NEW DELHI – The Sugar Mills Co-generation Association has moved the Allahabad High Court to challenge the sharp reduction in bagasse prices that are used for calculating the price of power sold by mills to the state electricity board.
Bagasse, the fibrous residue left after juice is extracted from sugarcane, is used as a feedstock for producing power. Mills use this co-generated power for their operations, and supply the surplus to the power grid.
In April this year, Uttar Pradesh Power Corp Ltd decided to almost halve the price of bagasse used for calculating the cost of power supplied by sugar mills to 1,010 rupees per tn from 2,000 rupees. Currently, open market price of bagasse is around 2,500-2,600 rupees per tn.
Consequently, the rates at which sugar mills sell electricity to state power grids has gone down by about 2 rupees per unit. Before Apr 1, the average electricity rate was 4.96 rupees per unit.
"Industry is undergoing losses of around 5-6 bln rupees because of this 'unilateral and unreasonable' downward revision in bagasse price. We want to know on what basis price has been halved," an industry official said.
At a time when record-high sugar stocks has led to depressed prices and poor financial health of sugar mills in the country, the downward revision in power prices has come as a major setback for mills in the largest producing state.
"This…will directly impact our revenue generation and our ability to be able to pay cane price to the farmers as well as repay our bank loans on time," the official said.
As of Friday, mills in the state owed 27.6 bln rupees of cane dues to farmers.
The downward revision in bagasse price will continue to hurt the industry for a very long time, another official said.
While state and central governments have been encouraging sugar mills to go for co-generation, the downward revision by the regulatory commission has come as a deterrent. Mills are now preferring to sell bagasse to the paper industry instead of using it to produce surplus power.
Of the nearly 15,000 MW power that Uttar Pradesh requires on an average, sugar mills of the state supply 900-1,000 MW.