Rajasthan break to put Tata's Mundra power in open market

Last Updated: Fri, Jan 04, 2013 19:51 hrs

Tata Power’s move to snap power sales to three distribution companies of Rajasthan yesterday could help open new avenues for its sales. Tata Power said it was looking to make alternative arrangements to sell this power, 400 megawatt (Mw) once the project is fully commissioned, from its 4,000-Mw Mundra power plant. It now operates three units (2,400 Mw) there.

The power, made available from the power purchase agreement, or PPA, which stands cancelled, is now free to be sold, said company sources. That could give Tata Power the opportunity to go ahead with short-term sales of power, which is sold at market prices. “They have an option to sell power at merchant prices. But, it may not stay for long,” said Rupesh Sankhe, power sector analyst at Karvy Broking.

Some experts said if a PPA was terminated, existing buyers could also be sold the power. Apart from Rajasthan, the project also supplies to Gujarat (where it is located), Maharashtra, Haryana and Punjab.

Tata Power terminated a PPA with three distribution companies (discoms) — Jaipur Vidyut Vitaran Nigam, Jodhpur Vidyut Vitaran Nigam and Ajmer Vidyut Vitaran Nigam — around ten per cent of the total capacity of Mundra. The discoms have not been paying their dues, amounting to Rs96.3 crore, to the company, .

Not receiving dues places additional pressure on the company, already losing money on current sales. After the new coal export regulations of Indonesia, the 4,000-Mw project that imports coal from the archipelago, lost its cost competitiveness. Mundra currently loses 60 paise a unit by selling power at Rs2.26 a unit, fixed before the regulatory changes took away Tata's ability to control fuel cost.

“With continued non-payment in a timely manner and non-availability of payment security, the company finds it difficult to manage payment for its obligations to buy fuel and discharge its various obligations,” said Tata Power in response to a questionnaire. Payment defaults for the Jaipur discom have been continuing since July, for Jodhpur since August 2012, and for Ajmer since October 2012.

“Coastal Gujarat Power (Mundra) decided to discontinue the supply of power to the three Rajasthan state-owned discoms due to non-compliance on payment security related issues. This is due to the consistent failure on the part of the discoms as procurers to fulfill the obligations, including collateral arrangements, in spite of repeated and regular reminders,” Tata Power said.

The stock of Tata Power fell one per cent in early trade today. It recovered and closed unchanged to its last closing price at Rs110, according to the Bombay Stock Exchange.

The payment default to the company is not a long-term risk, said analysts. “It (receivables) is a new risk for Tata Power, as the market had factored only losses from Mundra. But, it is not a long-term risk as it makes sense for Rajasthan to buy Mundra’s power, which is cheap,” said Sankhe.

Rajasthan's current average power purchase cost is currently Rs4 a unit.

If they lose a cheap source of power, their purchase costs could go up. Rajasthan discoms are already under financial distress, and they went through a debt restructuring process last year, accounting to as much as Rs35,000 crore. The state also raised its power tariffs twice, last year.

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