A day after a logjam over cane crushing ended, cash-starved sugar mills in Uttar Pradesh are pinning hopes on the state government's assurance for the first time to come up with a fixed formula for deciding the cane price to be able to get loans from banks. Leading banks this year refused loans to major sugar firms in the state, citing persistent losses due to a drastic mis-match between raw material and sugar prices, which the mills said had been caused by UP's “arbitrary” fixing of cane price without any economic basis.
Abinash Verma, the director-general of the Indian Sugar Mills Association (ISMA), said mills could incur losses of R4,000-R4,500 crore in the marketing year through September 2014, compared with R3,000 crore last year, if they pay R280 per quintal for cane, even after factoring in the state government's latest announcement of concessions to the tune of R11.03 a quintal in the form of entry tax, purchase tax and society commission. However, he added that mills are optimistic abo-ut getting loans as the banks will take positive notes of the state government's decision to set up a panel and fix a formula to determine the cane price each year, which is expe-cted to create an atmosphere of certainty and fairness.
“The state government has given us an assurance of looking into the long-term rationalisation of the sugar policy and that a committee, headed by the chief secretary, will come out with a solution in three months. Based on this, we’ll renogotiate with banks. We know this year too, we will incur losses, but we are ready to take the losses in the hope that a permanent cure comes out of it,” said Vivek Saraogi, MD of Balrampur Chini Mills.
On their part, bankers said they were open to releasing working capital loans based on a fresh assessment of mills' performances and the state government's assurance of a rational formula to fix the cane price. "We can look at providing loans even over and above a mill's existing working capital limit only after a realistic assessment of profits and repayment capacity," said a senior official with a leading public-sector bank.
On Sunday, a deal was reached between the mills and the UP government, under which the industry will pay R260 per quintal in the first tranche within 14 days of cane purchases, and the rest by the end of the crushing season, likely by May-June. However, cash-strapped mills have never in recent years been able to clear dues by June and arrears have been carried forward well into subsequent years, mainly due to high prices of raw material.
The state government also announced on Sunday waiver of the entry tax of R2.73 per quintal, purchase tax of R2 per quintal and society commission of R6.30 per quintal to help the mills tide over the crisis due to subdued sugar prices this year. The sugar mills, which had repeatedly expressed their inability to pay more than R225 per quintal for cane, agreed to start crushing after the deal.
ISMA's Verma said mills will incur losses because at R280 per quintal, the cost of sugar production stands at R3,512 per quintal, even after concessions are granted, considering that ex-factory price of mills rules around R3,000 per quintal. The cost of sugar output will be higher at R3,632 per quintal without the concessions of R11.03 per quintal.
Meanwhile, an informal GoM, headed by agriculture minister Sharad Pawar, is expected to meet on December 6 to discuss proposals of providing interest-free working capital loans and export incentives to help mills tide over the crisis, sources said.