Sugar industry crisis may impact 2015-16 crushing season

With banks unwilling to advance working capital, sector says up to 25% mills can be affected

The steep fall in sugar prices and accumulated arrears of around Rs 20,000 crore might affect the 2015-16 season.

Indian Sugar Mills Association director-general Abinash Verma told Business Standard up to a fourth of all mills in the country could be bearing the brunt of the prolonged crisis.

“Earlier, the crisis was identified with Uttar Pradesh only, due to its high (government-set) sugarcane prices. This time, the problem exists everywhere," he said. With banks not willing to advance working capital to private mills, fearing default and a rise in non-performing assets, the latter are closing units. During 2013-14, 509 sugar mills functioned in India, of which UP accounted for 119.

Four mills of top companies Bajaj Hindusthan and Balrampur Chini have shut operations in UP. According to sources, more of both big groups and standalone entities could close units in the coming weeks, if a turnaround does not happen before the next crushing season, starting October.

Bajaj Hindusthan has already notified the state government on closure of units at Pratappur (Deoria) and Gangnauli (Saharanpur). Another unit at Walterganj (Basti) which it operated under a licence from the original owners has also been closed. It now has 12 operational ones, with its capacity down by 21,000 tonnes crushed a day to about 115,000 tcd.

Earlier, Balrampur had closed its Khalilabad unit, reducig its UP units to 10. With 11 units, it had a combined capacity of about 78,000 tcd.

The UP Sugar Mills Association has also notified the state government that it can't commit to purchase cane during the coming crushing season, in a letter dated July 21. It said mills were facing unprecedented financial crisis due to the steep fall in sugar prices and a “totally unfavourable atmosphere for the business of sugar manufacturing”.

The Association said the central loan package of Rs 6,000 crore was insufficient compared to the total arrears (to cane farmers) of Rs 20,000 crore. It wants a subsidy of Rs 50 per quintal from the state, in addition to earlier announcement of one for Rs 20 per quintal.

The high court at Allahabad has posted the case involving mills' cane arrears to August 27. It heard the matter on Tuesday and gave an interim order on Wednesday, asking cooperative mills to clear all dues in two weeks. The cooperative sector's dues are Rs 440 crore. It also directed private mills for maximum settlement of arrears in the meantime. The latter owe Rs 7,500 crore to farmers.