The Central Electricity Regulatory Commission backed Tata’s petition to revise tariffs for power from the plant, according to an order posted on CERC’s website. New pricing regulations in Indonesia, the world’s biggest exporter of power-station coal, have caused an “unprecedented escalation” in costs, it said.
A shortage of local coal supplies and Indonesia’s move to link its prices to international benchmark rates have driven up costs for Indian power companies and rendered their contract tariffs unviable. Utilities including Adani Power Ltd. (ADANI) and Tata have little choice but to bring in Indonesian supplies because buying coal from other nations would boost shipping charges.
Tata booked an impairment of more than 20 billion rupees ($367 million) on its Mundra unit after the change in Indonesian laws pushed up prices. Indian utilities have deferred plans for new plants and reported losses at generators that rely on imported coal.
It’s unlikely that those Indian states buying power from Mundra will accept the regulator’s order, said Sachin Mehta, an analyst at Mumbai-based IFCI Financial Services Ltd. who maintained a sell rating on the stock. “I don’t see this matter resolving in a hurry.”
The regulator, which also backed a similar plea by Adani Power this month, requested that Tata and a group of consumers form a committee to assess the impact of higher coal prices and any “temporary” compensation to be paid. The committee will weigh up the benefit of higher coal prices at Tata’s mining businesses in Indonesia, where it owns 30 percent of two coal companies controlled by PT Bumi Resources, and 26 percent of coal miner PT Baramulti Suksessarana.
“Even if the procurers agree to abide by the regulator’s order, Tata Power may get very little as compensation, considering the gains from the coal-mining business,” Mehta said.
The gains to Tata’s mining units don’t compensate for the increase in costs at Mundra because earnings from coal production are eroded by taxes, Tata Power Managing Director Anil Sardana said in an interview with Bloomberg Television India. At today’s costs, the tariff should be raised by 0.54 rupees a kilowatt-hour to make the operation viable, he said.
Tata Power won the contract to build the 4,000-megawatt Mundra plant in December 2006 after bidding the lowest tariff of 2.26367 rupees a kilowatt-hour. Indonesian coal with a calorific value of 5,350 kilocalories a kilogram was $42.13 a metric ton at the time, and has since jumped 79 percent.
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