Tata Power Company (TPC), which struggles to service debt obligations of Rs 47,552 crore, is looking to sell its stakes in two joint ventures in South Africa and Zambia in order to cut its financial liabilities and focus on domestic market. It is scouting for buyers to divest its 50 per cent stake each in wind energy company Cennergi in South Africa and Itezhi Tezhi Power Corporation (ITPC) in Zambia. It is unclear if joint venture partners will buy out stakes in Tata Power.
The company has signed an agreement to sell its 30 per cent stake in PT Arutmin Indonesia and associated companies in coal trading and infrastructure for an aggregate consideration of $401 million, said the company in its latest annual report. The final transaction size will be subject to closing adjustments and restructurings. The company has already received $161 million - $94 million in cash and the balance by way of receivables.
South African company Exxaro Resources is TPC's JV partner in Cennergi, while Zambia's largest power company ZESCO holds equal stake in ITPC. Cennergi had commissioned two wind farms - 134 mega watt (MW) Amakhala Emoyeni and 95 MW Tsitsikamma - in 2016. ITPC, which owns 120 MW hydro power project, has completed three years of commercial operations.
Wind farms in South Africa performed better in financial year 2018-19 and operated with 98 per cent capacity utilisation. The power producer posted a profit of Rs 86 crore in FY19 against a loss of Rs 46 crore in FY18. Revenues increased to Rs 555 crore in FY19 from Rs 513 crore in FY18. The profit is higher on account of increase in tariff as per power purchase agreement (PPA), lower interest cost due to refinancing and impact of hedge accounting in FY18, said the company in its annual report for FY19.
ITPC has more than doubled its profit to Rs 658 crore in FY19 compared to Rs 299 crore in FY18, thanks to part recovery of previous dues from its sole customer ZESCO, which is also the JV partner. Net sales increased to Rs 661 crore in FY19 from 600 crore in FY18. "The company's main concern is to recover overdues of $208 million (company's 50 per cent share) from its single customer ZESCO. While ZESCO has committed to resolve the issue by raising resources, the company continues to engage with the government of Zambia and the project lenders to resolve this issue," said TPC in annual report.
ITPC's project was funded by African Development Bank (AfDB), Development Bank of Southern Africa (DBSA), Netherland's Development Finance Company (FMO) and Proparco from France and Indian government by way of line of credit through India Exim Bank to government of Zambia. The plant load factor (PLF) of ITPC stood lower at 69.45 per cent due to a reduction in water release from Itezhi Tezhi dam by ZESCO in spite of strong rainfall and inflow.
The company said in the annual report that it has decided to divest its investment in these assets. It had made an investment of Rs 578 crore in ITPC and given a loan of Rs 19 crore to ZESCO. The investment in Cennergi comes to Rs 120 crore. In 2012, TPC formed the South African JV for boosting its global ambitions. It bid for two wind farm projects and bagged it. Debt-strapped Indian wind energy player Suzlon supplied turbines for the Amakhala project. TPC took small steps with these wind projects, as it intended to explore electricity generation opportunities across South Africa, Botswana and Namibia through the JV with Exxaro. The company bought stake in the Zambian project in 2015.
In Indonesia, TPC holds a 30 per cent stake in PT Kaltim Prima Coal (KPC) and 26 per cent stake in PT Baramulti Suksessarana Tbk (BSSR) besides 30 per cent stake in PT Arutmin. Initially, the company planned to supply its share of coal from Indonesia to its 4,000MW project in Mundra, Gujarat. However, the change in regulation in Indonesia toppled TPC's plans. The Indonesian government in early 2018 introduced a domestic market obligation (DMO) scheme that mandated local coal mining companies to sell 25 per cent of its production in the domestic market at a fixed lower price to protect state-owned power plants against rising coal prices. The move hit the sale realisation of mines, thereby affecting their profitability. The policy is valid until December 2019 after which, the Indonesian government will review it. The license of KPC mines will expire in 2021. The renewal is under consideration with the Indonesian government.