The Mundra Project: Tata Power's Mega Headache
|
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
Excerpts
Electricity Problem in India
In 2015-16, India became the fastest growing economy in the world with GDP growing at 7.6%. However, this growth rate was based on infrastructure that was unreliable and insufficient because of less than the required investment in it. The power sector was one of the key components for the growth of any country. By the end of July 2017, India had the third largest power generation capacity with a total installed capacity of 330,153.65 Megawatt [MW] and the fourth largest number of electricity consumers in the world...
Ultra Mega Power Projects
In FY2006, the GoI, under its project – 'Power for All by 2012', planned to provide power to all citizens by 2012. With this in mind, It came up with the Ultra Mega Power Projects (UMPPs) plan. The GoI planned to develop 16 UMPPs each with a capacity of 4,000 MW or above. The government also planned to develop these projects under a public-private partnership using the ‘Build, Own, and Operate (BOO)’ model. It decidedto award the UMPPs only through the tariff-based international competitive bidding route...
Tata Power Company Limited
Tata Power was part of the Tata Group, one of the leading multinational business groups of India. A pioneer in the power sector, Tata Power had many firsts to its credit (Refer to Exhibit I). It was established in 1915 when a 72MW hydroelectric project was started in Khopoli, Maharashtra, a state in western India. Tata Power was involved in all segments of the power industry – power generation, power transmission, distribution, and power trading....
Coastal Gujarat Power Limited
Coastal Gujarat Power Limited (CGPL) was incorporated by the PFC as a shell company in February 2006 to set up a UMPP adjacent to Mundra port in Mundra Taluka (administrative division) in the Kutch District of Gujarat...
Mundra Project
The Mundra UMPP had five units of 800 MW spread over the1,242-hectare site in Mundra. These units used superior thermal technology like supercritical boilers. The total development cost of this project was about Rs. 179 billion (US$4.14 billion) and only Rs. 42.5 billion came from equity. This power plant annually consumed around 11-13 million metric tons of imported coal and 14.26Mm 3 /day (594,200 m 3 /hr) of water was pumped from the Gulf of Kutch which was just 2.5 km from the plant...
Issues Related to Mundra Project
Tata’s Mundra project was facing problems from all sides - from society, environmental issues, and financial problems.
An independent fact-finding team led by retired judge S N Bhargava, found that Tata's Mundra plant had destroyed mangroves, dry-land forests, creeks and estuaries, and coral reefs. The report prepared by this team stated, "Kotdi Creek and Mudhwa Creek were dredged (as the Tatas said they would do), denuded of their rich vegetation, and turned into dead water channels. This is an irreparable loss to this rich ecology."
Appeal, Re-Appeal and the Supreme Court Order
Tata Power suffered massive losses due to the increase in coal prices and an unfavorable exchange rate. In 2012, it filed a petition with the CERC to consider a sudden increase in the cost of coal as a force majeure 13 event and allow the company to increase tariffs. In 2013-14, CERC allowed Tata Power to increase the price by Rs.0.524 per kWh with retrospective effect from April 1, 2013. Additionally, CERC asked customers of CGPL (electricity procurers from five states) to pay aboutRs.32.95 billion as compensatory tariff to the company for the period April 1, 2012, to March 31, 2013....
A Tough Road Ahead
After the Supreme Court order, analysts believed that there were only a few options available to Sardana. The first option was to appeal tothe Supreme Court to reconsider its order. Another option was to sell 51% of its stake in CGPL for just Rs. 1 to Gujarat Urja Vikas Nigam Ltd (GUVNL), the largest electricity procurer of the Mundra project. By opting for this option, Tata Power would retain 49% stake in the company and operate the plant under the Operation & Management (O&M) contract. The third way was to renegotiate the tariff and condition of the power purchase agreement with the electricity procurers....
Exhibits
Exhibit I: Tata Power: Many Firsts to Its Name (1927-2017)
Exhibit II:Selected Consolidated Financial Information of Tata Power
Exhibit III: Selected Financial Information of CGPL
Exhibit IV: Mundra Ultra Mega Power Project
Exhibit V:Community Satisfaction Index (CSI)
Exhibit VI: Major CSR Activities at CGPL
Exhibit VII: Under-recovery of fuel cost at CGPL
Buy this case study (Please select any one of the payment options)
| Price: Rs.400 |
Price: Rs.400 | PayPal (9 USD) |
