State to borrow Rs 900 crore to bail out sugar coops

The Maharashtra government will borrow Rs 800-900 crore from the market to bail out 'sick' sugar factories and back them with state guarantees.

This is a reversal of an earlier state Cabinet decision to not extend state guarantees for loans taken by sugar co-operative in Maharashtra.

The proposal, which was worked out in joint consultation with the Union government and the Reserve Bank of India, entails an almost negligible interest on loans taken by ailing sugar factories.

A politician who attended the meeting said: "The relief package, which is of Rs 800-900 crore, is to be raised through market borrowings. This will also have to be backed by Maharashtra government guarantees. It is anybody's guess who will foot the bill when these loans are left unpaid "" the taxpayer."

"As per the arrangement, the Union government, state government and the respective co-operative sugar factory will bear 2 per cent each of the interest burden on the loan. However, if the loan is available at a higher rate of interest (over 6 per cent), the additional interest will also be borne by the Centre," the politician said.

"Though this looks like a good arrangement, the past record of co-operative units in repaying loans makes the fate of these loans a foregone conclusion," he added.

If a sugar factory defaults, the financial institution, as in the recent past, will approach the Debt Recovery Tribunals (DRTs) for the recovery of their loans from the state government.

At a meeting of 175 sugar barons in the state held at the 'Sakhar Bhavan' today, Nationalist Congress Party (NCP) chief Sharad Pawar, his colleagues in the NCP, and the BJP's national vice-president Gopinath Munde held discussions on the dismal state of the sugar factories.

An official release issued by the Maharashtra State Cooperative Factory Sangh said, "Sugar factories in Maharashtra will receive an aid package comprising loans on the basis of their production in fiscal 2002-2003. The loan amount will be at Rs 100 per quintal of production by these factories and will have a 10-year term. The first five years will be interest-free, while for the following five years a 6 per cent interest will be levied on loans to be borne (interest portion) by the Union government, state government and the factory concerned."

The package, which has Union government's approval, will also entail an export incentive of Rs 500 per tonne on expenditure incurred, while transporting sugar to the port.

Similarly, the duty rate on the machinery imported by these sugar factories for the production of 'ethanol' and co-generation purposes has been reduced to 5 per cent from 25 per cent.

The package will result in a six paise hike in the retail cost of sugar on account of an increase in the contribution per quintal to the Sugar Development Fund.

The contribution to the fund has been raised to Rs 20 per quintal from Rs 14 per quintal at present.