Expensive coal takes a heavy toll on Tata Power

India's largest private power producer saw its profits plummet by 40% mainly as a result of surging coal prices.

Tata Power Company reported a larger than estimated drop in its fiscal third quarter net profit ending Dec. 31 to U.S.$53 million from U.S.$89 million. Sales for the period, however, jumped 51% to U.S.$957 million from U.S.$636 million year-on-year helped by higher fuel costs that are passed on to consumers.

Analysts said the substantial profit fall was caused by the more expensive cost of coal for Tata Power’s 4,000 megawatt power project and to a change in accounting standards. Tata Power is in the process of building power projects that will add 4,729 MW to its generating capacity. It currently has an installed generating capacity of 3,797 MW.

In September 2011, Indonesia passed a law prohibiting Indonesian coal producers from selling coal, even to affiliate companies, below a reference price linked to international rates and needs adjustments every year. The law has made coal imports from Indonesia significantly more expensive.

Tata Power, India’s largest integrated power utility, currently accounts for 55% of India's power generation capacity of 182,344 MW.

It generates about 3,120 MW of power from energy sources like thermal (coal, gas, oil), hydroelectric, solar, wind and geothermal energy.