Tata Power

Tata Power is India’s largest private power utility. Tata Power has an installed power generation capacity of over 6,900 megawatts (MW), predominantly from coal and hydro power stations though with some from both wind and solar. Tata also has major investments in the Indonesian coal mining companies which supply the company's coal-fired power stations and have the capacity to supply proposed power stations.

While Tata had ambitious plans to add 25,000MW of new predominantly coal plants by 2017 -- a target date later amended to 2020 -- the company has miscalculated their financial viability. In the first half of 2012 Tata found itself in financial distress. The Mundra Ultra Mega Power Project -- a proposed 4000 megawatt (MW) coal plant -- was predicated on cheap imported Indonesian coal. However, a decision by the Indonesian government to require exported coal to sold at or above a price benchmarked against the international price has resulted in the the project becoming financially disastrous for the company. In late May 2012 Tata announced its financial performance for the quarter to the end of March 2012 and the news was grim. Most notable was that the company made a 1800 crore "provision for impairment loss" on the Mundra project due to changes in the fuel costs, "exchange rate variation and other operating costs".

Faced with extreme financial stress, Tata is lobbying the Indian government to ensure the power supply agreements to be renegotiated to allow higher costs to be passed on to consumers. While continuing with Mundra, Tata has announced that it will suspend work on all its other power stations relying on imported coal. This particularly affects the Coastal Maharashtra Project, a proposed 2400 megawatt (MW) coal plant in Maharashtra state. As a result of the company's financial problems, both S&P Poors and Moody's have downgraded the financial rating of the company.

In early 2013 Tata signalled that the focus of its 26,000MW target by 2020 was being changed again, this time to focus on international power station projects in countries such as Indonesia. "There are projects we are developing in joint ventures in Africa and other projects in Southeast Asia and SAARC (South Asian) nations, Turkey and Middle East, which will give us the comfort that we will reach the target," said Anil Sardana, the managing director of Tata Power.

Mundra Ultra Mega Power Project
The Mundra Ultra Mega Power Project (also sometimes referred to as the 'Tata Ultra Mega power project') is currently under construction with one of the five 800 MW units commissioned early in 2012. It is one of nine power stations referred to by the Indian government as "ultra mega" power projects which the government aims to have built by private sector companies before 2017. (See India and coal for an overview of the nine 'ultra mega' coal-fired power project proposals).

The project is proposed to consist of five units of 800 megawatts (MW) each, using coal imported from Indonesia and elsewhere. It is located in the port city of Mundra in the state of Gujarat in India.

The Mundra Ultra Mega Power Project will sell electricity to utilities in five Indian states -- Gujarat, Rajasthan and Maharashtra in western India and Haryana and Punjab in northern India. Sales will be through 25-year take-or-page Power Purchase Agreements.

However, the Power Purchase Agreement Tata Power entered into with the utilities was predicated on low Indonesian coal prices. According to Moody's


 * "tariffs for CGPL's Power Purchase Agreements (PPAs) combine both fixed and variable elements, including fuel costs. The company currently is able to pass through only 45% of the fuel costs to its customers. In addition, the CGPL unit relies entirely on coal imported from Indonesia. Its profitability has been affected by the Indonesian government's directive that coal be sold at market rates, thereby exposing it to considerably higher costs than expected at the inception of the Mundra project. TPC's bid for the Mundra unit was based on the expectation that coal prices would be well below the current market rates. Although TPC has brought its case to the regulator to start renegotiating its PPAs to address fuel-cost risks, progress will take time. The lack of precedents makes it difficult to assess the likely outcome and timeline."

Financial turbulence
In a conference call with investment analysts, company officials noted that the financial provisions for Mundra and deferred costs with its Indonesian mining subsidiary amounted to 2460 crores. "It is a huge sum and we are conscious of the fact that the Mundra as an entity certainly has a difficult and challenging time. The change in coal prices need resolution and we have appealed to stakeholders and the government who have understood the issue in the entire perspective to resolve this issue not just for Tata Power but for various stakeholders who are similarly impacted," the Managing Director of Tata Power, Anil Sardana, told analysts.

The Business Standard stated that the company had been "battered by the huge provision for the 4,000-Mw Mundra power project." In response to its financial crisis Tata has been lobbying the Indian government to allow the increased costs of imported coal to be passed through to customers.

As a part of its lobbying pressure on the Indian government Tata has announced that it will suspend work on all its other power stations relying on imported coal. This particularly affects the Coastal Maharashtra Project, a proposed 2400 megawatt (MW) coal plant in Maharashtra state. "As of now we have put all our imported coal plans on hold," Tata's Chief Financial Officer S. Ramakrishnan told Reuters. The expansion, he said, will be "subject to the (Indian) government coming out with an appropriate policy on how the issue of imported coal price will be handled and how the export restrictions that are being brought in by the export countries ultimately settle."

Standard and Poor's downgrades Tata Power on Tata Mundra's financial problems; Moody's follows
The potential failure of Tata Mundra is posing profound financial problems for the whole Tata Power company and its massive expansion plans. In mid-July 2012 Standard & Poor's downgraded Tata Power's credit rating to negative on the grounds that the breaches of covenants on debt to equity ratios on loans for the Mundra project could result in increased costs for the company. "The availability of loans to the project, which Tata Power's 100%-owned subsidiary Coastal Gujarat Pvt. Ltd. (CGPL) controls, could therefore be limited," said S&P Poor's credit analyst Rajiv Vishwanathan. With the increased possibility that the company would need to fund additional units itself, the commissioning dates of the additional units could be affected.

In late June 2012 Reuters reported that Moody's was reviewing Tata Power and considering a potential rating downgrade. IRIS reported that Moody's "rating action reflects material covenant breaches on bank debt associated with TPC`s Mundra Ultra Mega Power Project (being executed under TPC`s 100% subsidiary Coastal Gujarat or CGPL), and questions relating to the project`s long-term impact on TPC`s financial profile, absent changes to cost or tariff structures. However, the covenant breaches do not constitute a payment default."

The Economic Times reported that Tata Power was in the process of obtaining waivers from several financial institutions. "While waivers are being negotiated, TPC will be subject to curtailment of new draws once it reaches the currently approved level of 83 per cent of the project facility, thereby introducing greater liquidity risk, absent additional bank waivers," Ray Tay, a Moody's Associate Vice President said.

In early October 2012 Moody's announced that it had decided to downgrade its rating for Tata Power from B1 from Ba3. ""The downgrades reflect the deterioration in TPC's credit quality as a result of the impact of weak coal prices on its Indonesian coal mines, as well as the continuing uncertainty related to unresolved bank waivers and the tariff renegotiations for its Mundra Ultra Mega Power Project," Tay stated.

September 2011: Coal shipped to Mundra
Singapore-based shipper Trust Energy Resources, owned by Tata Power, commenced shipping coal to Mundra in September 2011. The plant will contract its coal from Tata’s coal mines in Indonesia, where it owns 30% of PT Bumi Resources. The mines are producing around 60Mt of coal and will scale up to 75Mt by end-2012. Executive director of Tata Power, S Ramakrishnan, said the project’s coal requirement is around 2Mt. At the start of January 2012, one 800MW plant will go online every 3-4 months, until the entire plant is up-and-running by mid-2013.

Proposed plants
In a January 2012 interview, Executive Director Finance, S Ramakrishnan said Tata Power is planning the following power projects: "We are working on a 487 Mw power project for captive use for Tata Steel in Kalinganagar. There is another 660 Mw Naraj Marthapur power project in Orissa, and a 1,980 Mw Tiruldih Power Project in Jharkhand."

Columns may be sorted by clicking on the headers.

Proposed international coal plants

 * Long Phu 2 Thermal Power Plant, Vietnam

International coal mines
In March 2007 Tata Power purchased a 30% stake in two coal mines owned by Bumi Resources --PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia (Arutmin). The deal was for approximately US$1.3 billion of which $1.1 billion was the base price. Announcing the deal, Bumi stated that Tata Power had entered into a "long term" coal off-take agreement with KPC "for the supply of approximately 10 million tonnes per annum at index linked prices for its power plant at Trombay in India as well as for future power projects, including the recently won Ultra Mega Power Project of 4,000MW at Mundra in India." At the time, Tata's acquisition was backed by UK's Barclays Bank. A mid-2012 new report stated that while Tata Power was only taking 3 million tonnes a year under the off-take agreement it provided for up to 40 million tonnes a year from the two mines.

In January 2011, Tata Power said it was negotiating to refinance debt of $270 million, raised to buy assets of Bumi Resources and coal mine acquisitions in Indonesia and Africa. It may also increase its stake in the Bumi assets.

However, the following year Tata's financial troubles had deepened. In May 2012 Livemint.com reported that the company had disclosed that "certain financial covenants in respect of loans taken by CGPL" were not met by the end of 2011-12. "These (covenants) are financial ratios defined in the loan agreements. Due to the impairment charge and foreign exchange fluctuations, some of these ratios are different (from what they should be)," said S. Ramakrishnan, the executive director (finance) at Tata Power. Ramakrishnan stated that the company was was seeking a waiver of the covenants by the lenders.

The company stated that in a bid to "provide protection" to CGPL and bolster its cash flow Tata Power stated that it planned to transfer to it at least 75% of its equity interest in the Indonesian coal units and “continue to evaluate other alternative options”. According to Ramakrishnan CGPL's lenders were concerned that income from power sale would not be enough to service the Rs.14,000 crore loans for the debt component of the power station. The remaining 25% share of the project cost is to be met through equity. While Ramakrishnan claimed that the move "gives comfort" to lenders while an Indian investment analyst, commenting on condition of anonymity, stated that CGPL is “is doomed to fail unless the power tariff agreements are renegotiated”.

Shortly afterwards Tata Power Executive Director (Operations) S Padmanabhan stated that "given the demand for the fuel for our Power plants and shortage of domestically produced coal, we have to depend on imports. We are looking at Indonesia and South Africa for acquiring coal mines." told in an interview here.

In November 2012 Tata Power announced that it had bought a 26% stake in PT Baramulti Suksessarana Tbk ("BSSR") in Indonesia. In a media release Tata stated that "PT Antang Gunung Meratus ("AGM"), a 100% subsidiary of the BSSR, and BSSR together own approximately 1 billion tonnes of coal resources in South and East Kalimantan." The company stated that "we recognize fuel security is key to support Tata Power's growth agenda. ... This acquisition would aim to support our power generation projects in select geographies, to be developed over next few years." The company stated that as part of the purchase the company can "purchase about 10 million tonnes of coal per annum."

Coal-to-liquids project
In March 2009, the Indian government announced that it had awarded two coal blocks for the development of two different coal-to-liquids projects in the state of Orissa. One of them was the north Arkhapal coal block to Strategic Energy Technology Systems Ltd, a 50:50 joint venture between the Tata Power and Sasol Synfuels International, the international synfuels subsidiary of Sasol. It is projected that the $10 billion. plant would produce 80,000 barrels of crude oil a day. In early 2010 Orissa's Chief minister Naveen Patnaik told reporters that "though we have not identified the location, the proposed plant will be somewhere in the state." It was also reported that the coal would come from the Srirampur area in Talcher. The Business Standard also stated that the project "requires 3,000 acre of land for its main plant, additional land would be required for setting up coal mines, benefication plants, coal handling plants, water reservoirs, power plants and a township" and would involved the establishment of a 1600 megawatt power station. The newspaper also reported that the joint venture was "yet to make a formal application" for the plant the company was pressing the state government "to provide adequate facilities for early commissioning of the project." (See Srirampur Coal-to-Liquids Project for more details).

Directors
Accessed February 2009:


 * Ratan Naval Tata - Chair
 * Syamal Gupta
 * Ramabadran Gopalakrishnan
 * Homiar Sorabji Vachha
 * Ram Krishna Misra
 * Adi Jehangir Engineer
 * Nawshir Hoshang Mirza
 * Deepak M Satwalekar
 * Ramchandra H Patil
 * Piyush G Mankad
 * Prasad Raghava Menon
 * Sowmyan Ramakrishnan
 * Sankaranarayanan Padmanabhan
 * Banmali Agrawala

Contact
Bombay House 24, Homi Mody Street Mumbai - 400 001, INDIA. Tel: (91 22) 6665 8282 Fax: (91 22) 6665 8801 Web: http://www.tatapower.com

Related SourceWatch articles

 * India and coal
 * Gerry Grove-White

External articles

 * Bhuma Shrivastava, "Tata Power restructures assets to placate lenders", Live Mint.com, May 29 2012.
 * Katya B Naidu, "Tata Power to go for 'easy regulation' nations", Business Standard, June 13, 2012.
 * "Tata Power may build more imported-coal based projects", The Economic Times, June 15, 2012.
 * Shyamal Majumdar & Katya Naidu, "Why state electricity boards are facing a big crisis", Business Standard, June 15, 2012.