Tata Mundra Ultra Mega Power Project

The Tata Mundra Ultra Mega Power Project (also sometimes referred to as the 'Mundra Ultra Mega Power Project') is a 4000 megawatt (MW) power station, comprising five 800MW units. The first unit was commissioned in March 2012, the second in July 2012, the third in October 2012, the fourth in January 2013 and the fifth and last unit in March 2013. The power station is located in Gujarat, India.

Location
The undated satellite photo below shows the project.

Background
The power station is owned by Coastal Gujarat Power Limited (CGPL), a wholly owned subsidiary of Tata Power. The power station is located south of Tunda Wand village in Mundra Taluka, Kutch district of Gujarat, India.

The power station is one of nine Ultra Mega Power Projects the Indian government wants to be built by private sector companies before 2017. The first 800 MW generating unit was commissioned in March 2012 The second 800MW unit was commissioned in July 2012. Units 3-5 are projected by the Central Electricity Authority to be commissioned in 2013.

Project Details
Sponsor: Coastal Gujarat Power Limited (CGPL), a wholly owned subsidiary of Tata Power Company Limited Location: south of Tunda Wand village in Mundra Taluka, Kutch district of Gujarat, India Coordinates: 22.8158, 69.5281 Status: Unit 1: Commissioned February 2012 ; Unit 2: Commissioned July 2012 ; Unit 3: Commissioned October 2012; Unit 4: commissioned January 2013 Unit 5: commissioned March 2013. Nameplate capacity: 4,000 MW (5 units, each 800 MW) Type: Supercritical Projected in service: 2013 Coal Type: Coal Source: Indonesia and elsewhere Estimated annual CO2: Source of financing: With an estimated total project cost of US$ 4.14 billion, the IFC is providing a $450 million loan and $50 million in equity, as well as syndicating up to about $300 million in B loans. Other financial institutions funding the project are the Export-Import Bank of Korea, Asian Development Bank, India Infrastructure Finance Company Ltd., Housing and Urban Development Corporation Ltd., Oriental Bank of Commerce, Vijaya Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Travancore, the State Bank of Indore and other local banks. Users: The 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. Initial Projected Costs: As of March 2008, projected costs cited by the International Finance Corporation (IFC), the World Bank’s private sector lending arm, were $4.14 billion, implying a 25-year levelised tariff of INR2.26 per kWh. Those estimates are considerably lower than estimates for other proposed supercritical plants. In 2012 Tata stated that the cost of production is Rs. 2.9 per kilowatt hour and is seeking to renegotiate the Power Purchase Agreements.

Coal Source
Singapore-based shipper Trust Energy Resources, owned by India's Tata Power, commenced shipping coal to the Mundra Ultra Mega Power Project 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 60 million tonnes of coal and will scale up to 75 million tonnes by end-2012. Executive director of Tata Power, S Ramakrishnan, said the project’s coal requirement is around 2 million tonnes. 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.

In an April 2012 investor presentation stated that it has a coal offtake agreement "with Indocoal for 10.11MTPA (±20%)."

Citizen protest
In May 2011, a group known as Machimar Adhikar Sangharsh Sangathan (MASS) filed a collective protest against the Tata Ultra Mega Power Plant project, saying there are high risks to the project without proper mitigation and accountability measures. The group has filed a complaint aginst the IFC, whose financing of high-risk coal plants in India faces community resistance. The IFC's Compliance Advisor Ombudsman (CAO) has accepted a complaint against the Plant in Mundra, Gujarat. CAO is the independent body of IFC that handles disputes and compliance issues with its investments.

MASS says the plant is located in the special economic zone (SEZ) that cuts across fishing grounds, habitat of diverse marine lives and wide expanse of farm land, and that the project’s social impact assessment is significantly flawed, as fishing communities were excluded from the list of those directly impacted and IFC green lighted the loan without a cumulative impact assessment. The MASS complaint came two months after villagers in Odisha state formally challenged IFC’s funding for the GMR Kamalanga Energy Limited.

In June 2011, a complaint representing various potentially affected fishing communities was also filed with the CAO, raising issues of environmental and health hazards and displacement.

Financing
With an estimated total project cost of US$ 4.14 billion, the IFC is providing a $450 million loan and $50 million in equity, as well as syndicating up to about $300 million in B loans. Other financial institutions funding the project are the Export-Import Bank of Korea, Asian Development Bank, India Infrastructure Finance Company Ltd., Housing and Urban Development Corporation Ltd., Oriental Bank of Commerce, Vijaya Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Travancore, the State Bank of Indore and other local banks.

The IFC has stated that it is financially supporting the project because it:
 * "is the first private sector power project in India to be based on the energy efficient supercritical technology. The use of this technology in this plant will help reduce the average Green House Gases (GHG) emissions of Indian power plants per unit of electricity generated in the country. Based on the new technology and other measures being taken by the company, the project will meet the IFC social and environmental Performance Standards. This is also IFC’s first financing of a supercritical plant anywhere in the world." (See financing section below for more details).

In defending its 2008 decision to invest in the plant, the IFC stated that:
 * "The project will provide a competitive source of electricity to partly reduce the current power shortages and help meet the growing demand for electricity in the country. Cheap and reliable power from the project will help in improving the competitiveness of Indian manufacturing and services industries which have to often rely on expensive standby diesel generation to fulfill their power needs. Competitively priced power will also improve access to electricity in rural and urban areas of the country while reducing the subsidy burden on state governments. Therefore, the project will have significant impact not only in terms of reducing the prevalent demand supply gap but in reducing the average electricity costs in the country leading to improved access and industrial competitiveness…The project will contribute to enhanced access to electricity through supply of cheap and reliable power."

On its website the IFC makes clear that its funding was crucial for allowing the project to proceed. The IFC stated that "the project has large debt financing need in excess of $3 billion which the local banks will find difficult to fulfill."

The IFC also stated that it saw the benefits of its investment in terms of both reducing the risk profile of both the specific Tata Mundra project as well as the Indian power sector generally. The IFC stated that the project:


 * "needs long term financing to achieve financial closure with reasonable comfort to lenders. While Indian local banks are able to provide financing with door to door tenors of about 15 years for this project, IFC will provide its debt with much longer tenor of about 20 years and higher average maturity than the local banks. This will enable the project to be structured in a way which will reduce its risk profile and enable it to attract more foreign and local bank financing. The significantly longer tenor of IFC loan will further improve the risk profile of the Indian power sector and enable it to attract international financing in the future."

The IFC's dream of 'cheap power' evaporates
Before the first unit of the power project was even commissioned, the economic viability of the project had collapsed. One significant factor was the mid-2011 decision of the Indonesian government to require coal exporters to sell coal at or above a specified rate after September 23, 2011. The Indonesian government policy is to align the export price with the international price, which has skyrocketed in recent years due to surging demand and tight supplies.

Tata's customers -- the states of Gujarat (which will buy 1,900MW), Maharashtra (800MW), Punjab (500MW) and Rajasthan (400MW) and Haryana (400MW) -- have told Tata that they will agree to an increase in the power tariff above the agreed Rs. 2.26 per kilowatt hour. The company have stated that the cost of production is Rs. 2.9 per kilowatt hour.

D.J. Pandian, the principal secretary, energy and petrochemicals of the Gujarat government, was noted as having told a meeting of of officials and executives overseeing the Mundra project that as the company was a shareholder in an Indonesian mine they "should try to impress upon the Indonesian government to reconsider the applicability of the new coal-pricing regulation with prospective effect and request the Indonesian government to exempt existing contracts (contracts already executed) from being affected.” The minutes of the meeting recorded Pandian as stating that "any regulation can be challenged and there is no restriction on the same. Further, all the procurers are of the consensus view that CGPL should take judiciary’s help in Indonesia since it is actually the affected party who has to file an appeal.” However, the minutes stated that Pandian stated that "CGPL officials said that they have consulted their legal advisers and found that it is difficult for them to challenge the Indonesian government. CGPL also said that since they have only 30% stake in the blocks, they will need to get approval of all other partners to go for a legal remedy.”

The Association of Power Producers (APP), a lobbying group representing private power producers including Tata Power, Reliance Power, Adani Power, Lanco Infratech and Essar Power, reacted to the change in Indonesian pricing by demanding the Indian government allow the cost increases to be passed directly on to consumers. APP director general Ashok Khurana told the Economic Times that under current contracts power companies cannot pass the costs on from price changes in the exporting country and that this would affect approximately a third of the 43,000MW from power projects with under construction. "Power companies had offered bids based on their agreements with fuel suppliers predominantly in Indonesia. If the companies are not able to honour their commitments, it would be a concern for bankers and consumers," he said.

Tata Mundra undermining Tata's financial viability
In late May 2012 Tata announced a huge loss for the 2011/2012 financial year. 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."

Tata Power's Managing Director, Anil Sardan, said in a June 2012 interview with the Business Standard that "we are doing everything possible like blending the fuel with cheaper Indonesian coal on which we get a higher discount. Today, we are already burning 50 per cent of very low-grade coal — which is much more than our original plan. The plant load factor is 90 per cent. We have also asked for domestic coal as a solution. There are some other options as well." .

While Tata is lobbying the Indian government, the outcome is far from certain. The Ministry of Power has referred the request for increased costs to be passed through to the Central Electricity Regulatory Commission (CERC), which has not yet reached a decision. However, a decision to allow Tata to increase its recovered price may be subject to legal challenge. “Even if CERC rules in favour of Tata Power, it’s not going to bring any immediate relief as other bidders in the race and state electricity boards (SEBs), who have signed PPAs (power purchase agreements) with Tata Power, are bound to challenge the order,” a Mumbai-based analyst told Livemint.com on condition of anonymity.

Is Tata Mundra "doomed to fail"?
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”.

Livemint noted that "While the entire equity was denominated in Indian rupees, about 60% of the debt was in dollars. The sharp rupee depreciation this fiscal [year] has made CGPL’s equity base smaller and its dollar-debt larger, throwing its financial ratios off the track."

Following its annual results an investment analyst asked Tata Power what it was assuming the long term coal price would be and what the exchange rate would be. S. Ramakrishnan stated that they estimated that "the coal price is somewhere in the 90s [US] with 2% increase going forward on a long-term basis" and that the long term exchange rate "has been now looked at in the range of 45.5 in the long run, that is higher in the initial period."

Analysts downgrade Tata Power
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.

The potential failure of Tata Mundra is posing profound financial problems for the whole Tata Power company and its massive expansion plans. 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 Ray Tay, a Moody's Associate Vice President with responsibility for Tata Power, said that Moody's may conclude its review in one to three months. He also stated 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," Tay 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.

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


 * "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."

Related SourceWatch Articles

 * India and coal
 * Ultra Mega Power Projects in India
 * Proposed coal plants in India

International Finance Corporation

 * International Finance Corporation, "Tata Ultra Mega: Summary of Proposed Investment", 2008. (Additional information on the project is available under the linked tabs).
 * International Finance Corporation, "Tata Mundra Project, Mundra, India: Frequently Asked Questions", International Finance Corporation website, accessed April 2010.

Tata Power media releases on Mundra

 * Tata Power, "Tata Power acquires Coastal Gujarat Power Limited, a Special Purpose Vehicle for 4000 MW Mundra - Ultra Mega Power Project", Media release, April 23, 2007.
 * Tata Power, "Tata Power Completes the Signing of Financial Agreements for 4000 MW Ultra Mega Power Project at Mundra, Gujarat", Media Release, April 4, 2008.

Government reports

 * "CAO Cases: India / Tata Ultra Mega-01/Mundra and Anjar," Complaint with the Compliance Advisor Ombudsman, June 14, 2011.
 * Compliance Advisor Ombudsman, "Ombudsman Assessment Report: Regarding Community and Civil Society Concerns in Relation to IFC‘s Tata Ultra Mega Project (#25797)," January 2012 Report.

NGO reports

 * "Locked-in: The Financial Risks of New Coal-fired Power Plants in Today's Volatile International Coal Market," Sierra Club, June 2012

Articles

 * Justin Guay, "Sierra Club India: Coal is Cheap? World's Largest Coal Plants Bankrupted by Skyrocketing Prices", Compass (Sierra Club blog), August 15, 2011.
 * Justin Guay, "Sierra Club India: Tata Mundra Breaks Coal's 'Contract'", Compass (Sierra Club blog), June 08, 2012.