Despite CERC order, Tata Power's Mundra plant will lose Rs. 1,100 crore a year.

Despite the power sector regulator's recent order providing compensatory tariff for Tata Power Co Ltd's 4,000 MW Mundra plant in Gujarat, the company will incur an annual loss of Rs. 1,100 crore.

The Mundra plant has been posting a loss of about Rs. 1,500 crore annually and the compensation for coal could only provide a partial relief and cut losses by about Rs. 400 crore.

According to the power purchase agreement (PPA) the company signed with buyers, the tariff for Mundra plant's power is Rs. 2.26 a unit.

Accepting the Deepak Parekh Committee report, subject to certain modifications, the Central Electricity Regulatory Commission allowed a payment of Rs. 329.45 crore to Tata Power for the losses incurred in FY-13. The compensatory tariff of Rs. 2.87 a unit (an additional 0.52 paise expected depending on coal cost) for FY14 has been made provisioning for sharing profits by Tata Power from its coal mining operations.

Besides, the Mundra plant's auxiliary power has been brought down to 4.75 per cent from 7.75 per cent. Auxiliary power is the electricity consumed by the plant for auxiliaries such as compressors, pumps and plant lighting. If implemented, this would lead to a three per cent improvement in plant efficiency.

The tariff has also been charted to ensure that Mundra forgoes one per cent of its return on equity, which will be about Rs. 50 crore.

Sources said the order is for compensation on the FOB (free on board) price of coal, so the company would not be able to recover the total fuel cost. In general, FOB means delivery of goods on board a vessel designated by the buyer. Further, the impact of forex on debt has also not been considered. The compensatory tariff is lower by 7-8 paise per unit against the value estimated by the Deepak Parekh Committee, which pegged it at 0.59 paise a unit.

Reliance Power, another private power company, has recently approached the regulator stating its 4000 MW Sasan plant's project cost had risen from Rs. 19,600 crore to Rs. 22,400 crore and that its debt servicing outflow has risen from Rs. 12,227 crore to Rs. 16,098 crore due to the sharp rupee depreciation against the dollar.

The regulator has directed R-Power to furnish all details before February 28 with copies to procurers, who have also been asked to file their responses by March 15.

However, it remains to be seen whether the state electricity boards, which purchase Mundra power, will challenge the CERC decision on the tariff hike as they have the option of approaching the appellate authority.

HBL