)
Due to less than statutory requirement of cane payment to farmers, three large sugar mills might be unfit for availing interest-free loan announced by the government last week. The three sugar mills are Asia’s No 1 and the world No 4 integrated sugar company Bajaj Hindusthan (BHL), Mawana Sugars (MSL) and Simbhaoli Sugars (SSL). With an accumulative crushing capacity of 186,000 tonnes crushed per day (TCD), they have paid less than 50 per cent of the value of cane procured during the current crushing season 2015-16 (October-September).
While sugarcane price and other costs remain high, sugar prices have been falling. Against the average cost of production of Rs 33 a kg in Uttar Pradesh, sugar price there currently stands at Rs 23.5 a kg (ex-factory), thereby accruing a loss of Rs 9.5 a kg. While announcing Rs 6,000-crore interest-free loan last week, the government set the payment criteria of 50 per cent of the value of cane procured from farmers this season by June 30. This means, sugar mills that have paid to farmers at least half the value of cane would be entitled to avail interest-free loan for one year. Against the industry average of 67 per cent, BHL, MSL and SSL are understood to have paid 45 per cent, 21 per cent and 23 per cent, respectively by May 15.
Lower payment has resulted into mounting arrears on sugar mills. The arrears stand at Rs 21,000 crore, around a third of total value of cane worth Rs 60,000 crore procured from farmers by all mills this crushing season. “The basic problem is a severe mismatch between sugar cane prices and sugar prices. This has caused severe losses for most if not all sugar companies. Furthermore, with the season 15-16 beginning in a few months and promising to be producing 30 million tonnes of sugar, and the courts insisting that payment to farmers be made as per the Sugar Cane Control order, the pressure is on all the mills across the country to sell sugar fast. With everyone selling, sugar price can only be expected to go lower, thereby compounding the problem,” said Siddharth Shriram, chairman, MSL.
Of the total cane procured worth Rs 637 crore, MSL paid only Rs 132 crore by May 15. With crushing still continuing, Mawana’s total value of purchased cane shot up to Rs 744 crore by May 29.
According to him, many companies have taken crop loans, which are administered in an unhealthy way. “But we have not. That makes our position somewhat worse. The interest-free loan of Rs 6,000 crore does not address this basic problem,” he said.
“According to the Rangarajan Committee Formula, the cane price should be Rs 175 a quintal, about Rs 120 lower than the Rs 290 a quintal (inclusive of taxes). This gap is sought to be levied on the mills, which is unfair as it is no fault of the mills. Who will bridge this gap? All sugar companies’ balance sheets are in the red and are heading deeper into red,” Shriram added.
Also, BHL has paid to farmers only Rs 1,334 crore of the total cane worth Rs 2,950 crore purchased from farmers by May 15. By the end of May, the value of purchased cane jumped to Rs 3,500 crore. An email sent to a BHL spokesperson did not yield any response. SSL is another company caught in the payment dilemma. The company has cleared a payment of Rs 114 crore of total Rs 490 crore worth of cane purchased from farmers by May 15. By May 29, however, the value of procured cane shot up to Rs 572 crore.
“We are regularly paying cane price for 2014-15 by selling the sugar in the open market. The sale of sugar in a falling market becomes slow and it creates more pressure on the market. At this juncture, it will be difficult to say if we will reach to 50 per cent level by June 30. However, we are close to 30 per cent now. In any case, taking more loan depends upon the Board decision as the facility is just for one year,” said Sanjay Tapriya, chief financial officer at SSL.
Sugar mills are apprehensive of interest-free loan, because failing to repay the same would create further pressure on them next year.
