Tata Power's Mundra project has turned a corner after a gloomy start

When Tata Power had won the bid for the Mundra Power Plant in 2007, it was considered one of the most prestigious power bids in India. The problems for the plant escalated in the year 2021 when the price of coal shot up from $100/metric tonne to $400/metric tonne. Since the power purchase agreements (PPA) was already signed, there was no choice but to shut down the plant as it had become unviable. The ultra mega power plant (UMPP) with capacity of 4,150 MW had to be shut down in the absence of choice. However, now there is some good news for the Tatas and the power supply situation. Here is why.

CERC allows Tata Power full cost pass through

The Central Electricity Regulatory Commission (CERC) had clarified a few months back that Tata Power can supply power from its Mundra ultra mega power plant (UMPP) at full cost pass through under Section 11 of the Electricity Act, 2003. There is a special provision (Section 11) in the Act which allows the CERC to intervene and instruct power consumer to agree to a price to avoid a power shortage in the country. In early 2023 the CERD had already instructed all power plants, including the idle Mundra plant, to resume production to prevent any power shortages during intense summer temperatures. Tata Power has been in negotiation with five state governments for implementing supplementary PPA (power purchase agreements), which can factor in these sharply higher costs of coal in India.

Incidentally, the Mundra facility of Tata Power had ceased operations after hike in the price of its imported coal had made the PPAs it had with five states unviable. For instance, we stated earlier, the price of imported coal went up 4-fold due to the supply chain constraints created shortage of coal in the market and most of the power companies had been pushed to the brink. For the last few months, the Tatas had been in talks with the five states to revise the PPA and agree on supplementary PPAs. This will enable Tata Power to run its business profitably rather than at operating losses. Now that agreement appears to be getting close, which gives the hope that the Mundra plant can be soon reopened.

Once the Supplementary PPA is agreed upon and implemented, Tata Power would be liable to generate and supply power in terms of the PPA dated 22nd April 2007 as may be amended through the Supplementary PPA. Also, nothing will come in the way of the implementation of the Supplementary PPA; and the same has been clarified by the CERC itself. The power situation in India had been quite grim although it is improving compared to last year. It was not just a problem of coal availability but also of unviable operations in the light of the PPAs being out of sync with the coal prices. The only option then for the power plants was to shut down.

A recent statement by Tata Power is a lot more optimistic. According to the statement, During the period when the Central Government has given directions under Section 11 of The Electricity Act, the obligations of the parties under existing PPA for supply of power would not apply. In other words, the power supply obligations would be governed by the said section 11 directions. Also, it has been noted that under Section 11 of the CERC Act, the tariff would be determined by the commission on the settled legal principles of full cost pass through. This should now settle the issue once there is state buy in. For now, the Mundra generation plant is producing power and supplying to beneficiary states but would be able to increase its output further. CERC has also clarified that its interim order would not stand in the way of finalising supplementary PPAs with Gujarat and other beneficiary States. That should be positive for Tata Power and also for the power supply situation in India.