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Tiroda plant to help Adani Power cushion 'losses' in Gujarat
The Hindu Business Line - December 29, 2011

Merchant power sales from upcoming Tiroda thermal power station in Maharashtra is expected to help Adani Power Ltd to survive the anticipated negative impact of its supply contracts with Gujarat State utility for first three quarters of 2012-13, according to sources.

Considering that the company has substantial foreign currency borrowings, there should be pressure on net margin due to a higher interest payout than envisaged.

The company is slated to supply 1,000 MW a day from Mundra power station to Gujarat Urja Vikash Nigam Ltd (GUVNL) at a reportedly “loss-making” tariff of Rs 2.35 MW a unit for 25-years from February 2012.

To coincide with the development, the first 660 MW unit at Tiroda will be on stream "before March 2012". Since supplies against firm commitments (power purchase agreements) should start from Tiroda by end-2012, it offers APL a window to boost profits through merchant sales in the first three quarters of next fiscal.

The entire domestic coal-based power station combing five China-made units of 660 MW each is slated to be commissioned before March 2013. The project is developed in collaboration with Millennium Developers.

Hurdles ahead
Originally proposed to be of 1,980 MW, the Tiroda project size was later expanded to 3,300 MW banking on proposed captive supplies from the allotted coal mining blocks at Lohara (West) and Lohara extension coalfields next to the Tadoba Andhari Tiger Reserve in Maharashtra.

In the following days, protests from environmental activists, alleging that the mine would infiltrate into the buffer zone of the Tiger Reserve areas, led to cancellation of the captive mining lease.

While the Adanis are now pinning hopes on its “request to Centre” to revive the Lohara mining lease in a truncated format, without disturbing or infiltrating into the forest area, the immediate reprieve has come in the form of a ‘tapering linkage', granted by Coal India towards the first 660 MW unit at Tiroda.

The scheme offers captive blocks owners 3-4 year window to develop the mines and enjoy requisite supply of coal for linked end-use plants at notified price.

While the linkage may save the day for the first unit, APL will surely feel the pinch ones other 660 MW units should be commissioned – one each every quarter.

Interest pay-out
With the Rs 19,000-crore Mundra project scheduled to be fully commissioned by this fiscal, APL may feel the pinch of rupee devaluation in the immediate term in terms of higher interest pay out against foreign currency borrowings.

Sources, however, argue that unless rupee undergoes any further sharp devaluation from the current level, the average interest cost of the project is still lower at 9.5 per cent (discounting the devaluation impact) when compared to domestic borrowing cost of over 11 per cent.