Co MD hints at alternatives like sale of non-core investments, raising of equity
Tata Power, part of India’s largest business conglomerate – the Tata Group, has been saddled with debts owing mainly due to poor sales of power from its Mundra plant located in Gujarat.
The company’s financial troubles over the past few fiscals have arisen mainly after the contracted tariffs for the aforementioned plant which is dependent on coal imported from Indonesia, became unviable as fossil fuel from the South Eastern nation became dearer globally.
The company’s Managing Director Anil Sardana though told Animesh Singh of The Pioneer in an email interview that Tata Power is looking at various options to tackle the financial situation like sale of non core investments and raising of equity. These options though are still being studied and nothing is final yet, he said.
Following are the excerpts from the interview.
How do you propose to reduce your debtIJ Are there any strategies in place to sell off your non-core assets. Please shareIJ
To bring the outstanding debt under control, Tata Power is evaluating the options for sale of non-core investments. We are studying what are the various options available to us to improve the debt-to-equity situation so that the credit rating pressures are lessened. Options include sale of investments, raising of equity, amongst others. They all are still under study and no final decision has been taken yet.
Now in hindsight, do you feel that Tata Power had made a wrong decision to invest in Indonesian coal companies. (The company has stakes in two coal companies in Indonesia – PT Arutmin and PT Kaltim Prima Coal or KPCIJ
In the Indonesian mines, we invested not for the purpose of investment but for the securitisation of coal.
Do you plan to sell your entire stake in Indonesia (mainly in KPC)IJ What plans do you have for this investmentIJ
Tata Power exited from PT Arutmin Indonesia stake in January this year (On January 31, 2014, Tata Power had announced sale of its entire 30 per cent stake in Indonesian coal company PT Arutmin for $500 million. The company had signed an agreement to sell its stake in Arutmin and associated companies in coal trading and infrastructure to a Bakrie Group entity).The option to sell 5 per cent stake in KPC and its related power company will provide Tata Power with the flexibility to raise additional funds to meet current challenges. If the option is exercised, there will be no impact on the coal supplies to our plants since we will stay invested in KPC mines to the extent of 25 per cent and our coal supply agreement will continue as it is. There will also not be any dilution of our rights under the KPC SHA as a result of the 5 per cent sale. KPC is a good investment and will continue to be a part of the supply chain for Tata Power Group’s coal off-take requirements.The company had announced in July this year sale of its 5 per cent stake in KPC for about $250 million to a Bakrie Group entity. Post the stake sale, Tata Power’s stake in KPC will be reduced to 25 per cent.
You had approached the Appellate Tribunal for Electricity, seeking higher than contracted tariffs for electricity sold to state utilities after the Indonesian coal prices became dearer. However as the Chairperson of the Tribunal is retiring this month, how will the resultant delay in decision making by the appellate body affect Tata Power’s Mundra plantIJ
The delay will definitely have a financial impact on the companies which have already been incurring losses on account of the Mundra power plants. We are hoping for a quick resolution of the matter.
Is Tata Power planning to acquire any overseas coal assets to compensate for Indonesia as global prices of coal have also subdued off lateIJ
Tata Power has an ongoing process to evaluate coal mines globally. The Company is seeking coal assets in the US, Canada and Colombia. Initial purchase talks are on for several mines. A few consignments have been sourced from Colombia and USA. The coal from these mines will be used for generation. This is a part of Tata Power initiative to ensure fuel security for the country.
Despite huge coal reserves in India, the domestic power sector is facing coal shortages and has resorted to imports to meet its requirements. This shortage may result in increasing non-utilisation of assets that are already built and this would also distract new capacity additions thereby targets not being reached.
At the same time, policy changes in Indonesia and Australia have escalated the price of imported coal. Since independent power producers import coal from Indonesia and Australia, the sudden spike in price and change in law has caused imported coal-based power projects to become economically unviable.
There is a need to evolve a robust energy security policy for the country so that guidance be given to all State Regulatory commissions to plan bulk supply procurement in line with basket of fuels that meet Indian's energy security needs. The government, on its part, needs to take measures to develop a conducive and enabling policy framework by introducing an independent coal regulator to oversee mine planning and development, adherence to investment plans and compliance with production schedule to finally, building a road map to introduce commercial mining.
Is Tata Power looking at any specific geographies to expand its footprintIJ
While the Indian market continues to remain the primary focus of business for the company, fuel shortages, land-availability and delays in various clearances has slowed down the pace of opportunities in India. The company, thus, has started making investments into projects in select international geographies to strengthen and diversify its portfolio and for greater impetus for growth.
The Company is setting up 2,600 mw of capacity abroad. In line with this international strategy, the Company continues to evaluate investment opportunities in Africa, Turkey, Middle East, South East Asia region. The Company has deployed resources in these regional geographies to understand the market dynamics and scout for opportunities. The shortlisting of these regions has been done based on aspects like opportunities; risks; likely rewards; law and order situation & ethics cum values prevalent in these geographies.
Kindly specify your foray into renewable energyIJ
Tata Power intends to have a 20-25 per cent contribution from ‘clean power sources’ at all times. To achieve the same, the Company is exploring multiple options, both Greenfield and Acquisitions, to be able to capture the market for both Solar and Wind based generation.
Today, Tata Power’s total operating capacity stands at 8613 mw, wherein 1202 mw comes from clean energy sources. The total operating capacity from clean energy source are 461 mw from Wind farms, 54 MW in Solar Generation, 447 mw of hydro, and 240 mw from waste gas based generation.
The company has been working in different areas of renewable power generation- both grid connected as well as distributed, through a combination of Hydro, Solar, Wind, Geothermal and Waste Gas plants. Tata Power’s solar presence has largely been in Gujarat and Maharashtra. Currently, Tata Power’s wind power capacity is spread across five states - Maharashtra, Gujarat, Tamil Nadu, Karnataka and Rajasthan. The Company will continue to look at growing its renewable presence in Gujarat and Rajasthan and also in international locations.