New Delhi: Tata Power's 4,000-MW ultra mega project at Mundra, in Gujarat, is staring at an annual loss of Rs 500 crore in the very first year of commissioning due to the high cost of coal to be sourced from Indonesia.

The Tatas will be deprived of the cost advantage on coal imports from the South-East Asian country due to a new local law that requires benchmarking of coal sales to an index-based price linked to global rates.

This will necessitate Tata revisiting its cost calculations on the Mundra UMPP.

UMPPs were seen as a means to achieve leapfrogging of investment and capacity addition in the power sector. Out of the four ongoing UMPPs projects in the country, the Mundra project was slated to be the first to come onstream.

"It (the impact) will depend upon what are the prevailing prices of coal. Suppose at current price of USD 120 per tonne, we will have huge losses in the variable side and which could mean that we will have a first-year loss of Rs 500 crore," Tata Power Managing Director Anil Sardana said.

At current prices, the Indonesian coal that will be used to run the Mumdra UMPP would increase power generation costs by 60 to 65 paise per unit, he said, adding that the company has sought a meeting with the buyer states at the end of this month to find a solution.

Today, the rate is Rs 2.26 per unit and if "you add that 60-65 paise, it becomes Rs 2.90 per unit", Sardana said. It will still be the cheapest imported coal-based power unit ever, Sardana claimed, although he said it is up to the buyer states to find out the solution.

"We don't know what answers will be palatable to the beneficiaries (the buyer states) side... They have to find out the answers they are willing to take, which can range from compensation to allocating a coal mine in India till the time we locate a new mine abroad and develop it," he said.

"Or somebody can say that you convert this coal (from Indonesia to run Mundra UMPP)," the Tata Power MD said.
Five states -- Gujarat (1,805 MW), Maharashtra (760 MW), Punjab (475 MW), Haryana (380 MW) and Rajasthan (380 MW) -- have signed power purchase agreements to secure the 4,000 MW of electricity generated by the Mundra UMPP.

Tata Power had won the bid for developing the Mundra UMPP in 2007 by quoting the lowest tariff of Rs 2.26 per unit and the Rs 16,000 crore project was to run on imported coal.

It has a supply contract for 10.1 million tonnes per annum (MTPA) of coal with Indonesian coal companies KPC and Arutmin, in which it holds 30 percent stake each. Part of this coal was to be used for the Mundra UMPP.

According to the original contract, in the first five years, Mundra was to get 75 percent of the coal at index- linked prices and the rest was to be supplied at a discounted rate of about USD 40 per tonne. After that, the entire quantity was to be purchased at market prices.