an Indian plant would also make strong gains in their mining operations, industry sources said. The utilities buying Mundra's power are from Gujarat, which will purchase 1,900 mw; Maharashtra 800 mw; Punjab 500 mw; Haryana 400 mw; and Rajasthan 400 mw.
Tata Power holds 30% equity stake in major Indonesian thermal coal producers PT Kaltim Prima Coal and PT Arutmin Indonesia, as well as related trading companies owned by PT Bumi Resources Tbk. Officials of state utilities say if a power producer's project in India is hit by higher price of foreign coal, this would be compensated by higher income in its foreign mining venture.
Industry officials, however, say it is not possible to justify losses in one venture on the grounds that another venture is making money because different projects would have a different set of lenders and stakeholders. State utilities say they want clarity on these aspects.
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