Tata Power eyes shipping biz, lines up $500 mln investment

Green Energy

Tata Power plans to foray into shipping. The company will invest $500 million through its Singapore-based special purpose vehicle, TPC Energy Asia, to prepare a fleet of nine vessels to transport coal from Indonesia to its plants located in the western coast of India.

The company has already signed charter agreements for three ships, said Tata Power Executive Director S Ramakrishnan. “We are planning to buy some ships. Totally, we need nine. Whatever we don’t get (through charter agreements), we will buy. I won’t be surprised if we own about 4-5 ships,” he said. The company would buy ships worth up to $100 million each, Ramakrishnan added.

Reliance Power, which is developing two ultra mega power projects, is reportedly considering a foray into the shipping business to cut the transport cost. Analysts said the India-bound freight rates are expected to be firm as companies such as Vedanta, Reliance Power and other ultra mega power projects begin shipment of coal. It is not just the prospect of high rates that is weighing on the minds of power producers, but also the possibility that ships too may not be available. Tata Power may consider commercial use of spare ship capacity later. “At the moment, we are focusing on our own requirements. There may be some months where we have excess capacity...at that time, we will see how to synergize with other companies, including group companies,” Ramakrishnan said. Analysts believe Tata Power may use its shipping fleet to provide services to its arm importing coal or ore and exporting finished goods.

The Tata Group’s power utility, which will continue to focus on core areas, wants to restructure its arms and make them self-sustained and profit-making entities. Subsidiaries that are not profit-making at the moment, such as Tata Ceramics, would be revamped to make them viable, Ramakrishnan said. The company also plans to strengthen its power transmission and distribution operations. “Privatization has not been an acceptable word in power distribution unfortunately...we will look at distribution opportunity through franchise,” Ramakrishnan said.

Tata Power holds managing control in the distribution company, North Delhi Power, that supplies electricity to north and north-west Delhi. The company also has a joint venture with Power Grid Corporation, called Powerlinks Transmission, for electricity transmission. Tata Power is also seeking coal and transport linkages to get a firm grip on costs by acquiring strategic stake in foreign coal mines. The company intends to raise its electricity generation capacity to 12,861MW by 2012-13 (April-March) from 2,474MW at the end of the current financial year. Most of the new capacity being added by the country’s largest private sector electricity generator will be fuelled by imported coal, largely from Indonesia.

The company’s annual requirement of imported coal is seen rising to 25 million tons by 2012 from 1.8 million tons now, which will significantly drive up the cost of coal and freight charges. “The view that we have is that coal prices are going to stay high. They may not be $120-$130 a ton...still they will be as high as $90-$95,” Ramakrishnan said. Fuel cost, which includes that of coal, oil and gas and transport, is the single largest cost component for Tata Power, accounting for 60-70% of the company’s total expenditure. “To ensure that we do get long-term supply at affordable prices, some equity stake has to be taken,” he said. Tata Power has picked up 30% stake each in two coal mines in Indonesia. One of these mines will supply about 10 million tons annually to Tata Power, which will take care of 50% of its coal requirements by 2012. “We are looking wherever there is coal. Indonesia has a lot of coal opportunities. But at the same time we need to think if we want to go 100% in Indonesia or diversify,” Ramakrishnan said, when asked if the company has identified any geography for coal mines.

Tata Power’s main business is electricity generation and bulk supply for the Mumbai metropolitan area, which is regulated by the Maharashtra Electricity Regulatory Commission. The company is setting up a 4,000MW ultra mega power project at Mundra in Gujarat, which is likely to be completed almost two years ahead of schedule in 2012. Subject to availability of coal, the company may scale up the capacity of its other upcoming big project, a 1,050MW power plant at Maithon in Jharkhand, Ramakrishnan said. Maithon Power, a 74:26 JV between Tata Power and Damodar Valley Corporation, is setting up two units of 525MW capacity each at Maithon in Jharkhand and this would be operational in two stages by 2011. (Business Standard)

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