Essar Power has joined Tata Power and Adani Power in the move to seek possible solutions for its imported coal-based thermal plant in Gujarat that has been making losses for the last five years.

Essar Power Gujarat (EPGL), an SPV set up by Essar Power to develop, build, own and operate 1200 MW imported coal-based power plant at Salaya, Gujarat, has sent a communication to the Gujarat Urja Vikas Nigam Ltd (GUVNL), the parent body of the Discoms in Gujarat, and various government officials requesting them to consider options to help the company, which is struggling with losses. Similar letter had earlier been sent to the same officials by Tata Power.

Imported coal-based thermal power projects of Tata Power, Adani Power and Essar Power have been struggling for the last several years after the changes in Indonesian regulation made all these projects operating on Indonesian coal financially unviable.

The Supreme Court in April denied the compensatory tariff to Tata Power and Adani Power (Essar Power filed the same petition before Gujarat Electricity Regulatory Commission seeking similar reliefs under Change in Law / Force Majeure), thereby denying earlier reliefs granted by the Appellate Tribunal for Electricity (APTEL).

Since then, these private players have been seeking ways to deal with these assets so that they do not turn non-performing.

The letter (seen by BusinessLine) signed by Ramesh Kumar, MD of EPGL, says EPGL has been incurring huge losses for over five years, leading to additional borrowing to sustain the operations. This has caused additional burden on account of interest cost.

EPGL’s debt amounted to ₹5,062 crore as on March 31, while the project cost rose from an estimated ₹4,820 crore to ₹8,215 crore (including ₹2,483 crore losses).

Even after EPGL has infused equity of ₹1,400 cr to support the project, bringing total equity to ₹2,609 crore, the networth of EPGL has been almost wiped out and the debt has increased to ₹5,062 cr due to losses incurred so far, the company said in the letter.

EPGL suggested that the tariff and terms of PPA signed in 2007, could be negotiated.

In the interim, GUVNL could consider procuring coal and supply to EPGL, and EPGL will supply power utilising such coal and will charge only capacity charges as per the PPA.

An alternative option proposed by Essar Power to GUVNL is to take over 51 per cent equity of EPGL and purchase power from EPGL on cost plus basis, while EPGL will provide support for continued operations by undertaking O&M contracts.

According to market analysts, while renegotiating of PPAs is almost impossible, the second option of GUVNL buying out controlling stake in these projects seems difficult for regulatory and political reasons.

E-mail requests sent to Tata Power and Adani Power seeking their comments did not elicit any response. Industry sources told BusinessLine the meeting with the Power Ministry and concerned government officials with the industry players is likely to take place in a few days.

Finding solution



Providing coal linkages to these projects could be considered as one of the options, although, according to experts, most of such power plants are designed to work on imported coal of the higher grade.

When contacted, a Power Ministry official said that the question should be put to the players whether their plant can handle domestic coal variants. So far, no one has approached the ministry for either the meeting or coal linkage.

Last week, the Minister of State (Independent Charge) for Power, Coal, New and Renewable Energy, and Mines, Piyush Goyal, said with reference to similar issue between Tata Power and GUVNL, the government would play the role of a facilitator and bring stakeholders together for a dialogue, while commercial issues have to be sorted out between the stakeholders.

(With inputs from Twesh Mishra)