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Tata Power Shares Fall Over 3% on Mundra Project Viability Concerns

  • Tata Power shares sank more than 3 per cent in intra-day trading despite a buoyant market following fears that it could declare its 4,000 MW Mundra plant a non—performing asset if no decision were taken on increasing tariffs on power generated by the plant. The scrip fell 3.15 per cent in day trade after closing at Rs 112.35 on Friday afternoon, and even hitting a high of Rs 114 today.However, help might be on the way from the Prime Minister’s Office which has made it a key priority to ensure project viability of power projects that are dependant on imported coal. 
  • The company on 5 February cautioned that the change in coal pricing in Indonesia had upset its own pricing structure and that unless it raised tariffs, it could well run out of money to pay for coal. The Indonesian government's new law requires benchmarking of coal sales to an index-based price linked to global rates. This move has pushed prices of the dry fuel very high. "It (Mundra UMPP) is not a non-performing asset to the extent net worth is there. One day, it could become if no decision is taken (on tariffs)," Tata Power Managing Director Anil Sardana said in an interview.
  • Tata Power won the Mundra project in 2007 on the basis of the lowest tariff bid of Rs 2.26 a unit, but a change in the coal pricing policy in Indonesia has disturbed the cost structure of this and other projects that are dependent on imported coal.In the September quarter of 2011, Tata Power reported a consolidated net loss of Rs 1,218.86 crore, primarily due to provisioning for impairment charges and forex losses amounting to Rs 1,461.96 crore on the Mundra UMPP. If the Mundra plant does become an NPA, domestic lenders would be the hardest hit, since almost half of the Rs12,500 crore project debt,, or about Rs5,800 crore, is in domestic funding, Of this, banks have an exposure of Rs2,000 crore, while IFFCL has Rs1,800 core and HUDCO/OBC/Vijaya Bank have an exposure of Rs 500 crore. 
  • Tata Power, which supplies power to five states from the Mundra plant, is in discussions with concerned states and the Centre over revising the tariff structure. "We are not asking for any change in the fixed cost -- which is the cost on account of plant," Sardana told the Press Trust of India on 05 February.

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