UP sugar mills want more credit

Sugar mills in Uttar Pradesh have demanded more credit facilities from the state government before the beginning of the season as a 3-million tonne fresh addition in buffer stock have tightened their cash position.

Crushing for the new season is likely to start in November and mills have demanded that the state government cut SAP (state advisory price of Rs 125-130 per quintal) to SMP (statutory minimum price of Rs 80 per quintal) of sugarcane and make ethanol blending mandatory for oil companies.

The SAP of sugarcane in UP which includes the cost of sugarcane at Rs 13.60 per kg at 9.6 per cent recovery (excluding purchase tax, society commission and transport), is higher than the price of sugar at Rs 12.50 per kg. This has happened for the first time.

If the sugarcane price is maintained at the current level then the mills of UP will make a loss of Rs 60 per quintal or Rs 600 per tonne. This will result in Rs 6,000 crore accumulative loss, sufficient to wipe out the industry's networth, an analyst said.

"These two issues need to be addressed on a priority basis to enable mills to start crushing with the hope of profitability," said Dr G S C Rao, executive director of the Simbhaoli Sugar Mills Ltd.

Working capital requirement is the biggest problem mills are facing today as banks have denied fresh credit for new season. Generally, banks offer loans equivalent to 85 per cent of the existing stocks at an anticipated price during the new season.

Last year, banks had extended maximum possible credit at an anticipated price of Rs 16 per kg but the current price is at Rs 12.5 per kg. Banks are asking mills to clear dues.

"We put our entire money on plant restructuring with the hope that the government would incentivise sugar sector but the new government has not done anything," Rao said.

"Now, we are hoping that something can come in our favour," he added.

According to data collected by cane commissioner of Uttar Pradesh, as of September 3, sugar mills in Uttar Pradesh owe Rs 1860.75 crore to farmers, 16.9 per cent of total cane procured last year.