Tata PowerNSE -1.93 %, which runs one of the country’s largest power plants at Mundra in Gujarat, has threatened to stop supply from the plant to five states beginning March if they don’t agree to tariff increases. The Mumbai-based company, which may incur a loss of Rs 1,000 crore from this one unit alone this year, has issued notices over the past few weeks to distribution companies owned by the state governments of Gujarat, Haryana, Rajasthan, Punjab and Maharashtra on the possible disruption.
People close to the development said that Tata Power has made it clear that it will not be able to run the power plant unless the pass-through of additional fuel costs to consumers is allowed.
“We have written to them (discoms) that we may have to consider shutting down if there is no positive response, we have not said we will shut down,” a Tata Power spokesperson told ET.
The pressure to Honour Apex Court Ruling
“Our attempt has been to arrive at a mutually acceptable arrangement. We have waited long for a resolution and losses are mounting. We do hope that states will take steps to finalize this quickly.”
The development piles up the pressure on state governments to take action nearly one-and-a-half years after the Supreme Court asked the central power regulator to consider increasing tariffs for the fuel cost increase in the case of three power companies.
The Central Electricity Regulatory Commission (CERC) allowed the increase in April last year but the states have been dragging their feet.
Stoppage of power from Mundra will force the states to buy expensive electricity from outside, Tata Power said. The development also highlights the chaotic state of India’s power sector with loss-making discoms struggling to pay dues even as much needed mega-investment in the power sector languishes. Shares of Tata Power closed at Rs 49.35 on the BSE Thursday, almost unchanged from the previous close.
Gujarat is the only state to have approved a revised power purchase agreement allowing for an increase. State elections in Maharashtra derailed talks and caused delays. People in the know said that the Punjab government has agreed to part of the revision but it has not yet approved the tariff while Haryana is still against tariff hike.“We have responded to Tata Power’s notice by asking them not to take any extreme step. The Gujarat government has already passed the resolution but others are yet to agree. It is a joint contract which we cannot sign unless others give consent,” a senior executive from Gujarat Urja Vikas Nigam, the state discom, told ET.
Tata Power is expected to incur losses of Rs 1,000 crore from the Mundra unit in 2019-20.
It is significantly lower than the Rs 1,700 crore loss incurred last year as coal prices have declined. “The discoms are dragging their feet. Even with the tariff revision, the power supplied from Mundra will still be cheaper by at least Rs 1/ unit compared to any other source they may buy from, which would translate into Rs 2,500-3,000 crore annually,” a senior Tata Power executive said. India had launched an ambitious plan to set up ultra mega power projects of 4,000 MW each to meet the country’s growing power demand more than a decade ago.
Only two projects could be commissioned, the first one being the imported coal-fuelled Mundra unit, which was bagged by the Tatas at a levelised tariff of Rs 2.26 for a unit. But a change in policy in Indonesia in 2011made coal import expensive. Tariff hikes were denied until the Supreme Court gave some relief in 2018.