The Mundra Project: Tata Power's Mega Headache
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Case Code: ECON083 Case Length: 12 Pages Period: 2007-2018 Pub Date: 2020 Teaching Note: Available |
Price: Rs.400 Organization : The US Egg Industry Industry : Electric Utility Countries : India Themes: Macroeconomics, Economics of Strategy, Turnaround Strategy, Project Finance |
Abstract Case Intro 1 Excerpts
"Tata bills itself as a company that takes care of people, but this power project has caused such massive damage to the community’s health and livelihood that their public image has come into question. If this is the most ethical corporation in the country and the negative impacts are so bad, imagine how much worse plants from other companies are."
– Soumya Dutta, National Convener of Bharat Jan Vigyan Jatha.
Introduction
In April 2017, India's apex court, the Supreme Court, ruled that Coastal Gujarat Power Limited (CGPL), a key subsidiary of Tata Power Company Limited (Tata Power), could not charge compensatory tariffs from consumers. The ruling nullified earlier orders of the Appellate Tribunal for Electricity (APTEL) and the Central Electricity Regulatory Commission (CERC).The Supreme Court verdict came as a shock to Anil Sardana (Sardana), the then Managing Director of Tata Power who was already dealing with the huge accumulated loss of more than Rs. 60 billion in the company's popular Ultra Mega Power project - Mundra project.
Setup with the objective of providing low-cost electricity across the country, Tata Mundra Project soon came on the verge of shut down. After the Supreme Court verdict, Sardana found himself left with only a few options – to appeal to the Supreme Court to reconsider its decision, to sell 51% stake in CGPL for just Rs. 1 to one of the largest procurers of power and retaina 49% stake to operate the plant under the Operation & Management (O&M) contract, or to renegotiate with electricity procurers on the tariff, and last, he could forget the equity investment in the project and hand the project over to the lenders. Analysts were concerned about the long-term viability of the project; they believed that Mundra project was failing to sustain itself and it needed immediate rescue.
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