The Hindu Business Line : Raw sugar imports may turn a liability

WILL companies which have imported raw sugar against advance licences (AL) provide for contingent liability, arising from the future export obligation on these, in their end-year balance sheets?

This question is being raised at a time when mills are reportedly making a killing of Rs 3-4 per kg by importing raw sugar at zero duty against ALs and selling the processed white sugar in the domestic market.

Since the AL scheme carries an obligation to export one tonne of white sugar for every 1.05 tonne of raw sugar imported within 36 months of the licence being issued, some analysts argue that the profits being made on this count by mills now are largely notional.

This is more so in the present context, where selling in the domestic market is far more remunerative than exports.

But considering that the mills are required to discharge their export obligation within 36 months of imports - failing which they have to fork out a penalty on the total duty saved amount - there is the fear of today's profits being undermined by potential losses tomorrow.

Currently, the duty saved on importing raw sugar at zero duty, against the normal 60 per cent, comes to about Rs 6,900 a tonne on a landed price of Rs 11,500.

Further, if a mill were to export white sugar at today's world prices, it would not get more than Rs 11 a kg, against domestic ex-factory realisations of Rs 16-17 a kg. While domestic prices are expected to remain firm in the coming 2-3 years, there is no such certainty on the global price front.

During the 2003-04 season (October-September), raw sugar imports totalled 5.53 lakh tonnes (lt). Much of this was by southern mills, including Thiru Arooran (1,42,750 tonnes), Sakthi Sugars (80,100), Bannari Amman (62,250), NCS Sugars (49,600), Renuka Sugars (49,250), EID Parry (45,250), Sagar Sugar (39,050), Dharani Sugars (24,000) and Ponni Sugar (10,500).

The sole importer outside the South was Dhampur Sugar, which did 50,232 tonnes.

But in the current season, others have joined the bandwagon. The largest importer - out of the total of 13.21 lt so far - has been the Indian Sugar Exim Corporation (ISEC).

The Corporation has imported on behalf of a number of mills in the North - Simbhaoli (24,000 tonnes), KM Sugar (10,000), Oudh Sugar (7,500), Riga Sugar (7,000), JK Sugar (4,000), Biswan (4,000) and Balrampur Chini (3,500) — and in Maharashtra, including Natural Sugars (15,000), Pravara (8,000) and Vaishnavi Sugar (2,000). Besides, it has imported another 1,96,000 tonnes not against any particular mill.

Other importers in the 2004-05 season are Renuka (214,250 tonnes), Sakthi (1,25,300), NCS Sugars (95,400), Cargill (94,373), Dharani (94,200), Dhampur (66,000), Sagar (57,500 ), SCM Sugars (53,000), Thiru Arooran (40,000 ), Godavari (40,000), Shamanour (23,300), KCP Mayura (22,500), Warana Sugar (22,000), EID Parry (19,933), Triveni Engineering (16,260), Rajshree Sugars (15,000), Mawana (14,085), Sahu Sugars (10,000), Prudential Sugar (9,000) and DCM Shriram (8,395).

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