Hydro power firms could take financial hit due to new levy by Himachal Pradesh

Hydropower companies face the prospects of a dent to their financials due to the new water usage cess imposed by the Himachal Pradesh government in March, multiple industry executives and experts ET spoke with said.
JSW, GMR, Statkraft and Greenko are among private sector players likely to be affected. A total of 172 projects in the state have to pay for the water that flows through their plants to generate electricity.

According to industry insiders, the impact is expected to be two-pronged. Functional projects are expected to see a sharp rise in operating costs - by up to 25%. Under-construction projects will have to renegotiate terms with bankers for financing because the underlying financial projections on the basis of which those loans were granted have changed.

None of the potentially affected companies responded to ET’s mailed queries until the publication of this report.

“In some cases, power purchase agreements may factor in changes of law clauses. In those cases, the additional cost of generation will be passed on to the distributor and ultimately make power expensive for the end-user,” a top executive at one of the affected companies said, on the condition of anonymity. “However, where the contracts don’t have such protective clauses, the financial impact could make the project unviable”, a top executive at one of the impacted companies said on condition of anonymity.

According to banking sources, GMR’s 180-megawatt project at Bajoli Holi in Himachal Pradesh sells power to industrial customers such as UP Power Corporation and Delhi International Airport. There are no clauses for change in law events in its contracts and it would be unable to re-negotiate tariffs and pass on additional costs.

Similarly, sources said that Statkraft’s project at Malana in Himachal Pradesh operates on a merchant power contract with PTC India. There is no room for re-negotiating tariffs. The company has two other projects in the state with capacities of around 150 megawatts and 192 megawatts. They are also likely to be affected.

Greenko and JSW Group have under-construction projects with capacities of around 500 megawatts and 240 megawatts, respectively. Financing terms on those under-construction projects could be affected because the cost structure has changed.

“They should not have imposed the water usage cess. They are already charging generators by making them provide 12% of power generated by them free to the state. In addition, they are levying 1% as local area development charges,” said MM Madan, Jindal Steel’s former hydropower chief.

Hydropower experts believe the policy change is expected to impact investor appetite in the sector.

“The viability will be reduced. Therefore, investments will reduce,” said Awadh Giri, head of Confederation of Indian Industry’s hydropower committee.