Maharashtra takes private route to revive sick cooperative sugar mills

Policy allows establishment of sugarcane byproduct processing projects through private investors

Struggling cooperative sugar factories in Maharashtra have got a change to revive through private investment.

 

The Maharashtra government has approved a policy to allow them to establish projects to process sugarcane byproducts under the build-operate-transfer (BOT) and build-own-operate-transfer (BOOT) models. These byproducts include bagasse, molasses, and press mud. These can be used to set up co-generation power plants, distilleries, ethanol units, biogas facilities, compressed biogas (CBG) plants, hydrogen projects, sustainable aviation fuel (SAF) units, carbon-dioxide recovery plants, bioplastics, organic chemicals, soil conditioners, and other downstream ventures. 

According to a order issued by the Cooperation, Marketing and Textiles Department on February 26, detailed eligibility norms, approval processes, and safeguards for projects to be developed through private investment have been laid out without adding to the financial burden of the cooperatives.

   

Maharashtra is among India’s largest sugar-producing states, and the cooperative sugar sector has historically been central to rural development.

 

However, several mills have been grappling with accumulated losses, negative net worth, and exhausted borrowing limits, constraining their ability to invest in value-added projects.

 

According to the order, under the BOT/BOOT framework, a private developer will finance and build the project, own and operate it for a fixed period — typically five to 10 years, and 15 years at the outside — and transfer it to the sugar factory at the end of the period.

 

Eligibility and safeguards

  A cooperative sugar factory, the order says, will qualify as financially stressed if it meets any one of conditions, including accumulated losses for three consecutive years, negative net worth for three years, an exhausted borrowing capacity, an audit classification of “C” or “D” for three years, crushing below 50 per cent of capacity for three seasons, or outstanding government dues.

 

Financially sound mills are permitted to adopt the BOT/BOOT route under the same framework.

 

Before entering into any agreement, the board of the factory must pass a resolution and obtain approval under Section 20(A) of the Maharashtra Cooperative Societies Act, 1960.

 

A detailed project report (DPR) must be prepared through a government-approved agency. The DPR should incorporate capital costs, operational expenses, the period of payback, and an internal rate of return.

 

The sugar commissioner will approve projects worth up to ₹5 crore (including taxes), but those whose worth exceed ₹5 crore will require government-level approval.

 

Developers will be selected through a transparent and competitive etender. The selected private partner must deposit an interest-free security equivalent to a year’s lease rent.

The lease rent for factory land will be fixed at the prevailing “ready reckoner” rate or the rate determined by a government-approved valuer, whichever is higher.

 

Risk allocation and dispute resolution

 

The policy has placed primary responsibility for obtaining statutory approval, environmental clearance, insurance coverage, and legal compliance on the developer, industry players say. Sugar factories will play a facilitative role.

 

The policy states developers will also be solely liable for labour-law compliance, employee benefits, taxes, and any financial liabilities incurred during the concession period.

 

At the time of transfer, the project must be free from bank loans, unpaid wages, supplier dues, and government liabilities.

 

In the case of dispute, the framework provides for mutual discussion, mediation, arbitration, and, if required, recourse to court. Contracts must include an arbitration clause. Developers that abandon projects, violate contractual terms, or are declared bankrupt can face termination, forfeiture of security deposits, recovery of damages, and blacklisting.

 

Factories are required to submit progress reports to the government every quarter, and projects must undergo independent audits by chartered accountants. Regional joint directors (sugar) will conduct periodic monitoring.

 

The government has mandated that the income generated from BOT/BOOT projects be prioritised for clearing government dues, including share-capital, loans, and statutory payments such as obligations arising out of fair and remunerative price.

 

The policy is expected to enable cooperative sugar mills to diversify revenue streams, improve balance sheets, and strengthen their capacity to meet cane payment obligations, while leveraging private capital and expertise for next-generation bioenergy and value-added projects. 

Healing touch

• New policy seeks to unlock value from byproducts such as bagasse, molasses and press mud
• Private developer can build the project at own cost, own and operate it for a fixed period
• It can then be transferred to the sugar factory at the end of the concession period
• Agreement tenure cannot exceed 15 years
• Financially sound mills also permitted to adopt the BOT/BOOT route under the same framework