Tata Power says legal and fiduciary obligations over Mundra UMPP have been discharged
As Tata group companies swing back to normal working after former chairman Cyrus Mistry raised concerns about their operations, Tata Power Co on Wednesday said it has discharged all legal and fiduciary obligations in connection with its Mundra Ultra Mega Power Project (UMPP).
"This (Mundra UMPP) project was bid for in 2006 when the concept of a formal Risk Management Committee was not introduced and all proposals were deliberated and approved by the Board," Tata Power said in a filing to BSE. "All required information has been periodically given to the stakeholders and the company has complied with its obligations under the Sebi (regulations)," it said.
This is in response to queries raised by stock exchanges after Mistry stated in a letter to the Tata Sons Board that the company had aggressively bid for Mundra UMPP on the basis of cheaper Indonesian coal. However, as the regulations changed in Indonesia, the losses in 2013-14 alone amounted to Rs1,500 crore. This project alone, at Rs18,000 crore, employs 40% of the total company's capital. Therefore, it reduces the return on capital for TPCL and bears the "risk of considerable future impairments".
Mistry, in his letter, suggested that the group companies may be forced to write off $18 billion.
Tata Power in its response said the Board had approved a long term contract for supply of coal on terms mirroring the bid along the acquisition of the Indonesian coal mines and ships to hedge the risk of changes in coal prices.
The regulation change for Indonesian coal prices was "unprecedented" and on a monthly basis, thereby "adversely" impacting Mundra UMPP. "This matter has been in public knowledge since last four years. It is also in public domain that since last four years as it has been the subject of legal proceedings before Central Electricity Regulatory Commission, Appellate Tribunal for Electricity and the Supreme Court."
Furthermore, Tata Power even made a total provision of Rs2,650 crore for the "impairment". "Subsequently, that provision against Mundra was written back only when the low coal price prediction made the company to impair the coal mines investment and provide Rs 2,250 crore," said the clarification note, adding that the various committees of the Board, and the Board had been discussing the issue many times.
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