Mar 14, 2013 07:09 PM IST | Source: CNBC-TV18

Currently facing excess capacity of 10-15%: Tata Power

Speaking to CNBC-TV18, Anil Sardana, MD of Tata Power says the government needs to take more steps to bring reforms in the sector.

The government is trying to help the ailing power sector grappling, which has been with fuel supply crunch and huge financial losses. Keeping this in mind, the Ministry of Power and Coal prepared a list of electricity producers to whom coal will be allocated on priority basis.

Speaking to CNBC-TV18, Anil Sardana, MD of Tata Power says the government needs to take more steps to bring reforms in the sector. The company, which is currently facing excess capacity of 10-15 percent, says it does not have any issues on the coal supply front.

Talking about the Mundra PPA issue, Sardana told CNBC-TV18 that the Central Electricity Regulatory Commission (CERC) hearings on the matter are complete and he is expecting a ruling soon.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: Do you see any material difference on the ground?

A: Tata Power is concerned takes fuel from different Coal India subsidiaries that are stationed in east grid, which is at Maithon and Jojobera. We are getting all our supplies as contracted. There are off and on issues on quality, but we get full cooperation from Coal India subsidiaries.

So, I have no complaints on that aspect. As far as the second question goes in terms of the distribution company reforms – that still stays at a lip service level. There is truly no effort to give consumer service. I do not understand why government needs to be in business. Government should demand service and quality of delivery. It should allow different models like public private partnership (PPP) or whatever is prudent and the reforms must take place immediately.

Q: At any of your own locations are you faced with more power than the State Electricity Boards (SEB) are willing to buy?

A: I would say that let us not talk futuristic. We have our units which are not able to export power today to the extent they are available on the merchant side. They are available with some limited capacity, extra which we are not able to dispatch for several reasons, one of the reasons being off take.

Q: How much of your capacity is not utilized for lack of buyers?

A: Anything between 10-15 percent.

Q: talking about Mundra plant, if you indicated transferred about 75 percent of your holding in the Indonesian coal mines to Coastal Gujarat Power Ltd (CGPL). Will CGPL still have a cash flow gap and if yes, how much?

A: At the present coal rates no, it does not. At this stage, conceptual work has been done. There is no decision yet affirmatively taken to move them. There are a lot of issues that are being evaluated for the purpose of shifting that. More important for us to give assurance to the lenders that despite CGPL losing, it is not their interest repayment which will get impacted.

The assurance was in terms of the fact that if it comes, we will have this cash flow also. It will be provided as a backup to them, so that their returns and interest payouts are not impacted. So, yes, to the extent that Tata Power is obligated to return lenders money. That has been done and it is coming out of cash flows from the coal companies and the other businesses.


Q: Will you transfer the Indonesian asset at all to CGPL in whole or at least part of it?

A: Not anytime. That is something that is being just evaluated. It is not that it has been decided that 75 percent of that equity or that ownership will move into CGPL.

Q: When is the Central Electricity Regulatory Commission (CERC) expected to give its judgment on Mundra Power Purchase Agreement (PPA) issue?

A: The stream of hearing that was happening with us is completed. Some of the senior officials of CERC have quoted that they will tend to bring the order soon, hopefully within March. That is all the information that we have at this stage.

Q: If the judgement does go in your favour will that be a permanent relief at all or do you expect it will be challenged, there will be litigation?

A: We built the power project as we promised. Now it is for the others to see whether they have any moral obligation to pay for that power. Today people are buying power at Rs 4-5, with this power including the extra that could be payable by them. Assuming that it comes in our favour is going to be something like Rs 3.50 or below at anytime and today’s time if one sees it just about Rs 3.10.

That is such a competitive power, one cannot even generate out of domestic coal. So, I do not understand the double standards. The fact is once it is established assuming what you said that it is payable then to go to the next court etc. is just to prove a point and not to really recognize the fact that somebody met his price and they should in turn meet their promises.

Q: Is the government contemplating any interim at least solution or a separate solution in terms of assuring some return on equity or is there a possibility of perhaps an out of court settlement. Is the buy amendable to any kind of a solution?

A: Thanks to the environment that prevails in this country today. I do not have clarity whether such a suggestion made by you is possible. I do not see a beneficiaries or anybody else from the government taking a foot or a step forward to say, we do recognise that there is a challenge and therefore we will resolve it this way. That did not happen for years together. That is the reason we knocked at the doors of CERC.

Therefore, I have serious doubts that today anyone takes these matters into the stride and say this is their moral responsibility to make sure that things are corrected. Even so much so we cannot see rational of the fact. That is why should Indian government not have approached Indonesian government, when we in-turn requested them that a private sector company cannot be contesting a dictum from senior most authorities in those countries.

However, the Indian government should have done whatever was needed. Including, if need we will go to court against them. If that does not happen then one can see that it is very hard to assume that anyone will come in and say I have the moral responsibility to correct it.

Q: Are you looking at restructuring any of your Mundra Project related loans, especially the foreign exchange component, so that one can reduce this cash flow gap?

A: We have no such idea at this stage that we want to do that. Unless we are pushed to the wall to say that look be as it may stand we have nothing to offer. Also that it is entirely your responsibility to decide to run the assets the way they have to be run. In this case, as starters, we will continue to meet our promise.

Naturally it will become very hard for us to meet our means. Therefore one will have to approach lenders and do everything else possible to make it look as well as we could make out to be. Otherwise it is going to be pretty tough. Today as one knows that with this we almost make 50 paise loss on every unit that we generate.

However, we are not reducing the generation. We are continuously running the units. As we talk all the four units which are commercial are running flat out with more than 90 percent Plant Load Factor (PLF).


Q: How much will be the annual loss that you will make in Mundra as things stand?

A: It will be about Rs 1,500 crore. Given the present rate of coal and assuming that it does not consolidate further it will be close to about Rs 1,500 crore.

Q: Will you be looking at more coal blocks abroad to mitigate the situation here domestic?

A: We continue to look at resources worldwide other than of course Indonesia. There we already have four mines and the effort is now in Africa, America and Latin America. Those are the geographies where one could look at options of bringing coal at a competitive price.

Most of the other geographies like Indonesia, Australia etc. are already selling with some protected comfort provided to the local miners. I have referred that before that Indonesia after change of law has said that one cannot take out coal below a particular price. This they will announce and exactly comparative price works out with the carbon tax that has been enforced by Australia.

So, it is very clear that these two between them will almost have a lookalike price coming out of two different methods. We have South Africa where also they have said that the coal can be taken only at the prices at which the Eskom coal is sourced. That also means that coal will continue to be at higher prices as determined between three. Just to reiterate that between three, there are almost 98 percent coal export markets for destinations like India.

Q: Can you give us some guidance as to what your revenue as well as EBITDA growth could be for FY14?

A: I do not want to say that because we do not give guidance in public. I would only say that the revenue growth and the EBITDA growth will continue to be healthy.

Q: Finally now that the government has endorsed its intent to pool imported and domestic coal, how long do you think the process will take? When will we finally get a pooled coal price, in 2013 calendar?

A: It is a very complex subject. I guess more than philosophically talking about pooling, we should actually work on the methodology. As if which ports will become port of destination, where the foreign coal will arrive and how many kilometres from the ports would we allow power stations to use imported coal instead of domestic coal.

Therefore domestic coal will be hauled at much lesser distances. These are some of the logistics that are needed to be debated. There has to be a consensus on this part, otherwise one will find that some stations continue to get very good quality imported coal as a swap. Some of the others will continue to get very poor quality and there will not be any agreement.

Some of the states or beneficiaries are protesting because they are suspicious about these plans. To me unless those aspects are debated and a consensus arrived, it is going to be tough for one to assume that coal pooling will be a certainty in near future.

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