UP opens Rs 500 crore revenue stream for beleaguered sugar mills

The Uttar Pradesh government has opened an additional revenue stream of more than Rs 500 crore annually for sugar mills by deciding to fix floor price of molasses sold to distillers under the levy scheme.

Molasses, a sugarcane byproduct, is extracted during the process of sugar production and is used by distillers in the manufacturing of country liquor. Under levy, UP sugar mills are obligated to supply 12.5 per cent of their molasses stock to distillers/country liquor manufacturers.

“Last year, the distillers in UP had lifted levy molasses practically for free or against a very nominal price. This year, distillers were again looking to making a windfall by lifting the levy stock for free, while sugar mills were not keen,” UP cane commissioner Sanjay Bhoosreddy told Business Standard.

Presently, the open market price for molasses stands at nearly Rs 36 per kg in UP. In the current sugarcane crushing season, molasses output in UP is pegged at over 5 million tonnes (MT). Thus, the levy molasses is to the tune of 625,000 tonnes. The recovery rate of molasses is about 4.5 per cent of cane crushed i.e. 4.5 kg of molasses is extracted by crushing 100 kg of cane.

The cane commissioner had convened a joint meeting of the representatives of sugar mills and country liquor/distillers associations. Digging in their heels, the mills referred to their precarious financial condition and difficulty in making payments to farmers. They said the supply of molasses at unviable rate was adversely impacting their liquidity position.

While the sugarcane department wanted the warring sides to sort out their issues in such a manner that the lifting of reserve molasses and state excise revenue targets were not adversely affected, the two sides failed to reach a consensus.

Consequently, the commissioner ruled that floor price for reserved (levy) molasses for bidding by distillers will be determined by reverse calculation of extra neutral alcohol (ENA) cost in the production cost of country liquor. For example, if the cost of production of country liquor stands at Rs 200 per litre, then reverse calculation formula would determine the cost of molasses and cost incurred in converting it to ENA for producing liquor, he explained.

“Now, bidding distillery will not quote rates below this reserve price, while mills will have to deliver molasses to successful bidder. If any party deliberately creates disturbance in the supply mechanism, strict action would be taken,” he warned.

“The state sugar mills will get additional revenue of Rs 500 crore based on the floor price of molasses. It could even be higher, if distillers bid at a higher price for their levy,” he said. Last year, the UP mills had even urged the state government to de-control the sale of molasses to allow the sugar companies to capitalise on ethanol price hike by the Centre.