The Uttar Pradesh government’s proposal to sell 11 sugar mills is unlikely to draw any interest from leading sugar companies. Reason: The companies are not keen on expanding their capacities, given the upcoming surplus cycle.
Top companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering, among others, had expanded in a big way in 2005-2006, riding on the incentive policy launched by the then Mulayam Singh Yadav-led government in the state. The policy, however, was scrapped in 2007 by the subsequent Mayawati-headed government.
“We initiated large capacity expansion projects two-three years ago. There is still a huge debt on the company. The expectation of an uptrend in sugar business has been cut short by various government interventions and there is pressure on cash-flows. We are not in a situation to invest further,” said an executive of a leading UP-based sugar company.
Surplus sugar
India is set to produce over 18 million tonnes of sugar this season, against the earlier estimate of 15 million tonnes. India also revised the projection for the next season, beginning October, to 24 million tonnes.
Ex-mill sugar prices in the second-biggest sugar producing state had touched a record high of Rs 4,300 a quintal in January. It softened from February, following government initiatives like weekly sale mechanisms and stockholding limits. A decline in international prices affected domestic prices too. Sugar is now hovering around Rs 2,700 a quintal. What’s more, the price outlook for the commodity remains depressing.
The Supreme Court had cleared the disinvestment process last week.
The decision of the apex court comes on the back of an earlier Allahabad High Court decision clearing the sale of all 33 state-run sugar mills of the Uttar Pradesh State Sugar Corporation Limited (UPSSCL). It had, however, put a rider on the sale — the usage of the mills’ land cannot be changed.
While this decision acted as a spoilsport for the 22 sugar mills that are in various stages of ‘sickness’, it came as a relief for the 11 mills that were being privatised in the first phase by the government as they were in running condition. The state government had appointed Ernst & Young as an advisor to carry out the privatisation programme.
It was in 2007 that the UP government had first initiated the drive to privatise the sugar corporation’s mills. But due to the lukewarm response to the loss-making units, it decided to sell the 11 operational units in the first phase. Just before legal complications jeopardised the government’s disinvestment plan, as many as 10 companies had submitted technical bids for buying the 11 operational mills, including Triveni Engineering, Indian Potash and Patel Engineering. These companies are supposed to submit financial bids later this week.
