Tata Power has decided to merge its wholly owned subsidiary Coastal Gujarat Power Ltd, which operates the ultra mega power plant at Mundra, into the parent company to provide financial relief as it continues to face losses.
In a press statement, Praveer Sinha, MD and CEO, Tata Power, said: “CGPL has already suffered large losses and is facing difficulty in financing its operations. Given the inordinate delay in resolution of the tariff matter, the merger will provide relief through direct support from the parent company. The company continues to be in discussion with various state governments and state discoms. We do hope that the state governments will take a practical view and resolve thePPA (power purchse agreement) amendment issue in the interest of all stakeholders.”
In July, the Gujarat government had decided to reverse its decision to amend its PPA with Tata Power, and two other large power plants in the state, to raise the tariffs to offset the rising prices of international coal. Tata Power is continuing to negotiate a supplemental PPA with the state that would bear part of the burden of higher fuel costs.
Tata Power reported a net profit of ₹268 crore in the June 2020 quarter, rising 10% from the ₹243 crore reported last year, mainly on account of lower financing costs even as revenue took a hit because of national power demand crashing during the covid-related lockdown.
Operating revenue for the quarter fell 17% year-on-year to ₹6453 crore in the quarter while costs fell proportionately by 10% to ₹6455.56 crore, on lower fuel and financing costs.
In a major strategic change, Tata Power announced along with its quarterly results that its much-beleaguered Mundra ultra mega power plant in Gujarat, it solar cell manufacturing and construction arm Tata Power Solar Systems and its investment subsidiary Af-Taab Investment Company Ltd into the parent “for greater synergies in financing, compliance, and oversight.”
“This merger, subject to necessary approvals, is part of a strategic initiative to simplify the group holding structure and a broader plan to set the company for future growth through fiscal consolidation and strengthening of balance sheet,” the company said in a press statement. “The merger aims to achieve the long-term objectives by facilitating efficient use of cash and making available corporate support to the businesses of the said wholly-owned subsidiaries as needed.”
The quarter saw revenue fall across all three major business verticals: generation revenue fell to ₹3303 crore ( ₹3888 crore last year), renewables fell to ₹849 crore ( ₹965 crore from last year) and transmission and distribution fell to ₹3230 crore (from ₹3807 crore last year).
The Q1 consolidated EBITDA (earnings before interest, tax, depreciation, amortization) stood at ₹2,037. During the quarter, the company won new renewables bids totaling 220 MW.
About the proposed offloading of its renewables portfolio, Sinha, said, “The proposed renewable InvIT (infrastructure investment trust) will be the growth engine and we intend to grow this to be India’s largest renewable InvIT. At present, it has about 2.6 GW of operating plants and 1.5 GW of capacity in pipeline taking the total capacity to 4.1 GW. This InvIT provides the option to recycle capital once the assets are operational. Further, the InvIT strategy enables Tata Power to raise capital at lower cost post stabilization of assets and grow the portfolio whilst we deconsolidate our debt. Apart from adding capacity in the renewable generation in the next five years, we will also be scaling the solar cells and modules manufacturing business along with the solar EPC (engineering, procurement, construction) business.
“Moving forward, the Company also plans to scale-up the growth of the consumer-facing energy solution businesses like EV Charging, smart metering, retail rooftop solar, solar pumps, home automation and solar microgrids in rural areas.”
