India tariff case stalls Tata Power's investment plans

NEW DELHI Tue May 28, 2013 6:59am EDT

NEW DELHI (Reuters) - Indian utility Tata Power Co Ltd (TTPW.NS) will hold off on major investments until it clarifies the fate of a regulatory decision to raise tariffs, a company executive said on Tuesday.

India's federal electricity regulator allowed Tata Power, a unit of the Tata conglomerate, to raise tariffs for power generated at its Mundra plant in the state of Gujarat.

The company, however, must first agree on the increase with officials from the states it supplies electricity to. A similar decision that allowed rival utility Adani Power Ltd (ADAN.NS) to raise tariffs is also being challenged in court by local officials keen to avoid a public backlash in an election year.

"Let me put it this way: the financial pressure on us arising out of the Mundra situation is enormous at this point in time," S. Ramakrishnan, executive director for finance, told Reuters in an interview.

"We will be very, very cautious and selective in our growth options," he said. "If one is talking of any large acquisition which demands an immediate outlay of large funds we'll definitely not look at it."

Regulatory uncertainty, ranging from a tax dispute between the government and Vodafone Group Plc (VOD.L) to a lack of clarity on rules allowing foreign supermarkets to set up in India, has stifled investment in Asia's third-largest economy.

India has the world's fifth-largest coal reserves but domestic supplies are patchy as mining projects are mired in red tape and corruption, increasing the reliance on imports.

Tata Power imports coal from Indonesia and has also been scouting for opportunities to buy coal assets overseas, including in the United States and Africa, Ramakrishnan said.

"While we are looking at them, I wouldn't say we are anywhere close, because there are challenges in terms of long term competitiveness and availability of infrastructure to facilitate the export of coal," he said.

Tata Power, which has an installed capacity of 8521 MW, aims to generate 26,000 MW by 2020. With fuel supply constraints and land acquisition stalling new projects at home, the company has looked abroad for new opportunities.

It recently signed an agreement to develop two hydro projects in Georgia and has a joint venture in South Africa. The company is also looking at developing projects in Myanmar, Vietnam, the United Arab Emirates and Saudi Arabia.

"Very often there is more clarity in some of the jurisdictions on policy matters pertaining to the sector," Ramakrishnan added.

Tata Power's shares are valued at $3.9 billion. The company posted a surprise consolidated net loss in its October-December quarter, hurt by higher finance and depreciation costs. Its fourth quarter results are due on Thursday.

(Reporting by Matthias Williams; Editing by Malini Menon and Miral Fahmy)

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