Panel urges water cess framework for hydropower projects

A parliamentary panel on Thursday suggested the power ministry to devise a viable water cess framework for hydroelectric projects in the country that are mutually agreeable between the Central and State Governments.

The Committee on Public Undertakings, in its 31st report tabled in the Parliament, noted that several state governments have modified agreements with public sector hydroelectric company NHPC to include revised demand for free power, reassessment of SGST waivers and the application of water cess for hydroelectric projects in their respective jurisdictions.

Such changes have impacted the commercial feasibility of certain projects and necessitated timeline adjustments for construction commencement, it noted.

NHPC (National Hydroelectric Power Corporation) submitted before the Committee that independent realignment of agreed terms is a significant administrative priority, with certain projects currently navigating an extended pre-execution phase.

The Ministry of Power, in its presentation before the Committee, said that water cess, which adjusts tariffs by 60-70 paise per unit, should not be applied, as water use in hydropower is non-consumptive in nature.

According to the committee, the Union Government itself has acknowledged water cess to be outside the states’ legislative framework, yet the practice continues, impacting the financial sustainability of public investment in hydropower.

The Committee recommended that the power ministry issue formal directives to all State Governments, reiterating the structural integrity of implementation agreements and the operational necessity of avoiding post-agreement revisions.

A well-researched standard Model Implementation Agreement with structured dispute resolution clauses, change-in-law protections, and a viable, mutually agreeable water cess framework should be developed and adopted nationally, the panel said.

Besides, it suggested the power ministry to develop a dedicated policy framework to grow the hydro and PSP (pumped hydro storage project) contractor ecosystem, including pre-qualification incentives, structured mentoring between experienced and emerging contractors, facilitated access to project financing and targeted skill development in specialised areas such as tunnelling, cavern construction and hydraulic engineering.

Also, NHPC should accord the highest strategic priority to its 20,000 MW pumped storage project pipeline, the panel said, adding that the power ministry should provide dedicated facilitation, including expedited site allotments, clearance prioritization and off-take guarantee mechanisms to ensure that national pumped storage project targets are met in line with grid stability requirements.