Bullish coal rate improved coal SPV performance: Tata Power

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Despite the poor condition of power and coal companies in the country, India's largest private power utility, Tata Power has managed to report better than expected performance in terms of coal sales. Speaking to CNBC-TV18, managing director Anil Sardana says that this is mainly because of the rising coal rates in the country.

"Coal companies at this stage are certainly doing relatively better because of the bullish prices," he said in an interview. He further goes on to say that they are looking at transferring 75% of the coal assets from Indonesia to their Gujarat plant.

Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: You had a very good performance both in terms of power, but much more so in terms of coal sales. Is that the pro-rata performance you can expect in the second half as well?

A: Coal companies at this stage are certainly doing relatively better because of the bullish prices and therefore the contribution from them is good. It will continue to be good perhaps in the next few years; that's the prediction.

Q: At an EBITDA level, your performance in the Q2 was a tad less than it was in Q1. How do you expect that performance to go? Are costs going to be tough which will continue this EBITDA pressure?

A: Let me say that the PAT both for the standalone as well as on consolidated basis for Tata Power and its group of companies was much better than the last year. In fact, it's been almost 30% consolidated and about 15% in the standalone basis. So operational performance has been great. We would rather say that this year has been going very well and we will hope this trend will continue.

Q: Getting to the sore point, the Mundra UMPP. You have already marked down Rs 820 crore, but the market is still concerned about further loses. Could you quantify what we are going to see going ahead?

A: On the lighter side, the market should now see the cash flows, so the future in Mundra is brighter. What you said is right, this is a subject matter which needs focus more from the beneficiary's point of view because this is a station that we created and this is the only UMPP that has taken off the ground.

Now what is happening is that the laws outside India have changed which obviously in this country we will take some time to understand, and that is very sad. As you know, whatever we build in Mundra in terms of coal, an exactly mirror contract was established outside of this country. That contract has been reneged by none other than the laws of the land. Therefore we will have to find out a solution.

As far as we are concerned, all units are ready much ahead of schedule and it's a very fine station. So we would really be looking forward to this issue being resolved by the beneficiaries.

Q: You did indicate the restructuring of the SPV and that must have given comfort to your lenders. Are they ready now to disburse more particularly on the announcement of the restructuring? By when do you think you will be able to complete the restructuring?

A: This restructuring has been done and it doesn't change things in terms of what we already have. As you know, Tata Power has its investment in coal companies as well as in Mundra. But by bringing it together, what happens is that this procedural issue of looking at impairment test every quarter gets aside because the earnings that we have very clearly covers whatever deficiencies that would happen in Mundra generation. So it's more procedural and that's why we have gone through this.

Q: You must be in talks with the government to check whether there can be any reneging of the coal price contract to be worked into the end price of the power. Any progress on those talks? Do you think that you will get some leeway in terms of pricing?

A: We haven't seen any concrete move from either the beneficiaries or from the government. We very clearly know of the fact that they have empathized with us and said that this is not a fault of Tata Power, but to see tangible steps on the ground I think we still have to wait for it.

There are two things that are paramount. One, Mundra and similar projects which have got into this difficulty will have to be seen through. The other is the country today needs imported fuel based projects. Whether it is gas, whether it is coal with the fluctuating prices a new methodology may have to be evolved in terms of how they are taken care of. Once that is done that could be grandfathered to the existing projects as well.

Q: The power sector is under pressure off late, particularly with state electricity boards (SEB). You may not have a lot to do with that, but as a veteran do you feel power costs are on the rise? We have seen hikes in 3 or 4 states. Do you think there are going to be further hikes in other states as well? How do you see the situation panning out?

A: Undoubtedly the tariff hikes would happen to reflect the cost changes in the fuel. As you know, Coal India has jacked up the prices because oil prices have been going through the roof. You have seen all those changes and therefore the price will have to change.

However, what really bothers me is not just this reflection of what input gets into buying this additional merchandise or change in price of coal or oil, but that we are paying for so much of inefficiencies and losses. Unless that's corrected, unless there is a clear focus on making sure that the losses are brought down, no hike is going to help. This is going to be very painful for customers.

What's happening today is that a genuine customer not only pays for his own power purchase but also pays for others. That understanding to a customer is now setting in as they see more and more tariff hikes, and as a customer I feel why should I pay for somebody else's theft? So that has to be corrected.

You see the model that Delhi has gone through. We recently did a check and found out that Rs 7500 crore is what Tata Power has saved for Delhi government in the last 8-9 years; that's a humongous sum. Every state, if they start to address their losses, can actually save a large amount of money.

Q: What is the total power generation at Mundra itself? Is there some more scaling up left?

A: Mundra is 4000 megawatt.

Q: Are you producing to capacity?

A: Right now Mundra is not commissioned because the transmission lines got available on 12th October and now we are going through the next set of cycle of connecting them up.

Q: So when does the generation itself start?

A: Generation typically takes about 6-7 months after the transmission line, but since we had done a lot of advance work we are hopeful that we should be able to do that in 4-5 months. So anywhere in February-March it should be possible to get that connected.

Q: Coal was actually the silver lining in Q2. Do you think these will hold? What's the trajectory you are expecting in the full year?

A: Not only just for this year, the prediction the way its been done by various experts it shows that the coal prices will continue to remain firm for next 1 or 2 years or may be longer.

Q: Given an idea of how the topline will grow, what kind of a revenue trajectory can you look at? What do you get to in the current year and what is the next year?
 
A: The topline is going to be aggressively moving ahead. We will have upwards of Rs 7,500 this year and we will certainly have the consolidated going upwards of Rs 22,000 crore this year.