Tata Mundra Ultra Mega Power Plant

Sahil Goyal C017 Tanvi Gokhale C016Prarthana Gulati C018 Rahul Gupta E026

Power Sector Overview

At production of 1048 TWh, India is the 3rd largest & 4th largest producer in worldInstalled electricity generation capacity (GW)

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

132 143 148 159 174200

223 238273

CAGR: 9.4%

Installed electricity of different sources of power

Coal Gas Diesel Nuclear Hydro RES

Thermal – 69.5%

2.1%15.3% 13.1%

Electricity production in India (TWh)

CAGR: 6.3%

FY10 FY11 FY12 FY13 FY14 FY15

772 811 877 912 9671049

Source: Central Electricity Authority

Government has targeted capacity addition of 88.5GW in the 12 th Five Year Plan

47%

31%

21%

State Sector Central SectorPrivate Sector

Total Installed Capacity

Organizations under Central

Govt.

CEA NHPC

NTPC Power Finance Corporation

Central Electricity Regulatory

Commission

Power Grid Corporations of

India

• Per Capital Consumption – 1010kWh

• Total Demand – 1174 TWh

• Peak Demand is 148166 MW

Ultra Mega Power Plants

Intention of making power available at minimum cost through economies of scale and superior energy efficient and environment friendly technology.

Envisaged Installed capacity of 4000 MW Estimated investment in each UMPP: approximately

Rs.16,000 to 20,000 Crores Assigned through competitive bidding process Developed on a build, own and operate (BOO) basis Government‘s responsibility: Provide land, water, coal

blocks, environmental clearances and tie-up for power sale Private developer‘s responsibility: Arrange funding,

technological tie-ups, place orders for key equipment, execute and operate the project

Based on ―supercritical technology to achieve higher efficiency levels , less fuel consumption and lower green house emissions

Special Purpose Vehicles (SPVs) were set up by the Power Finance Corporation (PFC), which was appointed by the Government of India as nodal agency for development

Appointment of Consultants to undertake preparation of Project Report, preparation of Rapid Environment Impact Assessment Report, Competitive Bidding (ICB) etc.

To finalise RFQ/ RFP documents in consultation with States / bidders and carry out RFQ/RFP process

Acquisition of land for the project Obtaining Coal blocks for pit-head projects Approval for use of sea water from Maritime Board/ other

Govt. Agencies for coastal locations

State Plant SPV Bid Price

Status

Madhya Pradesh

Sasan UMPP Sasan Power Ltd. 1.196 Construction in progress

Gujarat Mundra UMPP Coastal Gujarat Power Ltd.

2.264 All 5 units functional

Jharkhand Tilaiya UMPP Jharkhand Integrated Power Ltd.

1.77 Clearance being obtained; construction yet to commence

Bidding ProcessUMPPs across India

Tata Power Gross power generating capacity of 8613 MW Balanced mix of operating, under construction and

development projects with new capacity of 10,000 MW

Tata Power

Investments TTML, TTSL, Tata Comm

Power Biz

Generation

Transmission

Distribution

Trading

Fuel & Logistics

Other Biz

Generation Capacity

~8600 MWMumbaiPowerlinks

MumbaiDel, TPDDL, Jam’pur

Tata Power Trading Co.

Indonesian Coal MinesTrust Energy

Tata Mundra Ultra Mega Power Plant

Coastal Gujarat Power Limited (CGPL) is a Tata Power’s wholly owned subsidiary

Project to benefit 16 million customers apart from supplying power to industry and agriculture

Mundra UMPP is located in the coastal area, in Kutch district of Gujarat

Well connected by road, rail, air and sea

Commissioning of Units

Unit 1 March 2012

Unit 2 July 2012

Unit 3 December 2012

Unit 4 January 2013

Unit 5 March 2013

Connectivity

Highway SH-6 (6 Kms) and NH-8A (15 Kms)

Seaport Mundra ~ 25 Kms

Railhead Adipur ~ 85 Kms

Airport Bhuj & Kandla ~ 75 Kms

Tata Mundra Ultra Mega Power Plant

Mundra UMPP SnapshotCapacity 4000 MW (5 X 800MW)

Customers Gujarat (1805 MW)Maharashtra (760 MW)Punjab (475 MW)Haryana (380 MW)Rajasthan (380 MW)

Fuel Requirement

Imported Coal – 10-12MTPAOff take agreement with Indocoal for 10.11 +/- 20%

Funding Project Cost: US$ 4.14 billion (D/E = 3:1)

Completion All units completed

External Linkages

• 400 kV switchyard was charged on 1 October 2011 with power from PGCIL. It is stabilised and Generator Transformers are charged

• External coal handling facility to unload ship directly to main plant commissioned and is in use

Key Highlights

• 1st 800MW thermal plant using supercritical technology• One of the most energy efficient plants in India with

lower Green House Gas emissions• Infrastructure Excellence Award 2012 in the Energy and

Power category for the execution of Mundra UMPP

Project Funding

Domestic Funding

State Bank of India INR 20 bn

SBI Associates (Consortium) INR 5 bn

India Infrastructure Finance Company INR 18 bn

HUDCO INR 5 bn

Oriental Bank of Commerce INR 5 bn

Vijaya Bank INR 5 bn

Total INR 58 bn

International Finance Corpo-

ration25%

Asian Devel-opment Bank

14%

K-EXIM61%

International Funding = US $ 1.80 bn

Cost & Revenue Drivers

Fuel Prices

• 55% non-escalable and 45% escalable fuel cost• Coal price was expected to grow by 17%, but it grew by 150%

Cost of Capital

• Includes the cost of process equipment, on-site facilities and infrastructure that support the plant and the direct and indirect labour required for its construction and/or Installation

• State DISCOMs (direct customers) have poor financial health – hence extension of credit required

Fluctuating exchange prices

• Aggressive bidding on tariffs reduce the profit elasticity for the UMPP (INR 2.26 per kWh)

Changing Regulations

• Change in Indonesian Coal Price regulations elevated the fuel prices

Industrialization

• Growth in Indian manufacturing sector • India’s manufacturing PMI is at an high of 52.79

Improving quality of life

• Tremendous increase in domestic demand with rapid improvement in the quality of life

Mundra’s expansion plans

• Target of adding another 1600MW to the existing 4000MW facility by adding two 800MW units

Cost Drivers Revenue Drivers

Chronology

2006

• February : CGPL incorporated as a wholly owned subsidiary of PFC• March : RFQ issued by CGPL• November : RFP issued to 11 qualified bidders• December : 6 bidders responded to RFP, Tata Power declared successful bidder quoting lowest levelized tariff of Rs 2.26367 per kWh

2007

• March : Coal Supply Agreement (CSA) executed between Tata Power and Indocoal• April : Tata Power acquired CGPL, PPA executed with procurers of 5 states• September : CERC adopted tariff of Mundra UMPP discovered by competitve bidding

2010 -

2011

• Sep’10 : New Indonesian Coal Pricing Regulations Notified• Feb’ 11 : Unit #1 ready for synchronisation testing• Aug’11 – Dec’11 : CGPL takes various measures to overcome the challenges of procuring coal on account of the new Indonesian regulations

2012

• March : Commercial operation of Unit #1• May : Amendment to existing CSA w.r.t. Indonesian Coal Price Regulations• July : Commercial operation of Unit # 2• October : Commercial operation of Unit # 3

2013

• January : Commercial operation of Unit # 4• March : Commercial operation of Unit # 5

Bidding Process

Technical criteria•Experience in developing projects ≥ 10 years•Aggregate capital costs of projects ≥ 3000 crore•Capital cost of atleast one project ≥ 500 croreFinancial Criteria•Total net worth of 1000 crore

Bidders1. SNC Lavalin International Inc & Lanco Consortium2. Reliance Energy Generation Limited3. Tata Power Company Limited4. Sumitomo Corporation5. Sterlite Industries (India) Limited6. Essar Power Ltd7. Jindal Steel & Power Limited8. Adani Exports Limited, IDFC9. Khanjee, GMH & TXU10. EIG Energy Infrastructure Group AB11. CLP Power India Pvt. Ltd.12. Torrent Power AEC Ltd.13. Larsen & Toubro Power Limited

Bidders Tariff ₹ per unit

1. Reliance Power Limited 2.6612. Tata Power Company Ltd. 2.2643. Sterlite Industries Ltd. 3.7464. Essar Power Ltd. 2.8015. Adani Enterprises Ltd. 2.6966. Larsen and Tubro Ltd. 3.220

Tata Power Company Ltd.Tariff = Rs 2.264

March 31, 2006Issue of RFQ

June 1, 2006Receipt of RFQ

responses

June 22, 2006Issuance of Draft

RFP

July 2006Pre-bid meetings

August 21, 2006Issuance of final RFP

Sep 22, 2006Issuance of

amendments to RFP

Dec 7, 2006Submission of RFP

bids

Dec 18, 2006Identification of

successful bidder

Dec 28, 2006Issue of LOI to

successful bidder

RFQ

RFP

Tariff Calculation

Tariff

Capacity

Escalable

Non Escalable

Transportation

Escalable

Non Escalable

Fuel Handling Charges

Escalable

Non Escalable25 data points

Energy

Escalable

Non Escalable

• Developers had to specify the charges over the life of the project (25 years)

• Each parameter divided based on escalable (1 data point) and non-escalable charges (25 data points)

• Escalable charges were escalated based on a suitable index

• Non-escalable charges were specified over every year of the project

Levellised Tariff

Levellised Tariff is calculated by carrying out levellisation for ‘useful life’ of each technology considering the discount factor for time value of money

Rs. 2.264/ kWh

Indian Power Plants & the Coal Supply Conundrum

Evolving Indian Power Sector

Indian coal sector under stress due to high demand & inadequate coal supply linkages for coal power plants in the country, leading to Indian power plants attempt to secure coal from countries such as Australia, Indonesia & South Africa

Increase in demand for coal due to the sanctioning of UMPP projects led to a need to establish an alternate source of coal. Two recently bid UMPP projects, Reliance Power & Tata Power, decided to build coal linkages with Indonesia due to high quality of coal, geographical proximity & lower price.Bidding for UMPP projects based on the coal linkages built for imported coal & the prices for imported coal.

Indian thermal plants acquired stake in Indonesian coal mines to secure coal supply for their power plants in India

Tata Power Plant (Mundra)March 2007

Acquired 30% stake in:1. Kaltim Prima Coal2. Arutmin Indonesia Both owned by Bumi Resources, for $ 1.1 Billion

Reliance PowerJune 2010

Acquired coal miner Sugico to access two billion tonne of coal reserves owned by:1. Srivajaya Bintangtiga Energi2. Bryayyan Bintangitiga Energi

Change in Indonesian regulation

In September 2010, Ministry of Energy & Mineral Resource, Indonesia brought about a regulation regarding procedure for ‘Setting Mineral and Coal Benchmark Selling Price’ to be applicable retrospectively.

- Provisions of the new regulation

Mandated holders of mining permits for production and operation of mineral and coal mines to sell coal in both domestic and international markets at the spot price of coal in the international markets

Implication for India

Indian thermal power plants, despite owning the Indonesian mines, could not obtain coal at cheaper than global prices.This affected the procurement, material & operational cost to a considerable extent.

Direct Impact on Tata Mundra Thermal Power Plant

Price of coal: $30 - $40 per tonne to $100 - $150 per tonne

Resultant Loss : Rs. 1873 crores per annum Rs. 47500 crores over 25 years

Tata Mundra & the Indonesian coal crisis

Bidding Assumptions for Tata Mundra – Arriving at Rs. 2.26367 / kWh

Tata Mundra envisaged execution on imported coal & quoted tariff on a 25 year horizon.Two components of tariff:1. Capacity charge consisting of costs in relation to depreciation,

operation & maintenance, interest, repayment of debt and return on equity

2. Energy charge, comprising of costs in relation to coal, shipping, port and handling charges

Why Indonesian coal?CGPL surveyed the global coal market and selected Indonesia given availability of good coal, time frame of transport due to geographic location proximity and cost of import & procurement.

Mining CostsMining costs – 20 to 25 / MT for grade of coal to be used by project, reflected in the prevailing market price of 30 to 40 MT.

CERC Cost Escalation Assumptions Methodology for determining escalation rates:3. Bid Evaluation Escalation Rate4. Actual Payment Escalation Rate

CERC Estimates quoted the Bid Evaluation Escalation rate at 3.46% based on the analysis of preceding 12 years’ data, and was used for bidding as an indicative market rate.

Tariff calculation linked to coal pricesSince benchmark coal prices are generally quoted for calorific value of 6322 kcal, the adjusted price, based on the grade of coal actually to be used (5350 kcal)was calculated as follows:

Market Price (for 6322 kcal) 5350 Negotiated Discount 6322 Sensitivity Analysis for coal prices

($/MT) 6322 GCV 5350 GCV

At time of bid (2006) 49.79 42.13

Escalated at 3.46% till 2011 59.01 49.94

Escalated at 7% (maximum possible) till 2011 69.83 59.09

Market Price in Jun 2012 (Notified by Government of Indonesia) 96.65 74.44

Structure of non- escalable & escalable fuel cost

45%55%

Tata Mundra’s Coal Supply Agreements

Estimated coal requirement of 12 MMTPA, to be met based on coal linkages with Indonesia

5.85 MMTPA (+/- 20%) to be sourced from Coal Supply Agreement with IndoCoal Resources (Cayman) Limited, Indonesia

6.15 MMTPA balance requirement to be met by Tata Power on a best effort basis2008

2011 3.51 MMTPA (+/- 20%) from another CSA assigned to CGPL

5.85 MMTPA (+/- 20%) from CSA

2.64 MMTPA met on best effort basis

78% coal requirement supplied from Indonesian coal mines

Tata Mundra & the Indonesian coal crisis

Financial Impact of Indonesian Coal Price Escalation

Quantity (MMT) Bid Price Current Price

DifferenceFX Rate($/INR)

Annual Losses (In Rs. Crs)$/MT $/MMT

Coal Quantity 11.22

Fixed (55%) 6.17 30.00 74.00 44.00 271.00 54.00 1463.00

Escalable (45%) 5.05 59.00 74.00 15.00 76.00 54.00 410.00

Total 43.24 74.44 31.00 347.00 1873.00

Add: Insurance + Taxes 3.00 3.00 0.00 0.00 0.00 0.00

Total 347.00 1873.00

• Non-applicability of Force Majeure Since the new Indonesian regulation does not make coal sourcing impossible, even though financially unviable• Inherent risk of fuel cost escalationsFuel charges could be quoted as entirely escalable to account for the fluctuations in international commodity prices, which may been sensible given that the project was envisaged to operate on imported coal. This is a risk taken by the bidder while bidding for the project.

Tata Mundra – Dealing with the Indonesian coal crisis

CGPL approaches GUVNL & Ministry of Power for revision in PPA terms due to coal price increase2011

CGPL approaches IndoCoal, Indonesia requesting exemption of existing coal supply contracts from new regulation

2012 Feb

CGPL’s plea rejected and notice served from IndoCoal to realign original CSAs in line with new Indonesian regulations

2012 Mar

CGPL files petition with CERC requesting relief under Force Majeure & Change in Law Provisions of the PPA

2012Apr

CGPL requests GUVNL for revising the Quoted Escalable Fuel Energy Charges on account of increased coal import price

2012Aug

Matter escalated for CERC intervention due to disagreement & dispute between CGPL & GUVNL

2012Oct

CGPL’s Submissions Ground for Rejection of PPA Alteration

Alternative of compensatory tariff

RationaleEscalation of Indonesian coal prices, and global prices as a result, is a temporary phenomenon that is expected to stabilize. Hence, CGPL needs to be compensated in the interim period with a compensatory package over and above the tariff discovered through competitive bidding. CERC considered it important to balance both consumer interest in the sense of lower tariffs and also the necessity of power projects continuing to remain financially viable to the entity.

Compensatory Tariff

Considerations while computing compensatory tariff

1. The net profit less taxes and cess earned by CGPL from the coal mines in Indonesia on account of the benchmark price due to Indonesian regulation corresponding to the quantity of coal being supplied to Mundra UMPP should be factored in full to pass on the same to the beneficiary in the compensatory tariff scheme

2. Excess Revenue earned by third party sale (if project achieves PAF>80%)3. 100 bps haircut on RoE4. Saving fuel cost with a lower GCV for generating electricity without affecting the

operational efficiency of generation stations

• We believe that there won’t be much impact of point 3. and 4.

• Plant has operated at 77% PAF YTD FY14 and lower GCV coal decreases plant efficiency (SHR) and increases auxiliary consumption

Formula for Gross Compensatory Tariff per Unit

GCV adjusted Indonesian coal reference index

Normative quantity of coal imported

Unit supplied under the PPA during the time period

Quoted non-escalable fuel cost

Escalable fuel cost

CERC Escalation Index

• CERC has permitted a 52 paise increase in tariff for the Mundra UMPP• It is however, lower than the 67 paise tariff hike demanded by Tata Power• The 52 paise hike would help the company to service its interest burden fully

Microsoft Excel Worksheet

Compensatory TariffAnnual Losses incurred by Tata UMPP = Rs.1873 crore Relief provided by CERC Compensatory Tariff = Rs. 400 crore

CERC Ruling

• Payment for FY-13 losses provided by CERC = Rs 329.45 crore• Compensatory Tariff provided = Rs. 2.87/unit Escalation provided = 0.52 paise • Order is for compensation on the FOB price of coal, so the

complete cost of fuel can be recovered• Compensatory tariff does not cover the effect of forex on

debt

• Mundra UMPP’s auxiliary power brought down to 4.75% from 7.75%. (Auxliary Power is the electricity consumed by the plant for auxiliaries such as compressors, pumps and plant lighting)

• Tariff charting ensures that Mundra forgoes 1% of its RoE, equivalent to about Rs. 50 crore

True-up of provisional compensatory tariff to be done at the end of each Financial Year based on Financial Statements with adjustments for:

• Actual/Normative Fuel Energy Expenses• Tata Power’s share of profit/dividend from the Indonesian mining companies proportionate to the coal supplied by UMPP

Third party sale of power beyond target availability of 80% may be permitted after making appropriate modifications to the extant PPA. Profit from such sale to be shared equally between the procurer and the generator.

Annual Compensatory Tariff Revision

Socio-Economic Impact of Tata Mundra Power Plant

Proposed Socio Economic Benefits – Thematic Areas of Intervention

Income Generation & Livelihood• Addressing loss of livelihood through Gaushala• Market linked Self Help Groups• Skill Development Training• Distribution of Fish Nets, Fiber Boats to Fishermen• Community based retail enterprise (CBRE)• Created 5000 construction and 700 operations oriented jobs

Rural Infrastructure Development• Rural civic infrastructure construction – village gates,

Panchayat Bhavan, approach roads etc• Water preservation & Connectivity Structure• Creation of water management infrastructure• Renovation of school infrastructure

Education• Project Sujan for Computer Aided Learning• Bal Pravetsov for distribution of Educational Kits• Pravesh Utsav for promoting enrolment of girls in schools• Shiksha Sarathi for promoting experience based education

Community Organization & Institution Building• Community Information Centre• Village Development Advisory Committee

Safety & Health• Arogya program for strengthening health in schools• HIV/AIDS workshop & capacity building program

Environment & Biodiversity• Plantation work on mangroves• Fish breeding trials and commercialization

Rural Energy• Household biogas• Solar street lighting system• School Biogas plants

Socio-Economic Impact of Tata Mundra Power Plant

Controversies along the way

$4.14 bn

$450 mn

Total Project Cost

IFC Funding

IFC Funding received in the form of senior straight loanProject assigned IFC Category A, signifying that it could have significant adverse social and/or environmental impacts that are diverse, irreversible or unprecedented

Jun 2011 Jan 2012 Feb 2012

CAO received complaint regarding IFC’s investment in CGPL through Macchimar Adhikar Sangharsh Sangathan (MASS)

CAO Advisor Committee was unable to facilitate a resolution to the issues raised in the complaints

CAO Advisor Committee referred the complaint to CAO Compliance for potential audit & resolution

Due to classification as IFC Category A project, IFC’s environmental & social obligations are:1. Client’s community engagement involve free, prior informed consultation leading to broad community support2. Client sets out processes as mentioned in Performance Standard 1 to assess and manage environmental and social impact

Complaint Summary

Impact (Environmental/Social)

Destruction of ecological balance• Impact on marine environment and long term

decline in fish stocks due to destruction of mangroves

• Physical and economic displacement of fisher folk from seasonal settlements and fish drying areas in the intertidal zone

Carbon footprint• Estimated baseline CO2 emissions and reductions

for the Project would be 30.796 million tons per year, making it India’s third largest emitter of green house gases, as per EY Estimates

• Failure to comply with national regulation regarding the construction of cooling system

Waste Disposal

• Impact of coal ash and other airborne pollution on fish drying and public health

• Destruction of salt panning activities and associated livelihoods

Led to Tata UMPP coming under CAO Audit for corrective measures

Key Learnings