In a sign of things to come, Balrampur Chini Mills, one of the largest integrated sugar manufacturing companies in India, has decided to shut its Khalilabad unit due to the business turning unviable.
The company’s board has, in principle, approved the closure of Khalilabad Sugar Mills after complying with necessary formalities. The unit closed its crushing operations on March 9, a little over three months after it started operations on December 4 last year.
Industry insiders attributed the move to the business turning unviable in Uttar Pradesh — while the cost of production is Rs 34/kg, the selling price is at a six-year low of Rs 24/kg. However, other factors, such as low quantity of cane available for crushing, poor installed capacities of the old mills, low recoveries and lack of cogeneration and distilleries facilities, have also taken a toll.
“The installed capacity of the Khalilabad unit as of today is 2,500 Tcd. Though the mill was upgraded gradually from 900 tcd to 2,500 Tcd over the last 70 years, it’s a far cry from the viable size of 6,000 Tcd,” said an industry expert, requesting anonymity, Due to the low capacity, the final recovery of the unit suffers, he added. The recovery of the Khalilabad factory was 9.25% last year, which went down further to 8.65% this year. “The Khalilabad factory has no cogen or distillery, which adds to the cost,” he said.
Apart from this, the factory was not getting adequate cane supply to run on full capacity. While the area under cane cultivation has shown an increase in UP as a whole, the eastern part of the state has shown a dip, resulting in mills not getting adequate quantity to run full capacity. “The scene is no different for other sugar mills in the area,” the expert quoted above said.
Industry insiders expect many other sugar mills in the state to follow suit. “This is just the tip of the iceberg. In fact, this could have a cascading effect on other mills, which are again staring at huge losses in the coming year. Many mills, particularly in UP, are running on ventilator and could stop functioning any day,” said an insider.
Rumours are rife that as many as 10 mills in the state are on the brink and may close if things do not improve drastically. Three such factories belong to one group. “Many sugar mills are looking for buyers and others have been referred to the BIFR. The last four seasons have hit the sector pretty hard and with the coming season also showing signs of excess sugar production, sugar prices are going to nosedive further,” said a miller.
Another miller said: “The situation is bad globally, and in India too. But things are worse in UP. To top it, the government is doing precious little to rectify the wrongs that have been done over the years. Over the years, the state advised price (SAP) for sugarcane has been higher than the FRP. What’s worse, habitual offenders are being allowed to go scot-free.”
The sugar industry contributes Rs 14,000 crore to the state exchequer every season. “The local economy is hugely dependent on the sugar industry and if factories start posting losses and close down ultimately, it will completely break the economy,” said an expert.