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Harish Damodaran

New Delhi, Oct 14

The Centre’s recently announced sugar industry bailout package is likely to mainly benefit mills in Maharashtra, Gujarat, Karnataka and Andhra Pradesh, where growers are eligible to be paid only the Centre’s statutory minimum price (SMP) for cane.

As against this, there is not much for mills in Uttar Pradesh (UP), Tamil Nadu (TN), Punjab and Haryana, who are obliged to pay the higher cane price ‘advised’ by the State Governments concerned.

The Cabinet Committee on Economic Affairs (CCEA) had approved the grant of special bank loans to sugar mills, equivalent to the actual excise duty paid by them during the 2006-07 season (October-September) and the estimated amount payable in the current 2007-08 season. The interest on these loans — of five-year tenor with a two-year repayment moratorium — would be borne by the Centre.

At the same time, the loans can be used by mills only for discharging their cane payment dues. Further, the interest subvention from the Centre would be only on the portion of arrears of sugarcane price “which is relatable to SMP”, as per the official press release issued after the CCEA meeting.

This, industry sources say, would exclude most mills in UP, TN, Punjab and Haryana, who have to pay the State advised price (SAP) that is higher than the Centre’s SMP. For 2006-07, the Centre had announced an SMP of Rs 80.25 per quintal, linked to a basic sugar recovery of nine per cent and a premium of Rs 0.90 payable for every 10 basis points incremental recovery over the base level. Taking average recoveries of 9.5 to 10 per cent in UP or TN, the corresponding SMPs were Rs 85-90 per quintal.

However, the SAP levels were fixed much higher at Rs 125 for normal cane and Rs 130 for early maturing varieties in UP and Uttaranchal, while being Rs 102.50 per quintal in TN (linked to nine per cent base recovery and Rs 0.90 for every incremental 10 basis points recovery). In Punjab and Haryana, the SAP ranged from Rs 124 to Rs 138 a quintal.

“Most mills in UP (barring some such as the UK Modi Group) have paid up well over 80 per cent of the SAP. This more than covers the SMP portion, which means neither can they access the special loans nor will there be interest subvention on these loans”, the sources pointed out.

On the other hand, the Maharashtra mills stand to gain, given that their average sugar recovery is higher at around 11.50 per cent, corresponding to an SMP of Rs 102.5 per quintal and even touching Rs 120 in a few factories. While there is no SAP in Maharashtra, the high recovery levels have led to mills piling up cane arrears of about Rs 135 crore even vis-À-vis SMP. Out of the 142 mills in the State, 50-odd have reportedly not paid the SMP.

Besides the special bank loans, the CCEA had also cleared the conversion of outstanding loans taken by mills on account of harvesting and transport charges (as appearing on their books on April 1, 2007) into term loans of up to five years.

“This again will only help Maharashtra mills, since in other States, the harvesting and transport costs are large borne by the growers themselves. Out of the Rs 101.7 average SMP in Maharashtra, mills deduct around Rs 22.5 against harvesting and transport charges”, the sources added.

More Stories on : Sugar | Agricultural Policy | Maharashtra

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