Mundra project not viable: Tata Power

Tata Power, the operator of the first ultra mega power project (UMPP) based on imported coal, has told the Ministry of Power that the project has become financially unviable due to a sudden increase in the prices of imported coal from Indonesia.

The company has demanded a solution to the problem, possibly a hike in power tariff.

In its bid, Tata power had quoted non-escalable fuel energy charges of 55%, while 45% was escalable.

To keep the cost of production low at Mundra, Tata Power had purchased a 30% stake in two thermal coal mines and trading companies of Bumi Resources of Indonesia for $1.1 billion in 2007. It had, in fact, tied up around 58% of the total coal required from mines in Indonesia, at a significant discount.

However, the Indonesian government recently decided to link the price of coal exported from the country with a benchmark based on international prices of coal. Mining companies will now have to modify all their old contracts by September 23.

“It may be noted that the basis of quoting non escalable portion of energy charges to the extent of 55% was the circumstances prevailing in the international coal markets during the period 2006-2008 which is entirely different from the prevalent markets today,” Tata Power said in its letter to the ministry of power.

“A reasonable 14% return on equity (based on the then CERC norms) would have been around `600 crore per annum, while the impact of price changes in the market could be p to Rs1,800 crore per annum.”