January 2016 | Sangeeta Menon

'Our opex costs are industry benchmarks'

Trust Energy Resources Pte was set up in Singapore in 2008 to securitise the coal supply chain for Tata Power’s thermal power generation operations. Since then, it has grown rapidly with a turnover of around US$100 million today. SS Varma, vice president, operations, Trust Energy, talks to Sangeeta Menon about the company’s growth and future plans.

Trust Energy was established to help its parent with fuel supply. What was the thinking behind setting up a subsidiary for this purpose?
Trust Energy was set up in 2008 to securitise the coal supply chain for Tata Power’s ultra mega power plant in Gujarat, India. The biggest challenge for Coastal Gujarat Power (CGPL), the Tata Power subsidiary that operates the project in Mundra, Gujarat, was to securitise its variable costs for 20 years because its power purchase agreements are non-escalable for 20 years. In addition to the coal price, which is the biggest variable cost, freight also constitutes a considerable portion of variable costs and is a highly volatile commodity.

Tata Power addressed the first concern by picking up 30 percent in one of the largest mines in Indonesia to securitise coal supply. The next challenge was to securitise freight for such an ultra-long period.

As the Tata Power leadership weighed its options, it realised that CGPL needs to securitise freight for 20 years and any non-performance from freight service providers would involve high risks that could affect the commercial viability of the plant. That’s when it was decided to set up Trust Energy, which would take care of the freight securitisation using a mixed profile of owned, chartered vessels and long-term contracts .The model has worked well so far and we have been able to provide freight services at a cost below the Mundra bid considerations.

Did the company come under pressure because of investments made in 2007-08?
No. Our strategy to go for a mixed profile of having own fleet and chartered contracts helped us. We own two cape vessels of 181,000 DWT, have two long-term freight contracts and one chartered vessel of 176,000 DWT. Another vessel of 208,000 DWT, currently being built, is scheduled to be delivered around July 2016. This vessel is very fuel efficient and will help us provide improved freight solutions to CGPL.

While our mission is to securitise freight within CGPL bid considerations, we are constantly striving with new initiatives to provide about 20 percent optimised freight as compared to bid considerations. From the day we took delivery of our vessels, there has been no loss of revenue in terms of idling. This in an environment where there are many cape-size vessels floating without business.

Trust Energy has moved beyond its initial brief of being a Tata Power-dedicated shipping solution provider. How did that change come about?
When we bought the vessels it was conceived that we would be running them on a dedicated basis between Indonesia and India. Once the vessels were delivered, we looked at various opportunities to optimise the freight and realised that there was no point in running them on a dedicated basis. We convinced the management and lenders that we should charter out the vessels.

Our own vessels now carry iron ore on front haul and coal on return haul through various contractual arrangements. We provide freight solutions of over a million tonnes to Tata International, wherein we get additional revenue in the form of commission. Though it is a small amount, as long as it takes care of our overhead costs, why not? It also gives us exposure to other sectors in the shipping business, besides the pleasure of serving Tata companies.

How satisfied are you with the company’s performance so far?
We have been a profitable venture from day one and are adding real value to CGPL’s business. In terms of revenue, we have a turnover of around US$100 million and are able to make reasonable profits. We never look at just incremental growth in the bottom line. At the end of the day, our customer should be happy.

How do you see Trust Energy growing?
Trust Energy has a vision of becoming a world-class dry bulk shipping company with global standards. We want to be among the reputed fleet owners and supply chain solution providers in Asia with business operations across the world. Today, we are in the cape-size market of 180,000 DWT and above. But we have started offering freight solutions in panamax, supramax and smaller sizes as well. The company enjoys respect in the industry and is the preferred customer for many reputed ship owners / operators. This helps us to grow manifold and provide optimal solutions to Tata Power utilities.

This interview is part of a special report on Tata group's presence in the ASEAN region, featured in the January 2016 issue of Tata Review:
Overview: Foothold in ASEAN
'Singapore is the nodal country for ASEAN', KV Rao, resident director for ASEAN, Tata Sons
'We want to encourage global innovation', Vinod Kumar, managing director and CEO, Tata Communications
'We learn a lot from this market', Girish Ramachandran, president, TCS APAC
'NatSteel will focus on sustainable profitability', Ashish Anupam, president and CEO of NatSteel Holdings
'Singapore is pivotal to our ASEAN growth', Anish Raghunandan, vice president, East and South Asia, Tata Technologies
'Singapore is a key market for us', J Niranjan, CEO, Tata Capital Pte
'This year looks set to be a record year', PV Balasubramaniam, CEO, York Transport Equipment (Asia)
'An asset-light strategy is our preferred path', Dinesh Shastri, managing director, Tata NYK Shipping Pte
'We will consolidate our business here', Alfred Egli, head, minerals vertical, Tata International Singapore Pte