● Our interaction with stakeholders suggest that the Committee
formed to suggest a ‘compensatory tariff’ for Mundra UMPP project,
based on the CERC's judgment in April, has effectively suggested
the pass-through of entire fuel cost (Rs0.59/kwh for FY14).
● This tariff needs to be adjusted for coal supplies to Mundra UMPP
from Indonesian coal mines proportionate to its 30% stake which is
likely to be marginal at Rs0.02/kWh on full operations. Other key
recommendations include sharing of potential profits from the sale
of power to third parties beyond mandated 80% plant availability,
request for loan restructuring and compensatory tariff cap.
● The committee has taken a benign view for Mundra UMPP which
is positive for Tata Power but we still do not rule out the possibility
of the this order being litigated by SEBs and consumer forums.
● Also, under-recoveries in even fixed costs mainly led by sharp INR
depreciation are a concern. In the meanwhile, Mundra UMPP’s
cash losses would eat away most of cash flows earned by its other
businesses. Tata Power has already eroded 84% of its equity
investments in Mundra UMPP. Maintain UNDERPERFORM
��
formed to suggest a ‘compensatory tariff’ for Mundra UMPP project,
based on the CERC's judgment in April, has effectively suggested
the pass-through of entire fuel cost (Rs0.59/kwh for FY14).
● This tariff needs to be adjusted for coal supplies to Mundra UMPP
from Indonesian coal mines proportionate to its 30% stake which is
likely to be marginal at Rs0.02/kWh on full operations. Other key
recommendations include sharing of potential profits from the sale
of power to third parties beyond mandated 80% plant availability,
request for loan restructuring and compensatory tariff cap.
● The committee has taken a benign view for Mundra UMPP which
is positive for Tata Power but we still do not rule out the possibility
of the this order being litigated by SEBs and consumer forums.
● Also, under-recoveries in even fixed costs mainly led by sharp INR
depreciation are a concern. In the meanwhile, Mundra UMPP’s
cash losses would eat away most of cash flows earned by its other
businesses. Tata Power has already eroded 84% of its equity
investments in Mundra UMPP. Maintain UNDERPERFORM
Decision on compensatory tariff now pending with CERC
Our interaction with various stakeholders suggests that the Committee
formed to determine compensatory tariff for Tata Power's Mundra UMPP
has recommended gross compensatory tariff of Rs0.59/kWh for FY14. As
per recent media reports (Business Standard), CERC has directed the
committee to re-submit the report after getting it signed by all the
stakeholders (presently signed only by Mr. Deepak Parekh–Committee
head and SBI Capital Markets–independent financial analyst). CERC is
likely to conduct public hearing on the matter by the end of Sep-13.
Committee suggests full pass-through of fuel costs
In its petition to CERC, Tata Power had argued that an unprecedented
increase in imported coal prices and a change in Indonesian mining
regulations had caused the economic unviability for Mundra UMPP, and
the same was validated by the Committee. After deliberating on various
options to work out compensatory tariff, the Committee has suggested
the grant of provisional gross compensatory tariff based on underrecovery in the entire fuel cost and truing-up of provisional compensatory
tariff at the end of each year to adjust for coal business profits.
✂ ✄ ☎ ✆ ✝ ✞ ✄ ✟ ✠ ✡ ☛ ✡ ✄ ✄ ✟ ✟ ☛ ☞ ✡ ✌ ✄ ✍ ✝ ☞ ✎ ☛ ☎ ✡ ✄ ✞ ✏ ✡ ☎ ✞ ✠ ✟ ✟ ✑ ✏ ✄ ✎ ✆ ✏ ✒ ☛ ✓ ✔ ✓ ✕ ✖ ✗ ✘ ✙
As per committee's recommendations, the compensation shall be offset
against Indonesian coal profits only to the extent of coal supplied to
Mundra UMPP from KPC/ Arutmin for Tata Power’s 30% stake. Based
on the calculations and assuming same levels of coal blending
(Melawan vs. Ecocoal), this adjustment is likely to be marginal at
Rs0.02/kWh on full operations (US$2 mn profit).
✚
☞ ✎ ☞ ✟ ✠ ✡ ✟ ✞ ✄ ✍ ☛ ☎ ✆ ☞ ✑ ☞ ✏ ✄ ✎ ✛ ✜ ✓ ✢ ☎ ✣ ☎ ✠ ✆ ☎ ✑ ✠ ✆ ✠ ✡ ✏ ✡ ✄ ✑ ☞ ☞ ✤ ✝ ✆ ✄ ✞ ☞ ✛
The committee has recommended that the third party sale of power
beyond the mandated 80% availability should be permitted after
making modifications in the existing PPA and the profit from such sale
be shared equally between Tata Power and the SEBs. This shall
effectively bring down the impact of compensatory tariff on SEBs.
✥
☎ ✞ ✛ ☛ ✙ ✠ ✝ ✡ ✄ ✑ ☞ ☛ ✙ ☎ ✞ ☞ ✛ ☞ ✦ ✧ ☎ ✆ ✆ ✏ ✑ ✏ ☎ ✆ ✆ ★ ✠ ✎ ✌ ✆ ✧ ✛ ✠ ✎ ✩ ✆ ☞ ✎ ✛ ☞ ✞ ☛
SEBs have opined that lenders should also share a part of the burden
by providing assistance in the form of reduced interest rates,
moratorium extension for principal repayment, etc. While lenders have
expressed concern about taking such steps as it shall lead to debt
restructuring, the committee has advised domestic banks to approach
RBI for exemption from restructuring guidelines for Mundra UMPP.
UMPP's networth to get eroded by FY14 end, maintain U/P
The Committee has taken a benign view of Mundra UMPP which is
positive for Tata Power but we still do not rule out the possibility of the
this order being litigated by SEBs and consumer forums. This would
delay the translation of compensatory tariff into cash flows.
In the meanwhile, Mundra UMPP’s cash losses would eat away most
of the cash flows earned by its other businesses. Tata Power has
already eroded 84% of its equity investments in Mundra UMPP
(totalling to Rs52 bn). We note that lenders have limited their exposure
to 70% of project cost (vs. 75% sanctioned earlier), resulting in Tata
Power increasing its equity commitment towards the project.
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