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● The new Indonesian mining regulation, which requires all coal exports
to be priced at least at a benchmark price for each grade of coal, is
expected to result in imported coal-based projects depending on
Indonesian coal, such as Mundra UMPP, becoming unviable.
● On full commissioning by FY14, we expect Mundra UMPP to incur
an annual loss of Rs14–18 bn. In light of this, Tata Power recently
requested the Ministry of Power to consider upward revision of the
project’s tariff to allow pass-through of higher coal costs.
● However, the Gujarat government has declined any upward
revision in tariff and indicated that since UMPP biddings were
conducted by the Centre, state governments should not be
involved with the issue. It has also recommended the Central
government to take up the issue of new regulation with the
Indonesian government.
● Akin to Mundra UMPP, several other projects based on Indonesian
coal are expected to become unviable post the implementation of
the new mining regulation. Even the developer lobby has requested
the government to intervene or allow power tariff revision. This
issue, though critical, is unlikely to be resolved soon, in our view.
Indonesia mining regulation risks Mundra UMPP’s viability
Tata Power has hedged coal cost for 45% of its coal needs (about
12mmtpa) at Mundra UMPP by mirroring the pricing terms in its coal
contract with Bumi Resources. 50% of the remaining coal needs has
been contracted with Bumi at a fixed rate, while the remaining 50%
has been kept unhedged. However, in September 2010, the
Indonesian government introduced a new mining regulation that
requires all coal exports to be priced at least at a benchmark price for
each grade of coal. This regulation is implemented with retrospective
effect, requiring even existing coal supply contracts to be modified by
23 September 2011.
The sharp increase in regional coal prices was expected to hurt
Mundra UMPP for its unhedged coal quantity (27.5% of overall needs).
However, the new regulation would further dent the project led by an
expected increase in coal cost by US$30–35/ton (as per the
company’s estimate) for the fixed price coal component (also 27.5% of
overall coal needs).
Tata Power has requested the Centre to intervene
At its quoted tariff, Mundra UMPP would be an unviable project even
at current imported coal prices (expected to increase further). On full
commissioning by FY14, we expect Mundra UMPP to incur an annual
loss of Rs14–18 bn. Tata Power had recently written to the Ministry of
Power, requesting it to consider the revision of the project’s tariff to
allow the pass-through of higher coal cost on account of the new
Indonesian regulation. It has also requested the government to
convene a meeting of the project beneficiaries to discuss this issue.
Central government referred the issue to the beneficiaries ...
The beneficiaries of the project include Gujarat (1.9GW), Maharashtra
(0.8GW), Punjab (0.5GW), Haryana (0.4GW) and Rajasthan (0.4GW).
As per media reports, the Central government has requested the
Gujarat (key beneficiary state) energy ministry to convene a meeting
of all beneficiary states to consider Tata Power’s request and has also
indicated that the Central government is not a party to this issue.
… however, Gujarat government has refused to raise tariff
Media reports suggest that the Gujarat government has declined any
revisions in Mundra UMPP’s tariff. Further, the Gujarat government
has highlighted to the Central government that since the UMPP
biddings were conducted by the Central government, state
governments should not be involved with this issue. It has also
recommended that the Central government should take up the issue
of new mining regulation with the Indonesian government.
Issue unlikely to be resolved soon
Akin to Mundra UMPP, several other projects based on Indonesian
coal are expected to become unviable based on the norms of the new
mining regulation. Even the developer lobby has requested the
government to intervene in this issue or allow revision in power tariffs.
This issue, though critical, is unlikely to be resolved soon, in our view,
and could lead to litigations from project beneficiaries. Meanwhile, we
expect the profits of these projects will be hit.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● The new Indonesian mining regulation, which requires all coal exports
to be priced at least at a benchmark price for each grade of coal, is
expected to result in imported coal-based projects depending on
Indonesian coal, such as Mundra UMPP, becoming unviable.
● On full commissioning by FY14, we expect Mundra UMPP to incur
an annual loss of Rs14–18 bn. In light of this, Tata Power recently
requested the Ministry of Power to consider upward revision of the
project’s tariff to allow pass-through of higher coal costs.
● However, the Gujarat government has declined any upward
revision in tariff and indicated that since UMPP biddings were
conducted by the Centre, state governments should not be
involved with the issue. It has also recommended the Central
government to take up the issue of new regulation with the
Indonesian government.
● Akin to Mundra UMPP, several other projects based on Indonesian
coal are expected to become unviable post the implementation of
the new mining regulation. Even the developer lobby has requested
the government to intervene or allow power tariff revision. This
issue, though critical, is unlikely to be resolved soon, in our view.
Indonesia mining regulation risks Mundra UMPP’s viability
Tata Power has hedged coal cost for 45% of its coal needs (about
12mmtpa) at Mundra UMPP by mirroring the pricing terms in its coal
contract with Bumi Resources. 50% of the remaining coal needs has
been contracted with Bumi at a fixed rate, while the remaining 50%
has been kept unhedged. However, in September 2010, the
Indonesian government introduced a new mining regulation that
requires all coal exports to be priced at least at a benchmark price for
each grade of coal. This regulation is implemented with retrospective
effect, requiring even existing coal supply contracts to be modified by
23 September 2011.
The sharp increase in regional coal prices was expected to hurt
Mundra UMPP for its unhedged coal quantity (27.5% of overall needs).
However, the new regulation would further dent the project led by an
expected increase in coal cost by US$30–35/ton (as per the
company’s estimate) for the fixed price coal component (also 27.5% of
overall coal needs).
Tata Power has requested the Centre to intervene
At its quoted tariff, Mundra UMPP would be an unviable project even
at current imported coal prices (expected to increase further). On full
commissioning by FY14, we expect Mundra UMPP to incur an annual
loss of Rs14–18 bn. Tata Power had recently written to the Ministry of
Power, requesting it to consider the revision of the project’s tariff to
allow the pass-through of higher coal cost on account of the new
Indonesian regulation. It has also requested the government to
convene a meeting of the project beneficiaries to discuss this issue.
Central government referred the issue to the beneficiaries ...
The beneficiaries of the project include Gujarat (1.9GW), Maharashtra
(0.8GW), Punjab (0.5GW), Haryana (0.4GW) and Rajasthan (0.4GW).
As per media reports, the Central government has requested the
Gujarat (key beneficiary state) energy ministry to convene a meeting
of all beneficiary states to consider Tata Power’s request and has also
indicated that the Central government is not a party to this issue.
… however, Gujarat government has refused to raise tariff
Media reports suggest that the Gujarat government has declined any
revisions in Mundra UMPP’s tariff. Further, the Gujarat government
has highlighted to the Central government that since the UMPP
biddings were conducted by the Central government, state
governments should not be involved with this issue. It has also
recommended that the Central government should take up the issue
of new mining regulation with the Indonesian government.
Issue unlikely to be resolved soon
Akin to Mundra UMPP, several other projects based on Indonesian
coal are expected to become unviable based on the norms of the new
mining regulation. Even the developer lobby has requested the
government to intervene in this issue or allow revision in power tariffs.
This issue, though critical, is unlikely to be resolved soon, in our view,
and could lead to litigations from project beneficiaries. Meanwhile, we
expect the profits of these projects will be hit.
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