Tata Power Commissions Maithon Unit II

Tata Power Corporation (TPC) has started operations from the second unit of its Maithon power plant in Dhanbad, Jharkhand. With this Tata Power has become the largest integrated private power utility in the country with total installed capacity of 5,297 MW. The Maithon power plant is a thermal power project with an installed capacity of 1,050 MW. It has two units, each with capacity of 525 MW and has been developed under a joint venture between Tata Power (74 per cent) and Damodar Valley Corporation (DVC, 26 per cent).

The unit I of this project started commercial operations in September 2011. The total debt in this project is Rs 2,420.25 crore while the total equity is about Rs 1,162.92 crore as per the FY11 annual report of the TPC. The long-term fuel supply agreements are in the place with Coal India, Bharat Coking Coal and the Central Coal Fields Limited. Out of 1,050 MW of power, 750 MW has been tied up for long-term supply while 300 MW was under discussion with the regulatory authority in Punjab as per its call transcript. All of its long-term contracts will kick-start in April 2012 before which the company will sell this power in the spot market and get benefit of the higher rates as will be the case in summer. The transmission infrastructure is in place for both the units and hence there won’t be any trouble on the transmission front.

The company is also planning another project named Maithon II with an installed capacity of 1,320 MW in the nearby area of Maithon as there is availability of land, water and equipment. The project is in a planning stage and there has been no formal announcement as yet. TPC has recently commissioned the first unit (800 MW) of its Mundra power project. With about 1,850 MW of capacity coming on stream in this fiscal alone we believe that the company will get the benefit of the new depreciation norms (20 per cent for the next two years) as announced in the budget. Besides, the company is also likely to derive the benefits of another budget announcement of nil import duty on imported coal for its Mundra project.

This may result in savings of about Rs 200 crore when the project is fully commissioned i.e. by FY14. With this we expect TPC to half the losses in the Mundra project. At the government level there have been many announcements and the execution is the key for development. In our analysis dated 05 December, 2011 we had mentioned that TPC does not look attractive due to the worries related to the fuel supply as well as lower tariffs. One of the issues seems to have been partially resolved and we are now waiting for the execution as well as tariff revision. At this level TPC looks a little better now than earlier. It should be noted that the sector is slowly progressing and hence it will take some time for execution.