Additional units to push Mundra UMPP losses higher: Moody's

The losses at Tata Power's 4,000 MW Mundra project "will mount" with additional units getting commissioned since the company can only partially pass on fuel costs to consumers, global rating agency Moody's said. Tata Power, the country's largest private power producer recently synchronised the fourth 800 MW unit at Mundra Ultra Mega Power Project (UMPP) located in Gujarat.

Coastal Gujarat Power Ltd (CGPL), a wholly-owned subsidiary of Tata Power, is implementing the Mundra project, the country's first UMPP. "CGPL's losses will mount as additional units at the UMPP are commissioned because the company can only partially pass through this coal-fired plant's fuel costs to customers, given the terms of the PPAs (Power Purchase Agreements)," Moody's said in a report.

According to the report, while the tariff structure for PPAs includes fixed and variable elements, only 45 per cent of the variable portion relating to coal fuel costs can be passed on to customers. Last week, Tata Power announced the synchronisation of fourth unit at Mundra.

"(Synchronisation) This is the final step before commissioning a power generation unit, which will increase its losses and is credit negative," Moody's noted. Mundra UMPP is based on coal imported from Indonesia. However, the Indonesian government's directive, in 2011, to export coal at market rates exposed CGPL to considerably higher costs than the project contemplated at its inception.

Earlier this month, Tata Power had terminated electricity supply from Mundra project to three distribution companies in Rajasthan. "The distributors subsequently settled all their outstanding payments. By severing the PPAs, 10 per cent of CGPL's capacity will be available for sale at higher prices -- although the added revenue will not be sufficient to offset the profitability drag associated with commissioning the UMPP," the report said.

In the wake of rising fuel prices, Tata Power has approached the Central Electricity Regulatory Commission seeking higher tariffs for Mundra project. "We expect an order from the commission in coming weeks," Moody's said and added that Mundra UMPP is expected to be fully commissioned in the first half of this year. Tata Power has a generation capacity of 7,699 MW.