The Tata Group, which started power generation as early as 1915, is in the midst of a variety of projects in this segment. Anil Sardana, managing director of Tata Power, talks to Katya B Naidu on these and how the company plans to deal with some operational issues. Edited excerpts:
Two big power projects of Tata Power are going onstream this year, which will almost double your generation capacity and make you the country's largest private power producer. What kind of contribution will it make to 2011-12 revenues?
We expect to commission both units of Maithon (1,050 Mw) and two units of the Mundra ultra mega power project (1,600 Mw) in FY12. Given the current inflationary conditions, including volatile coal prices, we would not like to comment on FY12 revenue. However, the contribution can be estimated from the business models under which they will function. Maithon is on a regulated return basis (15.5 per cent), while Mundra UMPP’s earnings would be on a bid-tariff basis.
Is the company eyeing new projects? Two UMPPs are scheduled to invite bids this year. Are you interested?
We already have three large projects in the planning phase –- Dehrand (coastal Maharashtra, 1,600 Mw), Tiruldih (Jharkhand, 1,980 Mw) and Naraj Marthapur (Orissa, 660 Mw). Yes, Tata Power will evaluate and bid for captive or domestic coal-based UMPPs and other similar projects. We are always looking for opportunities that dovetail well with our growth plan.
Will interest rates and input costs play spoilsport for new projects this year? Are you planning to raise any loans in the current financial year? If so, what will be the effect of the current high interest rates?
Our projects under construction are fully funded and in a fairly advanced stage of construction. Construction on our other projects will start once all statutory clearances are in place. While higher interest costs do affect the margins, given that projects' power purchase agreements (PPAs) are of long duration, like 25 years, we believe the interest rates even out over such a long period.
We have recently also raised funds through unique perpetual bonds at fairly competitive rates in India and abroad. This will help meet our funding requirements.
TPC raised money through bonds, and a part of this will be used to secure coal assets abroad. What kind of imported coal requirement do you see for the company?
We also issued a $450-million hybrid bond through our wholly owned subsidiary, Bhira Investments, Mauritius. We are constantly evaluating resource acquisition opportunities. Currently, Trombay’s fuel requirement is for imported coal and so is Mundra UMPP. In our projects under planning, Dehrand is also slated to have an option for using imported coal.
Some of your coal contracts with Indonesia are coming up for renewal in the next three months. How will that impact your margins in the coming quarters? How will the price of revised coal be determined?
There may be changes in regulations but not in contracts in the next few months. These are matters under discussion for enhanced clarity in the coming few months.
Tata is going to use its own ships to import coal for Mundra. What kind of savings are you looking at and is there any impact on margins of the project?
In Mundra UMPP, using our ships will lead to certainty of costs over the long period of the PPA. This protects us against volatilities of the shipping charges, which go up and down over the business cycle.
The rupee loans for Mundra and Maithon are in for an interest rate re-set by the end of the year. Going by the increased base rates, how much do you think your interest payouts will go up by?
Our loans in Maithon are linked to the prime lending rate (PLR) and reset annually. Thus, depending on how much the PLR goes up or down by, our cost of funds either increases or decreases. In Mundra, our domestic loans are linked to the PLR (prime lending rate), while foreign loans are linked to Libor (London inter-bank offered rate). Libor is at an all-time low these days.
North Delhi Power Ltd (NDPL), your distribution licence area, reduced its AT&C losses by a huge margin this year. How will that contribute to its profitability? Are there any staff costs and interest cost concerns in NDPL?
NDPL’s performance in reducing AT&C losses has been legendary and performance has been healthy. AT&C losses will continue to show a downward trend. Recently, there were concerns about our rising receivables in NDPL; however, the issue has been resolved. Higher interest costs due to increased borrowings will be recovered as part of the rate entitlement.
The Mumbai distribution unit went through a lot of turmoil in the past year. After the ruling to use the Tata Power generation arm's output for the distribution unit, are all the troubles past it?
Until recently, we were supplying to Reliance Infrastructure. Due to the increasing demand of our own distribution arm, Tata Power-D, we had to purchase power to supply to our consumers. This arrangement led to more expensive power for the customer. Starting April 1, this power is now available for Tata Power-D. Its contribution is, therefore, assumed to be smooth for overall earnings. Our distribution licence is coming for renewal in 2014.