Halt At Mundra Weighs On Tata Power Earnings

Tata Power continues to face mounting losses as its 4,000-megawatt Mundra ultra mega power project (UMPP) in Gujarat remains shut for over six months. This, even as the company says a key agreement with the state government is close to completion.

The plant, designed to supply electricity to Gujarat, Maharashtra, Rajasthan, Haryana, and Punjab, has been idle for much of this period. The delay centres on a supplementary power purchase agreement (SPPA) that is yet to be signed.

For the past four months, the company has told investors that the deal is in its final stages. Chief financial officer Sanjeev Churiwala said the shutdown has already led to significant losses to the tune of ₹800 crore.

Shutdown Follows The End Of Government Support

The Mundra plant had earlier continued operations despite high imported coal costs due to emergency directions issued under Section 11 of the Electricity Act. These directions allowed the government to ask plants to operate during power shortages, even if it was not financially viable, with compensation to be worked out later.

Once those directions ended, and coal prices remained elevated, the economics of running the plant worsened. Without a revised tariff structure, operations became unviable.

A Long-Standing Cost Problem

The Mundra UMPP has faced challenges for years. Built in 2006, it was expected to be a key project supporting India’s power demand. The plant relies on coal imported largely from Indonesia.

Prices for such coal rose sharply from about $40 per tonne in 2006 to over $100 per tonne by 2011. This created a mismatch between fuel costs and the tariffs agreed in long-term power purchase agreements. As a result, the plant has often struggled to operate without losses.

The current shutdown marks a sharp reversal from last year, when the plant contributed positively to earnings. That contribution has now turned negative.

Demand Rises, But The Plant Stays Offline

The delay comes at a time when power demand in India is rising sharply. Peak demand is expected to touch 270–280 gigawatts during the summer months, according to the company. Tata Power has indicated that it wants the Mundra plant operational to meet seasonal demand.

Even as Mundra struggles, Tata Power’s broader business is shifting towards renewable energy. The company said its solar cell and module manufacturing unit reported a profit of ₹251 crore in the quarter, more than double the previous year.

Its rooftop solar business has also expanded. It crossed 1 gigawatt of installations in nine months. These segments are becoming a larger part of the company’s earnings mix. Still, the Mundra plant remains significant due to its scale and past contribution.

Also Read - Union Bank Plans ₹20,000 Crore Capital Raise Via Long-Term Bonds

What Do These Developments Mean for Investors?

For investors, the delay keeps a key uncertainty in place. The Mundra plant has already swung from contributing about ₹300 crore in EBITDA last year to posting losses this year, and each month of shutdown adds to the drag on earnings.

The company has indicated that most issues in the agreement are resolved, but the lack of closure despite repeated timelines raises questions about execution. Until the SPPA is signed and the plant restarts, investors are likely to factor in continued pressure from the asset, even as the company’s renewable businesses show growth.

Source

The Economic Times