The Central Electricity Regulatory Commission (CERC) has granted a compensation order for Tata Power’s 4000-megawatt Mundra ultra mega power project (UMPP) in Gujarat to make up for the increase in cost of imported coal.
As per a 110-page order released Friday, state power utilities will now compensate the Mundra plant for losses of about Rs 329 crore logged in FY2012-13 in 36 monthly installments while losses notched up between April 2013 and February 2014 will be compensated via a Rs 0.52 per KwH tariff hike over the next 12 months.
The tariff will be reviewed again at the end of three years, the regulator said in its order.
In 2011, Tata Power, along with Adani Power, had requested the electricity regulator for a tariff hike after the government in Indonesia -- from where both companies import most of their coal requirements -- changed the pricing mechanism of coal to an international benchmark, making it costlier.
A special panel comprising HDFC chief Deepak Parekh had recommended a tariff hike of about Rs 0.59 paise per unit.
While an order on the Adani plant is not yet out, former CERC chairman Pramod Deo had recently said a ruling on the Tata plant would likely have a bearing on the Adani case as well.
The Mundra UMPP supplies power to five states – Gujarat, Maharashtra, Haryana, Rajasthan and Punjab.
"We find the order balanced perhaps keeping in view the beneficiaries and consumer interests," Tata Power said in a statement. "This will go towards resolving a major impasse affecting imported coal based power projects in the country that got impacted due to uncontrollable extraneous factors. The order provides partial relief to Mundra UMPP, which has been contributing to the nation by way of about 2-3 percent of the gross generation."
‘Positive for Tata Power stock’
“The order comes as a big relief for Tata Power,” brokerage firm Angel’s Senior Analyst Rupesh Sankhe said.
“The 50-paise hike can increase profits by Rs 1,100 crore and earnings-per-share could go up by Rs 5,” the analyst said, adding that this could lead to a 15-20 percent rally in the stock price. “The loss at Mundra was a key reason affecting the value of Tata Power stock.”
Angel could up its target price for Tata Power to Rs 107 levels from Rs 90 currently after going through the numbers in detail, he said. Shares in the company closed at Rs 78.70 on Friday.
But Sankhe cautioned that most state electricity boards have already voiced their opposition to a tariff hike and will likely contest the CERC order.
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