Shimla: Himachal Pradesh Chief Minister Sukhwinder Singh Sukhu has defended his government’s move to impose a water cess on hydropower plants saying that the state is well within its rights to do so. But, the decision has caused much heartburn among power generation companies, and threatens to snowball into a political controversary with neighbours Punjab and Haryana unhappy over the move.
Both the states contend that the cess will increase the cost of power, resulting in higher power tariffs. Punjab and Haryana estimate they will incur Rs 1,200 crore burden due to water cess on the shareholders of the Bhakra Beas Management Board (BBMB). Rajasthan, Himachal Pradesh and Chandigarh also draw electricity from the BBMB projects.
Before the passage of the Himachal Pradesh Water Cess on Hydropower Generation Bill, 2023 in the assembly on 22 March, Sukhu had asserted that the charge of Punjab and Haryana that the cess goes against the Inter-State River Disputes Act was “illogical”.
Speaking in the House Thursday, the CM had said that Himachal had every right to impose a water cess since water is a state subject according to the constitutional provisions.
He further said that Himachal being a hill state has limited sources of income and in such a situation, has every right to increase its sources of income.
According to the new Act, a cess of 10 paise per cubic meter will be charged on hydroelectric projects with head (the height difference between where water enters into the hydro system and where it leaves) up to 30 m; 25 paise per cubic meter for 30-60 m; 35 paise per cubic meter for 60-90 m, and 50 paise per cubic meter for above 90 m.
There are 172 hydro power projects in Himachal, and the imposition of water cess is expected to generate a revenue of around Rs 4,000 crore. Prior to Himachal, Uttarakhand and Jammu and Kashmir had similar tariffs levied on hydropower plants.
“Our CM has conveyed the concerns of neighbouring states. We will examine them on merit after the Budget session,” Himachal chief secretary Prabodh Saxena told ThePrint.
Uttar Pradesh, Goa, Delhi, Jammu and Kashmir are other states/union territories that purchase power from Himachal.
“The government needs funds and taxing water used by hydroelectric plants (HEPs) can be a good option for the time being,” a Himachal industry department officer told ThePrint. But, the officer conceded that it could discourage investment in the HEP sector. “New investors would find it a loss making deal to invest in the state.”
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Costly power bills for consumers?
While tabling the Bill on 14 March, deputy CM Mukesh Agnihotri categorically said, “One thing is clear, we are not going to burden the common people of Himachal Pradesh.”
Sukhu, too, reiterated that this decision would not translate into higher tariff for consumers and that the power generation companies would have to bear the burden of water cess.
While Himachal will bear the cost of the state power generation companies, the project owner will have to pay the cess when it comes to other players such as SVNL, NTPC, and NHPC.
Meanwhile, GMR, the developer of the 180MW Bajoli Holi Hydro power project on Ravi river in Chamba, has moved the Himachal Pradesh High Court challenging the Act. The court issued notices to the state as well as the central government, and the matter is listed for 25 April.
Bonafide Himachali Hydro Power Developers Association president Rajesh Sharma argued that it’s impractical to expect power generation companies to bear the burden of the cess without increasing electricity tariffs.
“Cost of power generation will go up. To survive in a competitive market, hydro power companies will have to pass on the higher cost that they incur to the consumers. It will invariably result in an increase in power tariff despite the government claiming otherwise,” Sharma told ThePrint.
“Why should hydropower companies incur loss by selling power at a lower cost than what they spend on its generation? This will invariably result in closure of smaller plants. No one will come to set up a power project in the long run.”
Sharma claimed that the small hydro power projects sell the electricity to the state electricity boards at around Rs 2.50-Rs 3.50 per unit. “The cess will vary from 50 paisa to Rs 2.50 per unit. Small projects will have no option but to shutting shops,” he said, adding that they have written to the government to review the decision.
S.N.Verma, former managing director of Uttarakhand Jal Vidhyut Nigam Limited (UJVNL), is of the view that water cess is the right of the state but its application on hydro electric projects is not a good idea.
“These projects don’t consume water. Water runs through machines; mechanical energy is converted to electric energy; and water goes back to the river. There is no loss of water,” he said.
Verma added that the move would lead to an increase in power tariff.
“All the taxes, expenses of the developer are included in the power tariff. If water cess is imposed, power developers will pay it to the government and simultaneously they will raise the bills to power regulators. Ultimately, it will lead to costly power. If the government don’t want to raise the tariff, it will have to give subsidies to the electricity boards so that burden is not transferred to the consumers,” he explained.
Hydropower project owners peeved
Hydropower project owners are unhappy as they have to supply minimum 12 per cent free power to Himachal by way of royalty for the first 12 years, 18 per cent free power for the next 18 years and 30 per cent in the last 10 years of projects operated on Build, Own, Operate and Transfer (BOOT) basis.
“The small hydro electric sector is reeling under financial stress. In the renewable power sector, small hydro power sector is the only sector which is already burdened with heaviest taxation with GST applicable at 18 per cent, besides free power which in some cases adds up to 22 per cent during the lifetime of the project. Then there is contribution to local area development funds, Catchment Area Treatment charges applicable to all the projects above 10 MW,” said Sharma.
In 2019, a parliamentary standing committee on energy in its report on ‘Hydro Power’ had categorically said that levying water cess could affect viability of HEPs. Underlining that certain states levy a water cess for every cubic meter of water, the report observed that there was no rationale in levying such cess as the water goes back into the rivers.
“The imposition of water cess is not fair considering the provision of 12 per cent of free power to the respective states from the hydro power projects. 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 report reads.
(Edited by Tony Rai)
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