Tata Power is working to finalise supplementary power-purchase agreements with Rajasthan, Maharashtra, Punjab and Haryana that would allow electricity from its 4-gigawatt Mundra plant in Gujarat to be priced in line with higher coal costs, Chief Executive Officer Praveer Sinha said on Wednesday. The company expects Rajasthan and Haryana to sign the agreements before the end of December, according to a report by Business Standard citing his remarks on an earnings call.
The proposed contracts follow Tata Power’s agreement with Gujarat to sell electricity from the plant at prices that reflect fuel costs. The company is seeking similar arrangements with the four other states that procure power linked to Mundra, which was built to supply electricity under a fixed-price tariff.
Sinha said Tata Power was working with the state authorities to complete the arrangements. “We are working closely with all of them to get these things finalized,” he told reporters during the earnings call. He added that at least Rajasthan and Haryana were expected to sign before December-end.
The tariff issue dates back to the plant’s original power-supply contract. Tata Power won the tender to build the plant on India’s west coast in December 2006, using imported coal from Indonesia. The electricity was contracted at a fixed price, but Indonesia changed its coal-pricing rules in 2010 and linked coal prices to international benchmarks. The resulting increase in fuel costs made the tariff uneconomical for the project.
The plant subsequently operated below capacity and accumulated losses, making the proposed supplementary agreements significant for how the project’s electricity costs are shared between the generator and the purchasing states. The agreements would alter the commercial terms under which power from the plant is supplied, although the report did not specify the final tariff levels or the volume of electricity covered by each state’s proposed contract.
Tata Power’s latest update comes as the company reported net income of Rs 13.7 billion, or about $146 million, for the July-September quarter, a 49 per cent increase from a year earlier. Sinha attributed the improvement to a sharp rise in electricity demand during weak monsoon and heat-wave conditions.
The company also announced that its board had approved construction of a 1.8-gigawatt pumped storage project with an investment of Rs 118.7 billion. Tata Power currently has installed generation capacity of about 17 gigawatts.
The Mundra tariff discussions are taking place alongside a separate legal dispute. Tata Power has appealed to Singapore’s Supreme Court against a ruling that upheld a $490 million arbitration award in favour of Kleros Capital Partners. The appeal is scheduled for a hearing on January 19. The Singapore International Commercial Court had rejected the company’s challenge to damages linked to an agreement concerning a bid for a coal asset in Russia.
The proposed agreements with Rajasthan, Maharashtra, Punjab and Haryana remain under discussion, with Tata Power expecting at least two to be completed before the end of December.
