After tariff relief, our Mundra losses would come down by 50%: Praveer Sinha, Tata Power
Hopefully for nearly 50% of this year, this benefit will accrue to the company, says Sinha
Finally, it looks like tariff hike is under way for Mundra Power companies. Tell us a little bit about the entire process. What is the next step for actual tariff hike going to be?
The Supreme Court directive gave eight weeks’ time to all the beneficiary states to modify the PPA and reach out to CERC so that the approval can be in place. That process has started. As a lead procurer, Gujarat has gone and issued the government orders and has also directed the discom there, Gujarat Urja Vikas Nigam Ltd (GUVNL) to complete the amended PPA. Based on that, the orders copy has also been given to the other four beneficiary states which are also in the process of getting government orders issued for modifying the PPA.
We expect that the whole process to be completed in the eight weeks time that has been given by the honourable Supreme Court and thereafter, the amended PPAs will give the relief that has been proposed in the government orders.
If our numbers are correct, you will still have a loss of about 50-60 paise per unit. Is that right? The bottomline is losses will come down, but you will still be losing money.
You are absolutely right that there would still be a delta loss. But it depends on what is the cost of coal. If the HBA is $90, then the loss would be something like 35 to 40 paisa. That is the number that we are looking at and this is a relief in terms of the under recovery being reduced. Earlier, if the under recovery was about 80 to 90 paisa depending on the cost of coal, which now could come down by nearly 50%.
That is on the under recoveries front. How much of that would get recovered by you initiating a tariff hike which is expected at Mundra?
As I mentioned to you, we will recover 40 paisa from the tariff hike. In terms of the impact on the tariff in the states, considering the pooled cost of power, when it gets socialised, in a state like Gujarat it would be maximum 1-1.5 paisa. In other states also, it is in that range. Overall, 1 paisa would be the increase in tariff over there.
How would that translate into overall profitability?
Our losses which presently are about Rs 1,600-1,700 crore in Mundra will come down by 50% and then we will of course take some more measures in terms of optimising our financing cost and other operational parameters. We expect that our eventual loss will be in the range of about Rs 500 to 600 crore.
I am assuming that this number would stand true for the next financial year and in this financial year, nothing would change because you only have like a quarter left now?
The effective date of the amendment has been put as 15th October 2018. So, hopefully for nearly 50% of this year, we will have this benefit that will accrue to the company.
The general view which we are getting from fund managers, analysts and the investing fraternity is that Hindustan mein bijili ki shortage hai (there is shortage of electricity in India) . Is that true?Are power prices likely to move higher and is there going to be a shortage of power?
There are three reasons why this has happened. The first reason is that the coal supply has not kept pace with the demand of power plants. In last six months, most of the power plants have not been getting adequate quantity of coal and they have stocks for only for about two to three days.
Do you sense that there is a supply side pressure coming in with coal shortage or is it a demand side scaledown which is putting power companies such as yourself in a bit of a spot?
Both sides. There is a supply side of coal which is a constraint and they are not able to adequately address the requirements of power plants.
Second is demand has also gone up primarily because the summer has been a little long this year. Secondly, because of the Saubhagya and other schemes of government to connect all the houses in the villages, the demand of power has gone up.
Also as the elections are coming, there is a huge pressure on the state discoms to ensure adequate supply of electricity in all the states including rural areas. Due to all these reasons there is a shortage and the short-term market has gone up in the last six months.
After two years, what could be the big change for Tata Power? Will more contribution be coming from new areas of business or will it be pure growth in power demand and your new acquisitions that will start filtering in?
In the last two years, we have not added much capacity. We have virtually stagnated at whatever level of generation that we had been doing. But now we are working on adding capacity mainly in the renewable space. We have in the last six months won 500 megawatt of utility scale solar. We are going aggressively on the rooftop solar and we have plans to reach out to nearly 100 cities in the next two years.
We have already gone into four cities and by the end of this financial year we will be in 18 cities. Similarly, we are coming up with a whole range of new products, be it electric vehicle charging facilities or home automation. A huge amount of growth is coming and these are all retail side growth that is coming in.
Apart from this, through our resurgent platform, we have taken over the Prayagraj plant and that is a capacity addition. We don’t only have a stake in it, but we will be also operating the plant.
We are consolidating and a lot of non-core assets are now being sold off. We will have enough money to plan the growth that we are planning for ourselves in the power sector.
When would be the PPAs be reworked and when do you expect states’ approval to come in?
I am expecting that all this should get completed by the end of December.
Does the CERC approval mean that PPAs across other states can be reworked as well? Does it open up the opportunity of nationwide price hikes?
The high power committee and the direction from the Supreme Court is specifically for imported coal-based plants which were set up in Gujarat and others have to go through the process of getting necessary approvals and justification for any increase.
There was a genuine reason in this and that is what the high power committee felt about it, especially the attractiveness of the power cost from all these plants. They have to looked for merit in each case rather than saying that this will be done for everyone on a generic basis.
In yesterday’s policy, RBI talked about how NBFCs do not need a special liquidity window. It seems funding situation is not as dire as it was being made out to be. What is your outlook for the power sector in the coming year?
As far as the funding is concerned, good projects and promoters always get funding and we have not seen any credit squeeze as far as Tata Power is concerned. Whatever growth plans we have been sharing with our lenders and banks, they have been very supportive of it. Generally, in power sector, because of the challenges that many of those plants had in terms of either not having the PPA or not having the coal supply arrangement, it has been more of an operational challenge.
Since those plants are already set up, there is no reason why they should not be able to produce power and supply it to the users in the country.