Water tax will have marginal impact on hydropower companies

MUMBAI: Uttarakhand government is considering levying water tax on hydropower generation. Last year, Jammu and Kashmir had also imposed a similar tax. This would not have any impact on power projects of NHPC and Jaiprakash Power Ventures (JPVL) as these companies sell power on agreement basis and the cost will be pass through.

However, going forward, risk enhances for JPVL if Himachal Pradesh also decides to follow its two neighbours. The company has a project called Karcham Wangtoo (4 x 250) in Himachal Pradesh from which 70% of the power will be sold on merchant basis. According to Deutsche Bank, JPVL's over all 2014 earnings can be impacted by 4% and target price of company's stock by 9%.

Other private company that could be impacted by the levy of tax on water includes GMR Infra. GMR infra has around 700 MW hydro power projects under development These include 300 MW Alaknanda and 400 MW Urthing Shobla projects.

Over the last two year, the hydro power companies have not performed well, despite having no fuel risk and ability to generate cheaper power as compared to thermal power companies. As a result stocks of India's two leading hydro power companies have significantly under performed over the last two years.