Karnataka sugar mills grappling with losses

Losses at 33 sugar mills in Karnataka are mounting following a delay in clearance of Rs 296 crore under the one-time financial assistance (OTFA) scheme by the state.

Despite repeated representations over the last three years, the state is yet to implement the Union government-notified scheme, resulting in huge losses, M Srinivaasan said, president, South Indian Sugar Mills Association (SISMA).

"Already the mills have paid an interest amount of close to Rs 100 crore to banks over the last three years for borrowing Rs 300 crore three years ago to settle cane arrears to farmers.

The timely implementation of the scheme would have saved this amount," he told Business Standard.

Three years ago, sugar factories across the country had piled up dues to farmers as factories had suffered losses owing to lower price realisation.

In an effort to ensure payment to farmers, the Centre had directed mills to borrow at prevailing interest rates and had assured them that a scheme will be worked out to compensate them.

The mills borrowed the money at a higher interest rate ranging between 12 and 14 per cent per annum, Srinivaasan said. Subsequently, the Centre announced the open market borrowing (OMB) scheme in January 2004 and directed state governments to compensate mills.

While the governments of Tamil Nadu and Maharashtra and Andhra Pradesh implemented the OMB scheme, Karnataka is yet to do so, he said.

As per the scheme, a state is required to raise additional market borrowings through issue of bonds and extend 10-year loans to sugar factories at a ceiling interest rate of 4 per cent per annum.

The differential interest rate between bond rate and 4 per cent ceiling rate to be reimbursed to states by the Centre out of Sugar Development Fund.

"The implementation of scheme will help 18 cooperative sugar mills, which will get Rs 100 crore, 2 government mills Rs 12 crore and 13 private mills Rs 184 crore in the state. These mills have borrowed from the banks at 12 per cent interest to clear cane dues of farmers for 2003-04, which amounted to Rs 280 crore," Srinivasan said.