The Hindu Business Line : AP, Karnataka, UP mills found selling excess sugar

Bitter pill
Mills selling aggressively to liquidate excess stocks and save on interest costs.
The communiqué has resulted in wholesale prices moving up by around Rs 40 per quintal in Mumbai.

New Delhi May 14 The Centre has threatened mills found selling sugar in excess of their free sale quotas (FSQ) of withdrawing all export assistance and buffer subsidy announced as part of its recent Rs 1,000 crore industry bailout package.

Violating provisions

In a latter, dated May 10, to the Indian Sugar Mills Association (ISMA) and National Federation of Cooperative Sugar Factories (NFCSF), the Sugar Directorate has said "some instances" have come to its notice of mills violating the provisions of the release mechanism.

Under the mechanism, mills are allocated FSQs or the quantum of sugar they can sell in the open market in any particular month. The monthly release orders are issued under the provisions of the Essential Commodities Act, 1955 read with the Sugar (Control) Order, 1966.

"It may be brought to the notice of all sugar mills that violation of the (release) orders is a punishable offence under the provisions of the ECA. Furthermore, such units will also be deprived of other benefits such as buffer subsidy, export assistance and other assistance under Sugar Development Fund etc," the Directorate has informed the associations.

LIQUIDATING STOCKS

According to sources, the mills identified to have flouted the release orders were mainly in Andhra Pradesh, besides a few from Karnataka and Uttar Pradesh. "In order to liquidate excess stocks and save on interest costs, these mills have been selling aggressively and adding to the already bearish sentiment. The Directorate has decided to penalise them by withdrawing their buffer allocation and export benefits", they added.

The Centre has created a buffer stock of 20 lakh tonnes (lt) for a one-year period from May 1. During this period, it will bear the entire interest, storage and insurance charges on the sequestered sugar, prorated among individual factories based on their opening stocks and production during the current 2006-07 season till February 28.

"They have so far made a only provisional mill-wise allocation. Those violating the release mechanism will not be given any buffer in the final allocation. After all, why should the Centre bear the carrying cost for factories who have illegally liquidated their stocks?," the sources pointed out. The concerned mills will also not be entitled to the export assistance of Rs 1,350-1,450 per quintal.

IMPACT ON MARKET

The Directorate's communiqué has impacted the market, with wholesale prices since May 10 moving up by around Rs 40 per quintal in Mumbai, Rs 70 in Kolkata and Rs 80 in Delhi. "Prices have risen more in Kolkata and Delhi because these are markets mainly catered by mills in Uttar Pradesh and Andhra Pradesh," the sources said.

INTERIM ORDERS

In some cases, mills have been making excess sales on the basis of interim court orders. "They have secured the orders on the plea of making payments to cane growers. And, these are mostly issued by district session benches of lower courts," they noted.

The Directorate, in its letter, has maintained that if any mill has sold above its FSQ on the strength of the judgment of a "competent court", it is incumbent on it "to send a certified copy of the judgment to this office immediately".