Indian sugar mills association

SC order on cane payment puts UP mills in quandary

Date:	18 Jan 2012

Source:	The Economic Times

Reporter:	Man Mohan Rai & Jayashree Bhosale

News ID:	856

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LUCKNOW/PUNE: A Supreme Court order to make full payment of more than Rs 1,100 crore in state advised cane price to farmers in Uttar Pradesh for the 2006-07 and 2007-08 seasons has thrown the industry in a quandary.

Petitioner Virendra Mohan Singh, who filed the case on behalf of farmers, said the court on Wednesday directed UP mills to pay full SAP for 2006-07 and 2007-08. He said farmers would get paid Rs 135 crore for the 2006-07 season and Rs 882 crore by private mills for 2007-08. He said SC had also referred the issue of whether the state government has the right to fix SAP to a seven-judge bench.

"The Supreme Court order would lead to mills in UP paying about Rs 1,100 crore to clear the SAP payment of 2007-08," said Abinash Verma, director general of industry body Indian Sugar Mills Association. However, the final payment for the 2006-07 season is not yet known as the number of mills which had got interim relief on the 2006-07 SAP is yet to be ascertained, he said.

Verma said the SC has directed mills to clear dues within three months. Mills had received an interim relief from the high court in 2006-07 and again in 2007-08 to pay Rs 15 per quintal less than the SAP.

UP millers were already bleeding due to subdued prices and high SAP for the current season. "The order would be immediately followed by us. However, it has come at a time when we are under immense pressure and our financial books in a bad shape," said an official from a leading sugar mill. "Paying cane arrears of Rs 1,100 crore would be extremely difficult when cane crushing in the current year is at its peak. The industry pays three times of what it sells during the crushing period from January till March", he added. UP is expected to produce 25% more sugar this season over last year.

A senior executive of a large sugar mill said millers might be forced to default on current year cane payments as they were already running on losses and the additional payout of the 2006-08 seasons would leave them with no working capital.

However, farmers have welcomed the decision. "We welcome this decision. It proves that the government was right in announcing the SAP and mills have delayed payment through legal hassles. We will now fight for getting paid interest on this amount," said Sudhir panwar, president, Kisan Jagriti Manch.

The plight of the UP industry has become a source of worry for mills in other states. N Ramanathan, president, South Indian Sugar Mills Association, said, "UP millers will have no option but to clear the arrears as per the SC order. But this may come at the cost of building up additional current year arrears."

The biggest concern is what UP mills will do to shore up cash flows. "If they start selling heavily in order to pay the arrears, especially in the East, then it may put pressure on sugar prices," said another miller from south.

Sugar industry experts said mills would most likely approach the Central and state government for subsidised loans if they have to scrape through the situation.

Meanwhile, the issue of SAP versus the Central government`s FRP continues to hang fire. Sugar mills had challenged the legality of state governments fixing cane price, Verma said. It was argued before the bench that the court`s verdict in 2004 is ultra vires of the judgment of the same court, he said.

The three-judge bench considered it and was of the view that since the judgment of 2004 came from a five-judge bench, the matter may be considered by a larger bench i.e. a Constitution Bench comprising of seven judges, Verma said. This is a welcome judgment and definitely it would be beneficial for the sugar industry, he added.

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