Sugar mills have so far submitted applications to obtain interest-free loans of around R3,500 crore from the R6,600-crore bailout package approved by the Cabinet Committee on Economic Affairs (CCEA) in December, senior industry executives said on Wednesday. However, many of them are sceptical of getting the relief as the finance ministry hasn’t yet fulfilled the mills’ demand to ease some “stringent” eligibility conditions.
Since the mills are struggling to convince banks to provide them adequate working capital loans to pay farmers, cane arrears are piling up fast, executives of two stressed mills in Uttar Pradesh told FE. Abinash Verma, director-general of the Indian Sugar Mills Association (ISMA), said the arrears may hit a record R17,000-18,000 crore by the end of March across states.
Worse, the arrears are expected to pile up at an even faster pace from February onwards, as mills, which usually use up their cash reserves in the first 2-3 months of crushing, are unable to ease sugar stocks significantly this year, he added. Moreover, while the average ex-factory sugar price last year was R31 per kg, mills in Uttar Pradesh are forced to sell at R27-28 per kg while those in Maharshtra are offloading at roughly R25 per kg this year due to ample stocks, which are dragging down realisations, he added.
Mills have so far produced 40-45% of the sugar forecast for the current marketing year through September. This means the bulk of cane is yet to be crushed this year. A fourth straight year of surplus production has boosted domestic stocks and dragged down prices. In the beginning of the current marketing year on October 1, the country had 9.25 million tonne of sugar stocks, much higher than roughly 6.2 million tonne a year before.
According to a rough estimate by the ISMA, cane arrears as of end-January touched R10,000 crore, of which Uttar Pradesh alone accounted for R7,200 crore, including last season's dues of R900 crore.
Last month, ISMA had sought relaxation in the guidelines mandated by the department of financial services (DFS) for the interest-free loans. The DFS had told banks that the lending will be subject to various norms relating to security, future cash flows for the life of loan (five years), establishing the viability and debt-servicing capacity, conduct of loan including the restructuring guidelines as notified by the RBI for the sugar industry from time to time.
However, millers have said that if sugar companies were so stable financially that they could take loans on commercial terms, they wouldn't have approached the government for a bailout package in the first place. They have also argued that the interest-free loans shouldn't be treated on a par with usual loans as the government has mandated that the funds be used exclusively for the payment of cane arrears to farmers, and not for any other business transaction.
Panel to look into subsidy on raw sugar exports
A panel of secretaries is expected to meet on Thursday to discuss the amount of subsidy to be offered for raw sugar exports up to 4 million tonne over the next two years, official and industry sources told FE.
The CCEA on Tuesday deferred a decision on a food ministry proposal to give R2,000 per tonne, which, the industry says, is too less to make exports viable. Since the agriculture ministry seems to be favouring incentives worth R3,500 per tonne, as sought by ISMA as well, the panel will discuss the issue and make recommendations, one of the sources said.
If the panel agrees on the amount of the subsidy, the proposal will be placed before the CCEA for approval, he added. If mills are provided R3,500 per tonne, the subsidy burden will be to the tune of R1,400 crore over two years, compared with R800 crore, based on the food ministry's current proposal.
The move is aimed at reducing white sugar production in the country to cut the glut and diversify the product base. The government's move to subsidise raw sugar imports was part of a series of recommendations by the Sharad Pawar-led panel in December to bail out the cash-starved sugar industry and hasten the process of clearing cane arrears. Subsequnetly, the CCEA on December 26 approved modalities for extending interest-free loans worth R6,600 crore to the sugar industry. However, another key recommendation of the panel to double the limit of ethanol blending with petrol to 10% is yet to be taken up by the CCEA.