Tata Power is planning to invest $500-mn in shipping

Tata Power plans to foray into shipping. The company will invest $500 million through its Singapore-based special purpose vehicle, TPC Energy Asia, to prepare a fleet of nine vessels to transport coal from Indonesia to its plants located in the western coast of India. The company has already signed charter agreements for three ships. If company doesn’t get balance requirement of ships through charter agreements then it will go for buyout option. It would buy ships worth up to $100 million each.

The company intends to raise its electricity generation capacity to 12,861 MW by 2012-13 (April-March) from 2,474 MW at the end of the current financial year. Most of the new capacity being added by the country's largest private sector electricity generator will be fuelled by imported coal, largely from Indonesia. The company's annual requirement of imported coal is seen rising to 25 million tonnes by 2012 from 1.8 million tonnes now, which will significantly drive up the cost of coal and freight charges. Fuel cost, which includes that of coal, oil and gas and transport, is the single largest cost component for Tata Power, accounting for 60-70 per cent of the company's total expenditure.

It may also use its shipping fleet to provide services to its arm importing coal or ore and exporting finished goods. India-bound freight rates are expected to be firm as companies such as Vedanta, Reliance Power and other ultra mega power projects begin shipment of coal. It is not just the prospect of high rates that is weighing on the minds of power producers, but also the possibility that ships too may not be available.