New Delhi: A parliamentary panel has asked the Ministry of Power to draw up a workable water cess framework for hydroelectric projects that both the Centre and the states can accept, after finding that unilateral changes by states to their agreements with NHPC were eroding project economics.
Follow The PSUWatch Channel on WhatsApp
In its 31st report, tabled in Parliament on Thursday, the Committee on Public Undertakings (COPU) said several state governments had reopened their pacts with the state-run hydro generator to press fresh demands — higher free-power entitlements, a rethink of State GST (SGST) waivers, and the levy of water cess on hydro projects within their territory.
Those revisions, the committee said, had hurt the commercial feasibility of some projects and forced construction start dates to be pushed back.
NHPC told the panel that undoing such unilateral changes to settled terms had become a significant administrative priority, and that a number of projects were caught in an extended pre-execution phase.
The Ministry of Power, in its presentation to the committee, argued that water cess should not be imposed at all. Hydropower draws on water in a non-consumptive manner, it said, while the cess raises tariffs by 60-70 paise per unit.
The committee went further, noting that the Union government had itself conceded that water cess lies outside the states' legislative competence — yet the levy continued, weighing on the financial sustainability of public investment in hydropower.
COPU recommended that the ministry issue formal directions to all state governments, restating that implementation agreements must retain their structural integrity and that reopening them after signing should be avoided.
It called for a well-researched, standard Model Implementation Agreement — built around structured dispute-resolution clauses, change-in-law protections and a viable, mutually agreeable water cess framework — to be developed and adopted nationally.
Follow PSU Watch on LinkedIN
The panel also asked the ministry to frame a dedicated policy to widen the pool of contractors for hydro and pumped storage projects (PSP). It said this should offer pre-qualification incentives, structured mentoring that pairs experienced firms with emerging ones, easier access to project financing, and targeted skilling in specialised areas such as tunnelling, cavern construction and hydraulic engineering.
On storage, the committee said NHPC should treat its 20,000 MW pumped storage pipeline as its highest strategic priority. It urged the ministry to provide dedicated facilitation — expedited site allotments, prioritised clearances and off-take guarantee mechanisms — to ensure national PSP targets are met in line with grid-stability requirements.
(PSU Watch is India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy. 👉 Click to join our channel now: PSUWatch WhatsApp Channel. Prefer LinkedIn? Follow PSU Watch on LinkedIN. Click to stay connected on Twitter here and stay updated)