Tata Power to restart loss-making Mundra plant to supply low-cost electricity

Tata Power's major wealth drain is its 4,000 MW ultra mega power plant at Mundra, Gujarat, run by subsidiary Coastal Gujarat Power (CGPL). The project has been jinxed ever since it was commissioned in March 2013.

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Due to the rising demand for low-cost electricity from its five dedicated power consuming states, Tata Power Company (TPCL) has decided to restart its loss-making ultra mega power plant (UMPP) in Mundra. The company had shut down most of its units in the recent past because of the lower price realisation and mounting losses. Recently, the five states -- Gujarat, Haryana, Punjab, Maharashtra and Rajasthan -- have agreed to pass on the raw material and power production costs to consumers, but the process is lengthy and it needs approval from Central Electricity Regulatory Commission (CERC).

"In deference to the demands of the states and the extraordinary condition, we have decided to restart the Mundra UMPP units," TPCL said. Considering India's present condition when the country is impacted by Covid-19, it is time for us to contribute to the might of the country, the company executive said.

Mundra UMPP can provide low-cost power for the consumers in these states, the executive added. However, it is not clear when the company can sign the revised power purchase agreements (PPAs) with the five states.

Tata Power's major wealth drain is its 4,000 MW ultra mega power plant at Mundra, Gujarat, run by subsidiary Coastal Gujarat Power (CGPL). The project has been jinxed ever since it was commissioned in March 2013.

It has made profits only once over the last eight years. The company has informed the power ministry that it would be forced to stop operating this imported coal-based plant -- built at a cost of Rs 18,000 crore -- after February unless the five consumer states allow pass-through of additional fuel costs to consumers.

The plant has not been able to generate working capital for operations and made cumulative losses of about Rs 11,000 crore, which has been funded by Tata Power and equity financing of Rs 5,000 crore.

Tata Power had won the project in an open auction by quoting the lowest tariff of Rs 2.26 per unit, which it believed, would be viable if it used cheap coal from Indonesia where it had stakes in coal mines. Soon after, in 2010, the Indonesian government banned export of coal below the global rate, upsetting Tata Power's calculations.

The Supreme Court in October 2018 asked the CERC to decide on changes in PPAs for three imported coal-based plants in Gujarat to let them pass on higher fuel costs to consumers. In April 2019, Adani Power, which had also set up a plant at Mundra, expecting to use the Indonesian coal and was in a similar fix, was allowed by CERC to pass through the increased costs to consumers.