Tata Power Co Ltd, the power generation & distribution company of the Group, has agreed to offload its 30 per cent stake in coal miner PT Arutmin Indonesia to Bakrie Group for $500 million.

Tata Power said on Friday that it had signed an agreement through its wholly owned units to sell its stake its stake in PT Arutmin to Indonesia's Bakrie Group. However, it didn't specify the wholly owned units.

The private-sector power producer also announced that proceeds from the stake sale will be used to cut debt.

It also admitted that the move was prompted by under-recovery challenges being faced by the company at its Mundra ultra mega power project (UMPP) operations that have caused concerns on cash flows.

Announcing the move, the company said, "Considering the present coal price scenario, Arutmin, which is a mine spread over a number of pits in South Kalimantan, Indonesia, had started posing production and cost viability challenges in its operations."

The stake sale is subject to restructuring moves that Tata Power plans to complete within the next few months. Tata Power had acquired the 30 per cent stake in Arutmin and PT Kaltim Prima Coal (KPC) for in 2007 for around $1.3 billion.

However, Tata Power will continue to hold its stake in KPC, which will also continue to be a part of the supply chain for meeting Tata Power Group's coal requirements.