This follows increased efforts over the past few months to ensure the viability of the plant in the western state of Gujarat. Tata has been in talks with five state governments seeking compensatory higher tariff by signing supplementary electricity supply contracts and amending original pacts.
Maharashtra state has given an in principle approval to the proposal, while the company is in discussions with Gujarat over the withdrawal of an earlier order allowing compensatory tariffs, said Tata Power's chief executive Praveer Sinha. The five states, which also include Haryana, Rajasthan and Punjab, had previously signed the power purchase agreements in 2007.
Tata will combine Coastal Gujarat Power, the holding company of the Mundra plant, along with Tata Power Solar Systems and Af-Taab Investment. The proposed merger is aimed at strengthening the balance sheet and bringing "synergies in financing, compliance and oversight," the company said. The merger is subject to necessary regulatory approvals.
Mundra running at a loss
Mundra has been running at a loss since its start-up. Coastal Gujarat Power had won the bid in 2006 to set up the plant. The following year it entered into 25-year supply contracts with the five states at the low tariff it had won the bid at.
But key coal supplier Indonesia subsequently changed some rules, asking mining firms to sell coal at a regulated benchmark price, which was higher than Tata's future coal price projections. Imported coal prices had risen by as much as 150-200pc from the start of the bidding process, the company said in 2015.
The Indonesian regulation came into effect in 2012, the same year that the project started operations, prompting Tata to approach the Indian electricity regulator to seek a tariff increase. The company has since petitioned the country's power ministry, as well as tribunals and courts, seeking relief while also engaging with the relevant states. It has even threatened to completely shut down the plant.
The Mundra project's losses narrowed in the April-June quarter to 1.55bn rupees ($20.7mn) from Rs2.47bn a year earlier, helped partly by lower coal prices, the company said. Tata Power's profit for the quarter rose to Rs2.68bn, up from Rs2.43bn a year earlier, as lower taxes and a drop in expenses offset the weaker power generation.
