State-owned co-op sugar mills want bail-out in UP

Default by public and co-operative sugar mills in paying arrears for sugarcane bought from farmers is proving to be an embarrassment for UP Chief Minister Mulayam Singh Yadav, fighting a most crucial election.

The UP Sugar Corporation (22 mills) and the UP Sugar Factories Cooperative Federation (28 mills) have petitioned the UP government, seeking loans for making payments.

The government is in a bind because of the model code of conduct in force, restricting its actions, since February 21, the day the election schedule for the UP assembly election was announced by the Election Commission.

The Corporation has sought a loan of Rs 42 crore while the Federation needs Rs 46 crore for clearing the dues of the cane growers. The 77 private sugar mills, with no assistance from the government, have cleared 102 per cent of the dues to the farmers (payment plus interest due to late payment).

The PSUs and co-operative utilities have told the government owing to a slump in the market, the offtake of sugar was very low and sugar stocks were mounting in the factories. For making full payment by the end of April, they needed immediate financial assistance, they said.

"Our production cost is Rs 4,000-5,000 per bag, which is fetching Rs 1,400-1,500 in the market; so we have no option but to seek the bailout package," said a senior official of the Cooperative Federation.

Moreover, he added, "Our mills can't generate additional revenue from co-generation and distilling like the private mills do; nor do we get capital subsidy, transport subsidy and tax relief, as enjoyed by the private sector."

The accumulated losses of the Federation till March last year were Rs 2,126 crore. The cash loss in 2005-06 was Rs 170 crore. The cumulative losses of the Corporation are over Rs 1,000 crore. The losses reduced substantially after the state government in 2004-05 converted government loans of Rs 1,500 crore into equity.

For the current cane-crushing season (2006-07), 127 mills--77 private, 22 of the UP Sugar Corporation, and 28 of the UP Co-operative Sugar Factories Federation--are operating.

Till February 20, these mills together crushed 44.7 million tonnes of sugarcane and produced 4.183 million tonnes of sugar, clocking the sugar recovery of 9.38 per cent.

The 127 sugar mills during the above period purchased sugarcane worth Rs 5,949.44 crore, which also includes the interest. The total liability excluding the interest is Rs 5,152 crore and the mills have cleared Rs 5,132 crore, which is 99.62 per cent of the demand.

Twenty-two sugar mills of the Corporation have paid only Rs 238 crore against the liability of Rs 379 crore, which is close to 70 per cent.

Only one mill of the Corporation in Bijnor has made 100 per cent payment while the average payment by other mills is 85 per cent. One mill in the politically sensitive Deoria district has made no payment at all.

The 28 mills in the co-operative sector till February 20 purchased sugarcane worth Rs 727 crore and have paid Rs 615 crore, which is 97.32 per cent. Of the 28 mills, 10 mills have paid less than 90 per cent.

The UP Sugar Mills Association, an affiliate of the Indian Sugar Mills Association, has recently submitted a memorandum to the government for immediate relief in taxes to avoid the delay in the payment of the prices to the farmers.