The Hindu Business Line : Subsidy likely for raw sugar suppliers to EOU refineries

Sounding sweet The latest plan is to extend the subsidy to mills supplying raw sugar to refineries that would process and export it as refined sugar. With ocean freight rates going up, it may make sense to source raw sugar from within the country.

New Delhi June 15 The Centre may extend export subsidy benefits to mills supplying raw sugar to domestic refineries holding advance authorisations (AA) against their refined sugar export obligations.

The move could benefit companies such as EID Parry and Shree Renuka Sugars, which are setting up standalone port-based refineries.

Subsidy payment

The Centre has, with effect from April 19, been providing reimbursement of internal transport and freight charges to mills exporting sugar.

The extent of payment has been fixed at Rs 1,350 a tonne for factories in coastal States and at Rs 1,450 for those in the hinterland.

On May 18, it was clarified that the above subsidy also applied to raw sugar exports.

"Today, a mill gets the subsidy whether it exports raw, plantation-white or refined sugar," sources said.

"And it will be given even if the export is routed through a trader, though the payment is made only to the mill manufacturing the particular sugar."

Latest plan

The latest plan is to extend the subsidy to mills supplying raw sugar not only to trader-exporters but also to refineries that would process and export it as refined sugar.

In other words, the raw sugar supplied by mills to these standalone refineries would be "deemed" as exports, qualifying for the export subsidy.

"The proposal is being actively considered by the Food Ministry and is likely to be approved soon," the sources added.

The proposed 2,000-tonnes-per-day refineries of EID Parry at Kakinada (Andhra Pradesh) and Renuka Sugars at Haldia (West Bengal) are both coming up in non-sugarcane growing areas.

Exploiting arbirtrage

What they would basically seek is to exploit the significant arbitrage between international raw and refined sugar prices.

Currently, raw sugar - of 700-2,200 ICUMSA (a measure of whiteness) - fetches $250 a tonne, whereas the price is $340 for refined sugar (45 ICUMSA).

"That is a $90 difference, which, even after factoring in conversion costs of $40, translates into $50 a tonne," the sources said.

This margin is not available in the regular plantation-white sugar of 80-200 ICUMSA exported by Indian mills.

Plantation whites are now quoting at $275, which is at discount to the London daily white levels of $310.

Key to capturing the refined-raw margin, however, is the sourcing of raw sugar.

Making sense

Traditionally, raws have been imported duty-free from Brazil or Thailand against AAs, carrying an obligation to export one tonne of white or refined sugar for every 1.05 tonnes of raw imports.

But with ocean freight rates going up, it may make sense to source raw sugar from within the country.

"Instead of an integrated refinery linked to a particular mill and cane area, you can have large standalone refineries that can process raws from a number of mills," the sources said.

"If mills supplying the raws to these refineries against their AAs are given deemed exporter status, it would give an impetus to the process," they added.

Viable proposition

According to them, the establishment of refining capacities in West Asia and neighbouring South-East regions has made raw sugar exports from India viable, while dimming the prospects for plantation whites.

On the other hand, the dismantling of the European Union's export subsidy regime has created sufficient scope for shipping out refined sugar to the entire Indian Ocean market.

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