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Mundra plant gaining from lower coal prices: Tata Power

With international coal prices falling in the past few days, CERC order allowing compensatory tariff for two Mundra projects of Tata Power and Adani Power and favourable forex moves, Tata Power is outperforming its peers in the bourses.

Coal prices are likely to remain at current levels over the next two years, which is beneficial for Mundra plants, says Anil Sardana, MD, Tata Power. He adds that cost of power at Trombay also remains competitive. The company has outperformed its peers in the bourses.

Sardana says its not just coal prices that impact margins, it’s also the exchange rate variation. If the exchange rate is favourable, Mundra too gets an advantage.

On compensatory tariff case with Appellate Tribunal for Electricity (APTEL), he says the tribunal has reserved order on the request of procurers with regard to stay. The order is expected in a week. The company is billing procurers as per the CERC order.

Many discoms had appealed to APTEL urging it to set aside CERC order on compensatory tariff for Mundra project. This order allows Tata Power and Adani Power to charge higher tariff and total compensation amounting to more than Rs 1,100 crore for their Mundra projects in Gujarat .

Sardana says compensatory tariff will fully take care of variable price of coal, so under-recoveries on account of Mundra will stop. He says Tata Power is not looking to offload any stake in KPC Mines. Below is the verbatim transcript of Anil Sardana's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Sonia: Could you talk about your FY14 results and what is the outlook going ahead as far as coal prices and the company’s coal business is concerned and the margins that you saw in Q4, do you think that is sustainable?

A: As far as coal prices in international markets are concerned, I guess for the next two years one can expect them to stay where they are today. One doesn’t expect prices to rise quite a bit for the simple reason that China at this stage is not increasing its sea bound input, so I do not think there will be a large excursion in coal prices until 2018. However that from our point of view is a hedged phenomena because if coal prices remain lower to that extent we have an advantage at Mundra and also the cost of power at Trombay remains competitive and if the coal prices go up to that extent we have advantage of higher income in the coal company. So, it is pretty much a hedged phenomena for us.

Latha: Do they entirely countervail one another or is lower coal price an advantage?

 A: I do not want to say that at what stage which takes over because it is not just coal prices which makes a factor in terms of margins but also the exchange rate variation because if the exchange rate is favourable then in that case Mundra takes the advantage. If it is unfavourable then the coal company income improves. It is a mix of these two factors which is important.

Latha: Can you update us on the compensatory tariff case that is now with the Appellate Tribunal (APTEL). As of now when has APTEL told you they will get back to you with their decision?

 A: At this stage APTEL has divided the hearing in two parts. The first part of hearing has been on the request of the procurers with regard to the stay – that part of hearing has been completed and APTEL has reserved the order. The order is expected within a week or so and once this part is taken care of then they have promised that after the vacations APTEL will go in for quicker hearing and we will have the outcome soon.

Sonia: When you implement compensatory tariff order, how much do you think it could ease the cash flow burden for a company like yours?

A: The compensatory tariff will fully take care of the variable price of coal. So, all the under recovery that we have today on account of Mundra – that will stop. So, that is the major factor and today’s price is actually the cost to beneficiaries will be about 40 paise or so. There is another element of implementation if you recall which is to place the extra power on long-term basis, extra means we are guarantying 80 percent availability to the present set of procurers and if we are able to place about 10 percent extra power on a long-term basis then the proceeds are to be shared in a ratio of 60:40 which means that the procurer will have further advantage of about 12-15 paise depending on what type of placement we are able to make.

In terms of implementation while the rest part can get implemented with effect from back date, it is important to implement this part so that consumers ultimately do not lose the benefit of these delays and that is the point that we have been convincing the procurers that we can always place the power, earn that extra bit for the consumers and later on we can even place the amount in an escrow and depending upon what is the decision then use that amount but whichever day that this placement is getting delayed, to that extent this is an advantage with a loss forever.


Source:moneycontrol