Ahmedabad/New Delhi: Tata Power Co. Ltd has offered to sell 51% stake in its Coastal Gujarat Power Ltd (CGPL) unit, which runs the 4,000 mega watt (MW) Mundra power plant, for a token sum of Re1.
In a 7 June communication to state-run Gujarat Urja Vikas Nigam Ltd (GUVNL) which has been reviewed by Mint, CGPL offered the stake to the discoms that have agreed to procure electricity from the project.
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The move is a tacit admission by Tata Power of its inability to run the project at the existing tariff of Rs2.26 per unit. The project has been in a bind ever since the Supreme Court set aside a Appellate Tribunal for Electricity decision that allowed Adani Power and Tata Power to charge compensatory tariff against the increased imported coal cost from Indonesia.
One option proposed is that GUVNL and other electricity procurers who had contracted with CGPL acquire the majority shareholding for a nominal charge. In turn, they would grant relief by purchasing the power at the revised tariff, making up for the under-recovery of fuel.
The other alternative suggested is to renegotiate the present tariff and terms of the power purchase agreement (PPA).
While the lead procurer of the power from the Mundra project is GUVNL (1,800MW), the other utilities who have signed PPAs with CGPL are Maharashtra State Electricity Distribution Co. Ltd, Ajmer Vidyut Vitran Nigam Ltd, Jaipur Vidyut Vitran Nigam Ltd, Jodhpur Vidyut Vitran Nigam Ltd, Punjab State Power Corp. Ltd and Haryana Power Generation Corp. Ltd.
“After exhausting all other options, CGPL has now suggested the below mentioned option to ensure the viability of the Mundra plant and are consulting on these with stakeholders. Its bankers have made a suggestion that if 51% equity is taken over on a back-to-back basis with the procurers, then the procurers would have advantage of competitive power for full life of the plant e.g. 40 years as also unrestricted generation even beyond 80% availability would give them access to higher generation at very low and competitive price,” Tata Power said in a statement on Thursday.
Copies of CGPL’s communication were also sent to Nripendra Misra, principal secretary to Prime Minister Narendra Modi; J.N. Singh, chief secretary of Gujarat; P.K. Pujari, union power secretary; and Sujit Gulati, additional chief secretary, energy and petrochemicals department in Gujarat.
Adani Power Ltd has also sounded out the Gujarat state government to sell 51% stake in its 4,620MW plant, also located at Mundra.
Pankaj Joshi, managing director of GUVNL, didn’t respond to queries emailed by Mint.
Experts likened the proposal to something akin to dealing with a stressed asset.
“It’s a suggestion to be evaluated in all seriousness where the promoter is ready to forgo control and returns; lending a hand in operating the asset to protect and make the project viable. It is like dealing with a distressed asset. It also helps parent company in managing reporting requirements,” said Sambitosh Mohapatra, partner, energy and utilities, at PwC India.
The Gujarat government, however, remained non-committal about the proposal. “We are yet to take a final call on the two proposals. GUVNL will not have to make any fresh investment while getting a controlling stake in the two entities. While it shows that the value of the two companies have eroded, it does look like a good deal, although we will have to examine it closely,” said a Gujarat government official, requesting anonymity.
CGPL has a project outlay of Rs17,900 crore for the Mundra project. On a paid-up equity capital of Rs6,083 crore, it has accumulated losses of Rs6,457 crore.
“The deal size is for a token amount of Re1 as it includes transfer of debt in proportion to the equity,” said a second Gujarat state government official who also didn’t want to be named.