Axe falls on sugar companies

98% of 2,500 proposals for new mills scrapped.

Calling the bluff of the country's sugar barons, the Centre has scrapped 98 per cent of the industrial entrepreneur memorandums (IEMs) obtained by them for setting up new production units.

The Directorate of Sugar in the Ministry of Food has decided to keep alive only 50 of the 2,500 IEMs taken in the last nine years by sugar mills.

Leading sugar companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering and Industries had obtained IEMs in hundreds, but most of these now stand cancelled, said a senior food ministry official.

Though the sugar industry has been de-licensed, companies need to file IEMs with the government, on the basis of which cane area is allotted to them. These IEMs were lying idle since 1998 and had become a convenient tool for mills to ward off others from encroaching on their cane area. Uttar Pradesh, the country's largest sugar producing state, accounted for the maximum number of IEMs.

To address the problem, the government amended the Sugarcane Control Order, 1966, on November 10, 2006, asking companies to deposit a performance guarantee of Rs 1 crore for each IEM within six months ending May 10, 2007, failing which the IEMs would be cancelled. (It had also raised the registration fee for setting up a new mill from Rs 1,000 to Rs 1 crore and had provided for a minimum radial distance of 15 km between two sugar mills.)

"We have no plans to give any extension. The purpose behind imposing the high fee was to ensure that fake IEMs were cancelled and we have achieved that end," the official added.

As a result, companies will no longer be able to block the entry of rivals in their cane areas. Several large sugar mills in Uttar Pradesh have been involved in bitter fights over the issue in the recent past.

With the global sugar industry facing a glut, thanks to record production in countries like India, Brazil and Australia, sugar companies told Business Standard that they were not planning additional production capacities and hence the scrapping of the IEMs would not affect them in a big way.

"We had some IEMs with us that would have got lapsed but it does not impact us in any way," said Nikhil Sawhney, vice-president of Triveni Engineering and Industries.

"We already have our hands full and see no need to expand in the near future. Therefore, we did not deposit the money to save the IEMs," said the CEO of a leading sugar company that had about a hundred IEMs.