Tata Power to sell 30% in Indonesian coal project for $120 mn

Tata Power Co Ltd is selling a 30 per cent stake in its Indonesian subsidiary, PT Mitratama Perkasa, to Indonesian conglomerate Bakrie Group for $120 million as part of its efforts to pay off loans incurred on its Mundra Ultra Mega Power Project (UMPP) and reduce losses.

Tata Power holds the stake in Mitratama Perkasa through its Indonesian subsidiary PT Sumber Energi Andalan Tbk, which signed the deal with Bakrie Group, the company said in a filing with the Bombay Stock Exchange (BSE) on Thursday.

Tata Power expects to complete the sale in Mitratama Perkasa in two months, subject to getting requisite approvals

''Prior to the sale, PT Mitratama Perkasa would be restructured to hold infrastructure assets in relation to PT Arutmin Indonesia and Tata Power, through its subsidiaries, would continue to hold 30% stake in PT Kaltim Prima Coal related infrastructure assets,'' Tata Power said in the filing.

The sale is part of the $500-million Arutmin agreement which was announced by the company on 31 January 2014 regarding the sale of Arutmin and its associated infrastructure assets.

Tata Power expects to complete the sale of the Mitratama Perkasa stake over the next two months subject to getting the requisite approvals.

PT Kaltim Prima Coal, a subsidiary of Tata Power, owns one of the largest thermal coal-producing mines in the world.

Tata Power's balance sheet has been stressed by continuing losses at its Mundra Ultra Mega Power Project (UMPP).

The waiver on financial covenants relating to this project had expired on 30 June 2013 and the management was negotiating with lenders, according to the notes to accounts for the September quarter earnings.

''Keeping the under-recovery challenges in Mundra UMPP operations and cash flow concerns in mind, we have also signed an agreement to exit from PT Arutmin Indonesia to get additional cash flow and to reduce our consolidated debt,'' Anil Sardana, managing director of Tata Power had said while announcing December quarter financial results early this month.

With the Central Electricity Regulatory Commission (CERC) allowing a compensatory tariff of Rs0.524 for every unit of electricity generated from Mundra plant from 1 April 2013, Tata Power expects to reduce Mundra project's annual losses by Rs1,100 crore.

The 4,000 megawatt Mundra UMPP is incurring annual losses of Rs1,500 crore, due mainly to the rise in price of Indonesian coal that is used to fire the plant.