Tata Power Q2 results: High coal prices drive profit, Mundra compensation key
The Tata Power Co. Ltd stock gained 2.4% on Wednesday after the company reported a profit of Rs336 crore for the September quarter. In the year-ago quarter it lost Rs96 crore.
The firm benefited from higher coal prices, dividend income and low finance costs. Barring two units, all key subsidiaries generated operating profits and several reported better operating profits.
The coal business was the star performer. As prices rose, the firm sold 14% more coal.
True, high prices have hurt its ultra-mega power plant at Mundra, Gujarat. Under-recoveries rose and losses at the plant continued. But that did not come as a surprise as the plant was anyway stuck in unfavourable offtake agreements. What stood out is better operating performance. Availability of the plant rose—it’s up from 77% a year ago to 85% in the last quarter. This improved fixed cost recovery.
Revenues at the stand-alone company level fell due to low power demand and offtake. But that did not percolate to earnings—profit was up 26% at the stand-alone level—thanks to high dividend from shipping and investment subsidiaries.
Overall the performance was satisfactory. Tata Power revised downwards the previously agreed sale consideration for its Indonesian asset PT Arutmin. But the change in consideration is due to adjustments related to prior period liabilities, past claims and statutory obligation and not due to valuation write-down, the company clarified, says an analyst who attended the conference call.
The recent rebound in coal rates is likely to benefit Tata Power in the current quarter also. Of course, firm coal prices will undermine the Mundra power plant’s profitability. But as analysts point out, at the company level Tata Power is net long on coal, in terms of its share in coal generation and usage at the Mundra plant. So it can see material benefits from higher coal prices.
That does not mean investors should overlook losses at the Mundra plant, which has been a wealth destroyer in recent years. Due to large investment, resolution of compensation (for cost under-recoveries) for this plant remains a key earnings trigger for the company and for the stock. “Our sensitivity analysis suggests a likely tariff hike of (around) 39 paise for Mundra for FY17, which will translate into PBT of Rs5.7 billion vs reported loss of Rs2.1 billion in FY16,” Ambit Capital Pvt. Ltd said in a note last month. PBT is profit before tax and FY is short for fiscal year.
That said, the September quarter results show the company’s non-Mundra investments are bearing fruit. If power demand picks up, these investments stand to do better. While that should hold Tata Power investors in good stead, compensation for the Mundra power plant remains a key variable.
Iron ore, met coal prices plunge on Chinese steel meltdown
In a second day of heavy selling on the Dalian Commodities Exchange on Wednesday iron ore futures plunged nearly 8%, last trading around 556 yuan or $81 a tonne while coking coal used in steelmaking dropped 9% to 1,282 yuan ($186).
Regulators recently upped trading fees and margin requirements to cool down the credit-fuelled speculation in iron ore, met coal and rebar, but volatility in the market show no signs of ending.
Steel futures trading in Shanghai declined sharply for a second day on Wednesday with May delivery contracts losing 7.5% to 3,000 yuan or $436 a tonne, on track for the biggest one-day fall on record.
Tuesday saw the price fall 6.7% as the exchange introduce new trading rules in an attempt attempt to quell speculation and the Chinese currency drops to a eight-and-half-year low against the US dollar.
China forges almost as much steel as the rest of the world combined with more than 800 million tonnes of production expected this year, but the industry is beset with overcapacity and low profitability.
A new 5-year planning document released by Beijing called for the closure of 100 – 150 million tonnes of steel capacity through the end of the decade to increase profitability of remaining producers and tackle pollution.
Shutdowns of older and smaller plants have already reduced steelmaking capacity by some 70 million tonnes this year, far ahead of Beijing's target for the year.
Authorities are also pushing for consolidation of steel production with a target of 60% market share for the top 10 steelmakers.
The import price of 62% Fe content ore at the port of Tianjin slumped 6.4% to $75.10 per dry metric tonne on Tuesday.
On Monday the benchmark breached the $80 a tonne level for the first time since mid-September 2014. Year to date the price of the steelmaking raw material is up 75% following near-decade lows in December last year according to data supplied by The Steel Index.
http://www.mining.com/iron-ore-price-plunges-chinese-steel-meltdown/
Government caps coal output from Reliance Power blocks to Sasan UMPP
The government has restricted coalproduction from Reliance Power’s Moher and Moher Amlohri extension blocks attached to the Sasan ultra mega power project (UMPP) in Madhya Pradesh.
Asenior government official said the coal ministry has decided to restrict production from the two coal blocks to 16 million tonne per annum (mtpa) depending on the base requirement of the project. The coal production could be allowed to be raised to up to 17 mtpa in case the plant load factor of the project rises beyond 100%, he said.
In response to an emailed query, a Reliance Power spokesperson said with the curtailment, Sasan UMPP may have to restrict power generation at around 80% level.
“Considering prevailing exchange prices of the order of Rs 2.50 per unit, incremental cost of procuring 10% to 15% capacity of Sasan UMPP from open market will be Rs 400 crore to Rs 600 crore per annum. Over the remaining PPA life, this will be Rs 10,000 crore to Rs 15,000 crore,” the spokesperson said.
The coal ministry had in May last year directed Sasan UMPP to limit annual coal production to 16 mtpa from 20 mtpa approved earlier and cancelled a third mine — Chhatrasal —attached to the project, terming it to be surplus. Reliance Power’s subsidiary Sasan Power had filed a writ petition in July last year in the Delhi High Court against the decision.
The high court had asked the coal ministry to decide on the company's demand to let it produce 19 million tonne from the two mines. As interim relief, the coal ministry had allowed the company to mine 17.2 mtpa till March 31this year. The case pertaining to the cancellation of Chhatrasal is pending with the high court. The matter is set for hearing on December 9.
The company spokesperson said all procurers of Sasan UMPP have written to the coal ministry to permit the project to mine as much coal needed to operate the plant at maximum capacity. “While PPA obligation is to ensure minimum availability of 80% PLF, given the competitive nature of power, our intent is to make the plant available at the levels of 96%, which in turn requires higher quantum of coal,” he said.
The government’s decision to cancel the coal block is in line with the Supreme Court's directive forbidding commercial use of surplus coal from such units for other plants.
The Supreme Court, which cancelled 204 captive coal mines allocated to various companies, had ruled on August 25 last year that "coal blocks allocated for UMPP would only be used for UMPP and no diversion of coal for commercial exploitation would be permitted”. In its gazette notification, the coal ministry had withdrawn the special dispensation to Reliance Power, restricting production of coal from Moher and Moher Amlohri.
The previous UPA government had in 2010 as special dispensation to Reliance Power allowed diversion of excess coal from coal blocks attached to Sasan UMPP to an adjacent group project in Chitrangi. The company had sought the dispensation saying it will be able to mine 20 mtpa of coal from Moher and Moher Amlohri coal blocks and 5 mtpa from Chhatrasal mine through use of latest mining technologies. The total 25 mtpa was 9 million tonne more than the UMPP's requirement.
Tata Power slashes deal consideration for Indonesian coal mine divestment
Tata Power Company’s much delayed deal to sell its 30per cent stake in PT Arutmin mine in Indonesia to Bakrie Group may finally be concluded, but at almost Rs 750 crore less than the price committed when the deal was signed in 2014.
Tata Power has slashed the consideration for the stake in the mine and its related infrastructure to $401 million, or about Rs 2,745 crore, down from $510 million, or about Rs 3,493 crore, agreed upon by the two companies in January 2014.
“This is the revised agreement that we have concluded,” Anil Sardana, managing director at Tata Power, said on Wednesday. “The value for Arutmin has been announced after readjustments till today. Some court pronouncement, and past period liabilities and statutory liability have been finalised. We have factored that in,” he told equity analyst in a conference call on Wednesday morning.
The company will receive the deal consideration in a phased manner over the next few years.
The consideration for the stake in PT Arutmin has been reduced to $246.64 million from $390 million agreed upon earlier. The consideration for infrastructure company PT Mitratama Perkasa, where Tata Power holds 30per cent through subsidiaries and is committed to sell it to a Bakrie Group company, has been revised to $154.28 million from $120 million.
The deal signed over two years ago was in limbo as Indonesian banks refused to give approval. Sardana had earlier told ET that the banks had demanded guarantees and collaterals as the steep fall in coal prices was making them jittery.
While Tata Power is now confident of closing the deal by the end of the current quarter, payment may be deferred for it as the buyer struggles with muted cash flows.
“As far as the closing and payment is concerned, the deal would be consummated in the next few years. The buyers are not in the state, particularly due to the commodity cycle right now, to pay upfront. So a schedule has been drawn and the deal will get consummated accordingly,” Sardana told analysts.
The company’s management told analysts that weakness in global coal process had affected the business’ net margin, but the recent revival in coal prices may support margins going ahead.
Tata Power acquired stake in Indonesian coal mines to fuel its ambitious power generation plans. It bought 30per cent equity stake in Indonesia’s coal mines, PT Kaltim Prima Coal and PT Arutmin Indonesia, which allowed it to buy 10 million tonnes of coal every year.
But it faced a big challenge when Indonesia came out with a presidential decree that coal prices would be declared by them on a month-on-month basis, linked to the market and no licensee will be able to sell coal at lower than that price. This resulted in losses in Tata Power’s Mundra ultra mega power project that could not pass on the cost to customers.
http://economictimes.indiatimes.com/articleshow/55710795.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Beijing to bid farewell to coal mining in four years
Beijing will close its last three coal mines in the next four years and entirely quit coal mining by 2020, sources with the Beijing Municipal Commission of Development and Reform said Wednesday.
In 2016, Beijing closed two coal mines with a total annual production capacity of 1.8 million tonnes, said Li Bin, deputy director of the coal management office at the commission.
By 2020, Beijing will completely bid farewell to the coal mining industry, Li said.
Beijing has a coal mining history of nearly 800 years. The earliest official historical documents on coal mining date from the Yuan Dynasty(1271-1368), Li said, adding that during the following Ming and Qing dynasties, west Beijing's mountainous area became renowned as a high-quality coal production base.
Since the founding of the People's Republic of China in 1949, coal produced in west Beijing's mountainous area has served as a major energy source for the capital's social and economic development, said Geng Yangmou, chairman of Beijing Haohua Energy Resource.
Statistics show that Beijing's coal consumption in 2010 was over 26 million tonnes, with the number declining to about 12 million tonnes in 2015.
Geng said the central and the Beijing municipal governments allocated more than 160 million yuan (23.2 million US dollars) in subsidies to local coal workers and miners in 2016.
Geng said the coal mining areas will be developed, as new industries are expected to be brought in.
http://www.globaltimes.cn/content/1021219.shtml
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Anurag Singal
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Essel Mining & Industries Ltd
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