The state’s industries, which buy cheaper power from sources other than the state-owned distribution company — Maharashtra State Electricity Distribution Company Limited MSEDCL — will have to pay the government a tax called electricity duty. Industry sources fear that this extra cost of production could be passed onto consumers in times of inflation.

On Tuesday, the State Cabinet scrapped the existing law because it did not provide for taxing transactions that are held in the open market through power exchanges, and through open access which allows large users of power to buy it for cheaper prices from sources other than its official distributor.

Such users are primarily industrial units having a daily requirement of 1 mega watt (MW) of power. Since the state has been losing huge revenue because of open market trading and open access, the Cabinet decided to enact a new law which will be approved in the Monsoon session of state legislature next month.

Currently, electricity duty is charged at the rate of 15% of monthly consumption charges. Distributors collect it through a billing mechanism and pass it onto the government.

A cabinet note on Tuesday said that the state required a new act because “the Electricity Act 2003 governs and regulates the electricity business in the country. It has many new concepts which are beyond the ambit of state’s electricity duty act. The state has been losing huge revenue and hence it needs a new law”.

The state-owned company MahaVitaran (MSEDCL) has opposed open access regime, but the Maharashtra State Electricity Regulatory Commission (MERC) has denied it a favourable decision. The large users of power are buying some 1,200-1,400 Mw daily from sources other than MahaVitaran.

An official statement made on Tuesday said that the government would earn Rs 464 cr more annually after the new act gets enacted.

Industries in Maharashtra which consume 6,500-7,000 MW daily, pay highest power rates (compared to neighbouring states). Industries also cross-subsidise low end consumers by paying more. Buying cheaper power through open access saves industries at least R1.50 per unit. The state government justified the move saying that the consumers use state’s distribution network to get power in open access but don’t pay user charges. “With the new act, all consumers using open access as well as other methods to buy (cheaper) power from sources other than local distributor will be levied electricity duty,” said the statement.