India Insight

Tata Power scouts for opportunities abroad

May 29, 2013

(Any opinions expressed here are those of the author and not necessarily of Reuters)

Tata Power Company Ltd, part of the salt-to-steel Tata conglomerate, is India’s largest integrated power producer. It aims to generate some 20,000 MW by 2020, up from more than 8500 MW now, and is scouting for opportunities abroad as well as building its thermal and renewables business at home.

Like its peers in the industry, the company has faced problems of land acquisition and fuel supply shortages in developing new projects, projects that are seen as key to help revive India’s flagging economy and fix blackouts.

Moreover, its plant at Mundra in Gujarat has been hit by a jump in the cost of imported coal, and Tata is still waiting for a decision in April by India’s power regulator, the Central Electricity Regulatory Commission (CERC), to come in to force to allow it to raise tariffs to existing customers.

(Related blog: Counting the cost of India’s power cuts http://r.reuters.com/pep48t )

Reuters spoke to Tata Power’s executive director for finance, S. Ramakrishnan. Here are extracts of the interview:

Q: What are your plans for capacity expansion domestically?
A: “We are building a thermal plant based on the processed gases for Tata Steel in Orissa, in Kalinganagar, about 200 MW, and we are setting up some solar and wind units in India. While we are working on 2-3 thermal projects in India, many of them have challenges of land acquisition, fuel, so they are taking longer time as it is happening with the rest of industry.”

Q: What is your outlook for expansion abroad?
A: “We have been looking at certain markets and we have been looking at certain opportunities which we believe make sense in the long run, though it may not draw significant amount of money in the short run.”
“We are doing some feasibility studies in Myanmar for a thermal project … we will take about a year and a half to do a feasibility study and then go towards implementation … We are looking for some similar such opportunity in Vietnam.”
“Most of these (projects) are, I will say, smallish in size, not like in India where we do 1000 or 4000 (MW) or whatever.”

Q: Is it easier to do business abroad than in India?
A: “Let me put it this way … it is not that the investments abroad are risk-free. They have their own package of risk-return profile. Very often there is more clarity in some of the jurisdictions on policy matters pertaining to the sector.”

Q: Outlook on renewables
A: “We continue to move ahead on renewables, wind and solar. Of course in India, for everything you need land. Land is an issue but we are making some progress because the size of these operations is not so large.”

Q: Is it correct that you plan to launch an initial public offering (IPO) for a renewable company?
A: “We have created a renewable as a subsidiary of ours so that it can be an independent vehicle. And at the opportune time we can make it grow faster, taking other shareholders, whether it is a specific large shareholder or it is many small shareholders … The idea is to let it have its own destiny independent of Tata Power.”

Q: Is it true that you are scaling back major investments in order to cut your debt?
A: “Let me put it this way. The financial pressure on us arising out of the Mundra situation is enormous at this point in time. And it’ll naturally make us sit and review where we are headed until the CERC process reaches its logical conclusion.”
“We will be very, very cautious and selective in our growth options.”
“… If one is talking of any large acquisition which demands an immediate outlay of large funds we’ll definitely not look at it.”

(Follow Matthias on Twitter @matthi_williams )

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