Expect Arutmin mine sale to be completed in 6 months: Tata Power

Anil Sardana, CEO & MD Of Tata Power in an interview to CNBC-TV18 spoke about the third quarter performance, generation at Mundra and Arutmin mine stake sale.

He said the company was getting closer to the Arutmin mine stake sale and is likely to be completed in six months. The price would stay at USD 510 million, he said.Tata Power's operational performance was quite ahead of estimates in the third quarter on Friday. Consolidated profit plunged 87.6 percent year-on-year to Rs 24.5 crore in Q3, hit by regulatory expenses of Rs 601 crore and exceptional loss of 187.15 crore. Forex loss and lower other income also impacted bottomline.Below is the verbatim transcript of Anil Sardana’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: First if you can take us through the operations at Mundra. The losses were reduced but generation and sales also came down. How do you see it panning this year and what caused the lower sales in revenues?A: As you rightly said, Mundra has been really registering very good performance. Operationally things have been very good and we have been able to therefore register very strong EBITDA and operating profits at Mundra. Fortunately for us, the coal prices reduction helped us. Of course the one-off mention that you said, yes, we had to impair the coal investment for the simple reason that the long-term prospects for the coal shows that the prices are going to go down. So, therefore we must make sure that we reflect our accounts appropriately. Sonia: The generation at the Mundra plant was lower in this quarter at close to 6,500 million units versus 7,300 million units year-on-year (YoY). Any reason for the reduction in generation and going ahead what will the generation be on an average? A: The issue for generation is not based a generator. The generation aspect is based on what drawl takes place by the procurers. Our availability factor continues to be as strong as before. However, because of the low demand at the distribution company end, the drawl was lower. Don’t go by the million units because the million units is of function of drawl. You have to see a generators performance by virtue of availability factor and availability factor was as strong as previous quarters.Latha: Isn't merchant sales possible for undrawn power? A: No, unfortunately ultra mega has 100 percent power purchase agreement (PPA) tied up. Even the tariff policy that has been announced recently, we will have to of course go and seek some divisions. The ultra mega power project has to have clarity that if there is undrawl demand and particularly when the units are so cost competitive, could we actually be able to sell it in the open market because this will be able to sell like hot cakes because imagine that even with the compensated tariff included, the tariff today is Rs 2.60. So, you cannot imagine such a competitive power from imported coal. Latha: It is basically because the discoms are so deep in the red that you are not able to sell and do you expect that the contract could be rewritten or tweaked? A: The issue simply is that the procurement of cheaper power is not a function of their being in the red or their being in bad state of fiscal health. The issue of drawl is more by virtue of the fact that their network is not able to cater. So, they have brownouts, they have issues related to their network. So, that is the factor of how the drawl takes place for such a competitive power because otherwise they won’t let such a low cost power go by.Sonia: Just on the Mundra operations, what do you see as the EBITDA for the Mundra operations or the plant say in FY17 and by when do you think it could become profit making?A: Instead of giving guidance, I would say that Mundra is today certainly able to give a very good performance. It is able to generate and provide availability factor for the procurers to really draw as much power as they want. One factor that I want to bring since still we have under recovery on the fuel side, what we tend to do is, to maintain our availability at 80 percent where we recover 100 percent of the fixed cost.Now, imagine if tomorrow, this availability was allowed to be sold in the market, 10 percent higher availability or 15 percent higher availability, we can actually make that much more in the merchant market and give advantage to the procurers also. If you just recall the CERC verdict that came in, suggested that if we sell the extra power in the market, we actually can share 60 percent of that margin with the procurers itself. So, their actual cost of procurement will further reduce from Rs 2.60 to something like Rs 2.40 or so. So, it is a win-win for them, it is win-win for us and it us win-win for the country because you cannot assume that you will get such competitive power and more so environmentally so benign because imagine our efficiency levels are the highest in the country. Latha: When do you expect a decision on this? A: Now we are all waiting for the APTEL order to come in and this is certainly one of the factors. However, in the past, we have been making this point to the procurers that while the rest of the subject matters can be adjudicated by the legal system but why not create this advantage to you and to us that we actually generate to the fullest potential and you also get competitive power and you also get little bit of margins by virtue of higher sales that we can do. In fact we have even suggested that if this formula of 60/40 is subject to legal interpretation, we can put the entire margin in the ESCROW so that we can share that later. However, as you know, today every procurer wants to just safeguard and wait for the legal judgements to come. Nobody is really caring about what is good for country.Sonia: What is the update on the stake sale of the Arutmin coal mine or when can we expect that stake sale to get completed? How much do you think you could get due to that?A: The price as we declared earlier, USD 510 million, that stays for the stake sale. It is only that since the coal prices actually reduced so much and the future outlook also became negative that the bankers have been very shy in terms of giving clearances to restructure the entire deal in terms of getting the infrastructure companies to get segregated.We are getting closer, I will only say that in the last few quarters we have seen positive progress and we are hopeful that we are getting closer to closing some of those CPs. Latha: This calendar?     A: We are hopeful that we should be able to do it in the next six to eight months. Latha: As well the compensatory tariff hearing we know is at final stages, will that decision also come this month or this quarter?A: The hearing is complete, in fact it is now reserved for judgement. So, one can hope that APTEL would be pronouncing the judgement soon. Latha: Should we be prepared for anything more on the impairment front?A: We have two subject matters which are subject to the volatility and commodity. We have impaired the coal mine investments, all coal mines in fact, and we are hopeful that we won't see too much of volatility beyond this. Therefore, those one-off transactions that you see on the balance sheet won't happen.(Copy edited by Vaishali Karulkar, interview transcribed by Priyanka Deshpande and Vrushali Sawant)