The Hindu Business Line : Norms tightened for sugar cos to set up mills

Directive
Sugar firms have been given a 4-year deadline to start production after filing IEMs.
Effective steps should be taken in 2 years.
Failure will lead to IEM de-recognition and forfeiture of guarantee.

New Delhi , November 14

Sugar companies filing Industrial Entrepreneur Memoranda (IEM) for setting up new mills would have to furnish performance guarantees of Rs 1 crore each and also take "effective steps" for implementation within two years time. Failing to do so would result in de-recognition of the IEM and forfeiture of the performance guarantee.

`Effective Steps'

The amendment to the Sugarcane (Control) Order, 1966, notified by the Department of Food and Public Distribution on November 10, has defined "effective steps" to cover purchase of required land, placement of firm order for purchase of plant and machinery and payment of requisite advance or opening of irrevocable letter of credit with suppliers, commencement of civil work and construction of the factory building and sanction of requisite term loans from banks or financial institutions.

Avoiding squat on sites

"By laying down clearly what effective steps mean and stipulating a four- year deadline for commencing commercial production, we have ensured only genuine IEMs are filed and these are not used to squat on sites," officials said.

The amendment provides for a minimum radial distance of 15 km between an "existing" and "new factory" as well as two "new' factories. The "existing" factories include both already operational mills as well as those that have taken all "effective steps" as per the definition.

States to certify

A "new" factory, in turn, is one that has filed an IEM and further submitted a performance guarantee of Rs 1 crore to the Chief Director (Sugar) as a surety for implementation of the IEM. If the IEM remains unimplemented within the stipulated time limit, the guarantee would be forfeited. "This again is to discourage frivolous IEMs from being filed," the officials added.

A company before filing an IEM will now have to obtain a certificate from the State Government concerned that its proposed mill is not less than 15 km from the site of an existing or new factory. Once the IEM is filed, the company would have to furnish the performance guarantee within 30 days. Companies that had already filed IEMs prior to November 10 and still not taken "effective steps" have been given a six-month reprieve to furnish bank guarantees.

Odd provision?

"This provision is somewhat odd, as it means those who may have filed frivolous IEMs in the past can keep these alive for another six months, whereas the new players are given only one month's time to demonstrate their seriousness," industry observers pointed out.

In Uttar Pradesh alone, some 760 IEMs for new mills have been filed, with Bajaj Hindusthan, Triveni Engineering and Balrampur Chini apparently accounting for more than half.

For the Government, the "IEM war" has posed a peculiar problem. Even in a de-licensed regime, the minimum distance norm has been seen as necessary in order to secure sufficient cane area for individual factories to be viable. On the other hand, by filing IEMs and not acting on them, companies have basically been stifling competition, defeating the very purpose of de-licensing.

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