17 April 2013
Update |Sector: Utilities
Tata Power
TP: INR 95
CERC orders formation of committee on Mundra UMPP tariff
review, Set‐off of mining gain negative
(TPWR IN, Mkt Cap USD4.2b, CMP INR96, TP INR95, 1% downside, Neutral)
CERC order for Mundra UMPP is in‐line with order on Adani Power issued
earlier. Order highlights formation of committee to work out compensatory
tariff, the report for which will be submitted by 15
May 2013. Mining profit
from proportionate coal quantity would be set‐off, which is negative (vs earlier
expectation of pure tariff review). DISCOMs can however challenge the order.
While order is in right direction, we would wait for committee report to assess
actual benefit for project. We note that ~50% of Mundra UMPP’s losses could be
set‐off against mining gain, thus limiting quantum of tariff hike.
Order for Mundra UMPP, in‐line with Adani Power
Central Electricity Regulatory Commission (CERC) has passed an order for
Mundra UMPP’s plea for tariff review. Current order is in‐line with earlier order
released in the matter of Adani Power, for its Mundra project, upholding that
“change in law” and “force majeure” is not tenable.
Order suggests no re‐negotiation of tariff to maintain sanctity of bids of
competitive bidding. Parties to reach agreement for a compensation tariff, over
and above the tariff agreed in the PPAs.
Matter to be decided by the committee having representation from vested
parties, independent financial analyst, lenders, etc. Committee to submit its
report by 15
May 2013.
Committee shall take into account: (a) net profit earned by the petitioner from
coal mines in Indonesia corresponding to the quantity of the coal to be set‐off
(b) Exploring possibility of sharing revenues of sale of power beyond target
availability to the third parties and (c) Use of low GCV coal.
Await further details; set‐off of mining PAT is negative
CERC order for Tata Power’s, Mundra UMPP project has established that the
profit earned from coal mining operation be now passed on to beneficiaries. We
estimate PAT contribution from proportionate coal equity could be in the range
of INR5b, while we forecast losses of ~INR11b for Mundra UMPP project
While any relief in the matter would be positive, the actual gain depends on the
quantum of benefit. We note break‐even for Mundra UMPP = Share of gain
from mining + Tariff hike. Thus, too that extent, the set‐off mining PAT is partly
negative for TPWR and limits gains on entire value chain (Mining investment +
Mundra project). We await details of the committee’s observation and quantum
of benefit. Re‐iterate Neutral.
CERC order can be challenged by DISCOMs
Dissent of one member commission (no tariff hike recommended) could lend
strength to DISCOMs argument and consumer bodies like Prayas and thus,
possibility of challenge to the order is not entirely ruled out. We continue to
believe that while the actual gain to a developer would be dependent on various
moving variables, the lenders in the value chain are getting increasingly

Tata power
cushioned – firstly through DISCOMs restructuring and now through willingness
to address unviable project.
We continue to re‐iterate our positive stance on NTPC and JPVL. We believe
that PFC, REC could be best quasi play.
17 April 2013

Tata power
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17 April 2013