Tata Power too expresses interest in acquiring stressed assets

Tata Power with the present installed capacity of 8,750 MW has launched an evaluation for the acquisition of stressed power projects in the country. Company's move comes close on the heels of similar exercise launched by the state-run NTPC and JSW Energy.

The company in its annual report for the fiscal 2014-15 said: ''Due to the current financial stress in the power sector in India, there are assets which may be available for acquisition. The company is evaluating and will continue to evaluate opportunities to acquire projects in various stages of development across the country. These acquisitions, if they materialise, will leverage our existing businesses in the power value chain.'' However, the company has not divulged further details with regard to brown field investment.

As per the CRISIL Ratings' recent report, there are about 46,000 MW of power projects facing critical viability issues due to lack of long term buyers for electricity, inadequate fuel supply and expects mergers and acquisition of such assets.

Tata Power has proposed to increase the generation capacity from to 18,000 MW, with 20-25 per cent from clean and green sources (both 25 tonnes per annum of coal and coal equivalent), 4,000 MW distribution and decentralised distributed generation and 10-x growth in value-added businesses by 2022. The company has indicated the increasing difficulty of acquiring land for future capacity addition in the country. However, it was actively evaluating and pursuing opportunities to acquire land in strategic markets in the country to help build a strong pipeline.

As far as power distribution segment is concerned, Tata Power has expressed its intent to pursue opportunities partnering with states/ union territories that have the institutional will and conviction to reform and drive operational improvement. The company is actively tracking developments with respect to amendments to EA, 2003, which might create opportunities in electricity supply business.

In the transmission sector, the company is pursuing the expansion of its transmission network in the Mumbai and Delhi License Areas. This apart, the company is keeping an eye on opportunities in the transmission sector in rest of India.

While pursuing the capacity addition, the company has cited key risks and concerns including timely resolution and implementation of the compensatory tariff order issued by the Central Electricity Regulatory Commission with regard to Coastal Gujarat Power Limited's (CGPL) power purchase agreement (PPA). CGPL, which operates Mundra ultra mega power project, has reduced loss to Rs 898 crore in 2014-15 from Rs 1,492 crore, mainly due to better operational performance, lower coal prices and lower depreciation. However, the company has not yet taken into account the compensatory tariff order of CERC while reporting financial performance.

Further, the company's other concerns include risks in Mumbai business due to pressure on tariff in distribution business, volatility in exchange rates and coal prices and steep fall in international coal prices adversely impacting the profitability of coal mines, thereby affecting their valuations. But the company has assured the shareholders that adequate assessment of the risks and returns associated with each investments was carried out and appropriate mitigation measures were put in place.