Shimla: The Himachal Pradesh government is going ahead with its proposed water cess on hydel power projects despite the Centre’s objections, but it will be “one-fifth of the original tax”, ThePrint has learnt.
Following vehement objections from not only the central government and neighbouring states of Punjab and Haryana, the Sukhvinder Singh Sukhu-led Congress government announced earlier this week that it had decided to levy the tax “in line with Uttarakhand”.
“Earlier we were expecting Rs 4,000 crore revenue, but now, it will go down. But we have lowered the tariff so that it does not impact the stakeholders much,” industries minister Harshwardhan Chauhan told reporters after a cabinet meeting Tuesday, where the decision was taken.
This, according to an official, means that the tariff is “one-fifth of the tax proposed earlier”.
The development is significant, especially in light of the objections to the water tax proposed in the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023. Passed by the assembly in March, the law, which has been challenged by power companies in the Himachal Pradesh High Court, proposes a cess on the state’s 172 hydroelectric power projects.
According to the official, the government now proposes a cess of 2 paise/cubic metre for head (height difference between where water enters into the hydro system and where it leaves) of up to 30 m; 5 paise/cubic metre up to 30-60 m; 7 paise/cubic metre up to 60-90 m; and 10 paise/cubic metre above 90 m.
In comparison, the law passed in March lays down a cess of 10 paise/cubic metre up to 30 m; 25 paise per cubic meter for 30-60 m; 35 paise per cubic metre for 60-90 m, and 50 paise per cubic meter for above 90 m.
The new cess, according to officials, is similar to Uttarakhand’s water tariff, fixed through a notification on 15 November, 2015.
Himachal power secretary Rajeev Sharma said that the decision was taken after consulting power companies. “They highlighted their concerns, and we then apprised the government about them,” he told ThePrint.
But despite the government’s decision, concerns about the cess linger. Rajesh Sharma, president of the Bonafide Himachali Hydro Power Developers Association — an association of small and independent hydropower developers — said power companies are still “strongly opposed” to the cess, which can “hurt smaller companies”.
“This is not in the favour of the hydropower industry. The government wants to tax small power projects, too. We (small entities) sell power to the state electricity board. The cess will make power production more expensive,” Sharma told ThePrint. “If the cess is imposed, new investors would think twice before investing in this sector in Himachal Pradesh.”
Also Read: Row over Himachal water cess — how it could help state and why neighbours are against it
‘Himachal not the only state’
Of the 172 hydropower projects in Himachal, 146 — including those of the public sector undertakings National Thermal Power Corporation (NTPC) and National Hydroelectric Power Corporation (NHPC) — are registered with the state government as mandated by the Himachal Pradesh Water Cess on Hydropower Generation Act.
After the law was passed this March, Punjab and Haryana passed resolutions against it. Both states argue that the water cess on the shareholders of the Bhakra Beas Management Board (BBMB) would lead to an estimated burden of Rs 1,200 crore.
Rajasthan, Himachal Pradesh, and Chandigarh also draw electricity from BBMB projects.
Sukhu’s discussions with his Punjab and Himachal counterparts Bhagwant Mann and Manohar Lal Khattar failed to break the impasse.
For Himachal, the cess is a method of reducing its staggering debt burden: in February, two months after his government was voted to power, the CM claimed that the state had financial liabilities of over Rs 91,000 crore. The Sukhu government hopes to use the hydropower projects to patch up its crumbling finances.
According to the senior official quoted earlier, the cabinet decision to lower the tariff came on the back of a report by a panel headed by the Himachal power secretary. The panel, which submitted the report Tuesday, had found the previous tariff too high.
The committee also studied similar taxes imposed by other states, including Uttarakhand, Telangana and Sikkim, he said.
But the lowered tariff, too, could face challenges. The official told ThePrint that while some power private companies had suggested that the tax be lowered, central public sector undertakings such as NTPC, NHPC and the Satluj Jal Vidyut Nigam Limited (SJVNL) decided to tow the Centre’s line and oppose the move entirely.
He was referring to a letter from R. P. Pradhan, Director, Union power ministry, to the chief secretaries of all the states. The letter was dated 25 April — a little more than a month after the Himachal assembly had passed the act levying the cess.
“Any tax or duty on the generation of electricity, which encompasses all types of generation such as thermal, hydro, wind, solar, nuclear, etc. is illegal and unconstitutional,” the letter said.
Following this, some hydropower companies, including central PSUs, challenged the cess in the Himachal Pradesh High Court. The court will hear the case next on 11 September.
But, the official said Himachal was not the first to levy such tax, citing similar taxes in Uttarakhand and Jammu and Kashmir.
He referred to the February 2021 ruling by the Uttarakhand High Court upholding the Uttarakhand Water Tax on Electricity Generation Act, which imposed the water cess on power projects of more than 5 MW capacity.
“We will cite (in Himachal HC) the Uttarakhand High Court judgment that supports imposition of cess,” the official said. “As far as the central government is concerned, Jammu Kashmir is paying the cess and the central government is collecting it since J&K is now a Union Territory.”
‘No sound rationale’ behind water cess
The letter from the power ministry in April wasn’t the first time that the imposition of a water cess was discouraged.
In its 2019 report on hydropower, a parliamentary standing committee on energy categorically stated that levying water cess “could affect the viability of (hydropower) projects”.
Underlining that certain states levy a water cess for every cubic meter of water, the report argued that there was “no sound rationale behind this as there is no consumptive use of water by a hydro power plant” because “water just passes through the turbines and goes to the river again”.
“The committee found that imposition of water cess is not fair considering the provision of 12 percent of free power to the respective states from the hydro power projects,” the report said. “Since, the levying of water cess further burdens the already stressed sector, the committee is of the firm view that there is a need for relook in this matter by the states who have levied it. The committee also desires that the ministry would also persuade the states not to levy any water cess on hydro power projects.”
(Edited by Uttara Ramaswamy)
Also Read: After water cess, another Himachal-Punjab row. All about tussle over British-era hydel plant