Praveer Sinha, CEO and MD of Tata Power Company Ltd, spoke to Moneycontrol on the declining coal prices and how it impacts profit margins, despite the company recording robust growth in the second quarter of FY24. Sinha also said Tata Power may foray into green hydrogen only in the field of power supply to ensure efficient and cost-effective electricity. He said the company is still looking at a proper valuation to execute its long-pending divestment plan of its hydropower plants in Zambia and Georgia. Edited excerpts:
As far as the revenue for generation or distribution is concerned, it is linked to the price of coal. Coal prices have come down this year, which has affected our profit margins in the generation and distribution segments.
But revenue does not have much relevance in companies in the power sector. It is rather on the EBITDA and PAT, and in both places, you would see that there is a substantial increase, which shows that our core businesses — generation, transmission and distribution — are doing very well. These businesses are operating on strong fundamentals. Since they continue to do well, the processes and practices and vacancies are coming in these businesses.
Moody’s in its latest report has projected a gradual decline in coal prices, down to the levels of 2021-22, which would mean limited utilisation of Tata Power’s Mundra ultra mega power plant. What's your take on this?
Reduction in coal prices means that the coal mining profit will reduce and we have seen that last year was an outlier where the profit went up because of high coal prices. I expect that in the near future also coal prices will remain in the current range. It means that with lower coal prices, the power tariffs will be lower and procurers will be able to buy power as per the merit order. So, it is good for everyone as even the consumer gets the benefit of lower power tariffs.
The government has allowed pass through of coal prices in the tariffs of imported coal-based power plants. Could you give us an update on the losses incurred on the Mundra power plant?
Under Section 11 of the Electricity Act, the plant gets pass through of the cost of coal, which is very important, and because of that, our Mundra plant will not make losses. Also because of the low cost of coal and operating parameters. So, this is a cost-neutral solution that has been found and it is in the interest of the procurers as well as for the plant to operate till such time the cost of coal and energy charges are fully taken care of. Since Section 11 has been extended up to June next year, we can expect that Mundra will continue to operate and it will be a cost-effective tariff.
Last time we spoke you said one part of your solar manufacturing unit will be commissioned by October. What’s the status?
Test runs for solar module manufacturing are going on since October and we expect that it will stabilise production in the next two to three months. Similarly, on the cell line, the plant is expected to start operations in January of next year and will take three months’ time to stabilise. So, we do expect that by the end of this financial year, both our solar cell and module lines will stabilise. From FY25 onwards we will be able to produce and supply modules and cells.
Was it for this solar manufacturing unit that a subsidiary of the company raised $435 million from the US International Development Finance Corporation (US DFC)?
It was a $425 million loan which came from the DFC for this month, and work of course is going on in this project.
Has the long-pending divestment plan of the hydropower projects in Zambia and Georgia been cleared now?
For the Zambia plant, we have been able to come to an arrangement with the Zambian State Utility (ZESCO). Payments from ZESCO to us were stuck due to a power purchase agreement (PPA) tariff issue. That has been cleared now and the first tranche of the payment was received just a few days back. We received $50 million in the first tranche and we will continue to get this money every six months for the previous amount. For the monthly payments, they have started doing that as well. Hence, the plant is now well on track and will operate at full efficiency.
Similarly, in the Georgia plant where we had the challenge of a tunnel collapse, the repair work is done and the plant is operating at full capacity. It had a commercial arrangement whereby it was selling power in Georgia. Now, it has been given approval to sell power outside Georgia for nine months. So now this gives us an opportunity to sell power at the market price in Turkey and other places.
Therefore, I think both the plants have now done very well and we will consider their divestment at the right time.
Do you mean the divestment plan for these two projects has been temporarily put on hold?
No, we have not put it on hold. But we will do it at the right time so that we get the proper value for our plants.
Any fresh investment or acquisition plans?
No, we don't have any plans as of now.
Any decisions on Tata Power getting into green hydrogen?
We will be supporting hydrogen plans only for power supply. So, our role in the hydrogen segment will be restricted to power supply at an efficient and economical cost. At this stage, no tie-up has been made for the supply of hydrogen. So, as and when these opportunities come, we will explore them.
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