Tata Power Delhi Seeks to Exit Purchase Pacts as Fuel Soars

Tata Power Delhi Distribution Ltd. (TPWR), which lights up every third home in India’s capital, wants to surrender purchase contracts for 340 megawatts of electricity because of higher fuel costs passed on by producers.

The company is seeking the regulator’s approval to end about 20 percent of its long-term agreements with coal and natural gas-fired plants, Chief Executive Officer Praveer Sinha said in a telephone interview. Suppliers include NTPC Ltd. (NTPC), the nation’s biggest power producer. The surrendered power will need to be allocated to other buyers, Sinha said.

“We are doing everything we can to run an efficient business, and have succeeded to a large extent in plugging many gaps,” Sinha said.

The unit of India’s biggest non-state generator Tata Power Co. is being weighed down by the inefficiency of some old coal-based plants it buys from because they consume more fuel leading to higher costs that the buyer has to bear. Prime Minister Narendra Modi’s government deferred a decision on increasing natural gas prices last month, saying the matter will need extensive discussions.

Ever since the government allowed fuel cost increases to be passed on to distributors last year, producers began buying more coal from overseas at a higher cost to plug local shortages left by monopoly supplier Coal India Ltd. (COAL) The benchmark price for thermal coal with a heat value of 6000 kilocalories per kilogram was $69.65 rupees a ton as of last week, according to data compiled by Bloomberg. That’s about 50 percent higher than Coal India’s coal of the same grade.

Tata Power climbed 0.4 percent to 104.95 rupees at the close in Mumbai. The benchmark S&P BSE Sensex rose 1.3 percent.

Distributor Losses

With the price of electricity being regulated in India, below-cost sales have driven electricity distributors to losses or debt. Money owed by customers to Tata Power Delhi and debt outstanding have reached 50 billion rupees ($830 million) at present, Sinha said.

Tata Power Delhi Distribution is tying up with more power producers to meet increased summer demand through power banking, whereby it will supply power to some states in winter and get back an equal volume from them during the summer.

“We can supply power to hilly states during the winters, when the demand in Delhi reduces by half and these states face higher demand for heating,” Sinha said. “During summers, those states have higher hydel generation because of thawing of the rivers. They can then return the power to us.”

To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Indranil Ghosh, Abhay Singh

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