Tata Power Said to Seek Government Help to Curb Plant Losses as Coal Soars

Tata Power Co., the developer of India’s first 4,000-megawatt plant, has asked the government to help recover potential project losses caused by the rising price of Indonesian coal, two people familiar with the matter said.

Tata Power, which has coal assets in Indonesia, has told the government that the Southeast Asian nation’s plan to regulate exports of the fuel could double the cost of generating power at its 170 billion rupee ($3.8 billion) plant at Mundra in the western state of Gujarat, the people said, asking not to be identified because the matter isn’t public.

India has awarded contracts to build four of 16 planned coal-fired plants, each with a capacity of 4,000 megawatts, to help reduce blackouts in the second-fastest major growing economy. The South Asian nation faces a peak power deficit of 13 percent in the current financial year.

“Recently, Indonesia like other coal-exporting countries made amendments in conditions related to exports of coal from their shores,” Tata Power said yesterday in an e-mailed statement. “We look forward to a discussion on how the issue of change in law in Indonesia regarding imported coal could be dealt with.”

Tata Power rose 1.1 percent to 1,190 rupees at 9:39 a.m. in Mumbai trading. The stock has declined 13 percent this year compared with a 17 percent drop in the benchmark Sensitive Index.

The utility won the Mundra project in December 2006 with a bid of 2.26 rupees a unit. Increases in the tariff are linked to the power regulator’s index.

Tariff Option

Even with tariff revisions, the price could make the Mundra project financially inviable during its first five years of generation, one of the people said.

“The power ministry has been consulted and they will probably have to increase the tariff,” said Rohit Singh, an analyst at IDBI Capital Market Services Ltd. in Mumbai. “Other developers who bid will certainly be disappointed, but there’s really no other viable option.”

Coal prices have surged on rising demand to feed power stations and steel mills in China, the world’s largest user of coal, and amid global production disruptions, including record flooding in Queensland.

The average price of power-station coal at Australia’s Newcastle port, a benchmark for Asia, rose to $124 a ton in the first half of 2011 from $97 a year earlier, according to McCloskey Group.

The first unit of the Mundra plant is scheduled to start in September, Tata Power said during an earnings conference call on May 19.

Reliance Power Ltd. (RPWR), which won contracts to build the other three 4,000-megawatt projects, is also seeking to resolve the problem caused by Indonesia’s fuel tariff, Power Secretary P. Uma Shankar said by telephone yesterday. The utility reached out to the ministry in July after halting work on its project at Krishnapatnam in the southern state of Andhra Pradesh, one of the people said.

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net

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