The Hindu Business Line : Scrapping of sugar policy deals double blow to mills

New Delhi June 24 If the dip in sugar realisations and mounting cane arrears are not bad enough, mills in Uttar Pradesh have been dealt a double blow by the Chief Minister, Ms Mayawati's, decision to scrap the Sugar Industry Promotion Policy 2004 of her predecessor, Mr Mulayam Singh Yadav's Government.

The policy had announced a host of incentives for setting up new capacities.

Incentives

These included remission of cane purchase tax and cane society commission; exemption of entry tax on sugar and trade tax/administrative charges on molasses; reimbursement of transport costs of cane from out-centers to factory and of sugar from mill up to 600 km from the UP border; 10 per cent capital investment subsidy; and remission of stamp duty and registration charges on land purchase.

For a typical factory with a capacity to crush 7,000 tonnes cane daily (tcd), the annual benefit from the above incentives was estimated at about Rs 20 crore.

These would alone, then, recover the entire investment of Rs 150 crore or so in 7-8 years' time.

Investments

The catch, however, was that a company/group had to invest a minimum Rs 350 crore to avail of the incentives for five years, and Rs 500 crore or more for 10 years.

The company/group to have responded most to the Policy was Bajaj Hindusthan Ltd (BHL), which between the 2004-05 and 2006-07 seasons established seven new mills with aggregate capacity of over 65,000 tcd and is planning to add another 44,000-odd tcd in the coming 2007-08.

Taking an average 150-160 days crushing duration, remission of the Rs 2 per quintal purchase tax and Rs 2.40 per quintal cane society commission alone would translate into a gain of around Rs 70 crore for the BHL Group.

Affected cos

Others to have made heavy greenfield investments following the announcement of the 2004 Policy are Balrampur Chini (31,000 tcd, including a 8,000 tcd unit scheduled for 2007-08), Triveni Engineering & Industries (24,500 tcd) and DCM Shriram Consolidated (16,000 tcd).

All of them stand to lose from the scrapping of the 2004 Policy, though not to the same extent as BHL.

In fact, BHL, in a statement to the exchanges on June 4, mentioned that the cancellation of the Policy "would have a significant adverse impact on the financials of the company, which is not quantifiable at this stage".

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