Tata Power offers to sell 51% in Mundra UMPP to discoms for Re1

Tata Power has written to government offering to sell 51 per cent stake in its loss-making ultra mega power plant in Mundra to discoms in five states for a token Rs1, in a bid to rescue the 4,000-MW project, reports CNBC-TV18.

A letter from Coastal Gujarat Power Ltd (CGPL), the holding company for the Mundra plant, cited challenges faced by the company after a decision by the Indonesian regulator to hike coal prices rendered the plant unviable under the current situation.

Five states - Rajasthan, Haryana, Punjab, Madhya Pradesh and Gujarat – have signed power purchase agreement (PPA) for Tata Powers Mundra plant and it is to the discoms in these four states that the power producer proposes to sell the plant.

With the option to raise power tariff ruled out as the Supreme Court had in April disallowed compensatory tariff to the company, the company has suggested two options - to renegotiate the tariff and the terms of the power purchase agreement (PPA) or to sell 51 per cent of the paid-up equity shares of CGPL to power procurers for a nominal Re1.

In the latter case, Tata Power will retain 49 per cent of the shares and continue to operate the plant under an O&M contract.

With its piles up debt and losses, the Mundra UMPP is unlikely to get a buyer. The total debt of the company is around Rs42,000-43,000 crore.

With project cost of Rs18000 crore, the Mundra UMPP has accumulated debt of Rs15000-16000 crore. The Plant had taken loan of Rs10,000 crore from banks and Rs5,000 crore from Tata Group.

A company statement said CGPL's lenders had suggested that if 51 per cent equity ''is taken over on a back-to-back basis with the procurers, the procurers would have (the) advantage of competitive power for (the) full life of the plant'' - which could be 40 years.

In February 2006, Tata Power had won a bid for the project, quoting a price of R2.26 per unit of electricity generated. The project was to run on coal imported from Indonesia, but in 2010, the Indonesian government decreed that coal exports could be done only at prices linked to international rates.

Tata Power then sought higher prices for power produced at Mundari and moved the Supreme Court with a plea to all higher tariffs. The SC, however, rejected the plea.

CGPL's accumulated losses as on 31 March 2017 stood at Rs6,457 crore against a paid-up equity of Rs6,083 crore, the letter to Gujarat Urja Vikas Nigam Ltd (GUVNL) said. It has outstanding long-term loans of Rs10,159 crore. Tata Power, too, had lent Rs4,460 crore to meet the cash requirements of the project.

In the letter, CGPL CEO Krishna Kumar Sharma notes that ''the project lenders have stopped disbursal of loans beyond what is already disbursed due to non-viability of Mundra UMPP… Due to cash losses, CGPL has gone into breach of covenants and after much effort, the project lenders have given extension of time… but now there's no hope to correct the situation.''

The union power ministry, however, left it to Tata Power and the Gujarat government to find a solution.

Minister of state for power and renewable energy, Piyush Goyal, said the government can only be a facilitator, bringing the stakeholders together and that the commercial issues have to be sorted out between them.