The winds of privatisation have finally blown Uttar Pradesh?s way. And the first sector to reap the benefit of this change is the state?s sugar sector. In a major development, ten out of the 11 operational sugar factories of the Uttar Pradesh State Sugar Corporation have found private buyers and the beginning of the new sugar cycle in November this year will see them being run by their new owners. More importantly, the sale will help plug the loss of almost Rs 200-400 crore every year that UP government was incurring over the last 5 years as subsidy to run these mills.
The government?s persistence and painstaking efforts to get buyers for the UP Sugar Corporation mills under its disinvestment policy finally started bearing fruit in June this year when out of the 11 mills in running condition that were put on sale in the first phase, 4 got direct bidders in June while 6 more have found buyers through the Swiss Challenge Method (SCM) now. In a government order dated September 17, the state government has declared that six more mills that have found buyers are Khadda (Khushinagar) for Rs 22.05 crore, Rohanakalan (Muzzafarnagar) for Rs 50.40 crore, Sakhotitanda (Meerut) for Rs 43.15 crore, Bulandshahr (Bulandshahr) for Rs 29.75 crore, Saharanpur (Saharanpur) for Rs 35.85 crore and Bijnor (Bijnor) for Rs 101.25 crore. While the first three units have gone to the highest bidder, Indian Potash Limited, the last three have gone to the highest bidder Wave Industries. In fact these two companies had also bagged two operational mills each in June. The only remaining mill in running condition that remains to be sold off is Mohiuddinpur in Meerut and the process of selling it off through the SCM is also in progress.
Speaking to FE, the Infrastructure and Industrial Development Commissioner, Anoop Mishra agrees that is a major achievement for the state government. ?We have finally been able to sell off the units that are in running condition and from this year onwards, the state government will not have to spend crores on their maintenance, settling the farmers? cane dues, VRS of employees, etc. That was, in fact, drilling a bug hole in our pockets,? he said.
In fact, the state government has been trying to wash its hands off the sick and loss-making Sugar Corporation mills since 1993, when the process was first started, as they have been bleeding the state exchequer of at least Rs 400 crores every year. To lure the private companies, who wanted to make sound financial sense out of buying the mills, the government diluted some of the bid parameters to make the deal more attractive. These included making the minimum expected price of the mills and the VRS amount payable to the employees public to the bidders before they placed the financial bids.
?The reason for the process succeeding is that the Uttar Pradesh government adopted the Government of India?s disinvestment policy and included the clause of SCM in it. It meant that the entire process became transparent, with the proper appointment of valuators and transaction advisers as well as the proper monitoring of the whole process by the government?s core committee on disinvestment of the sugar sector. Earlier, the hit-and-run method adopted by the government did not bear any result. It was also because the state government learnt from its past mistakes and made the required changes to get the process off the ground. This included selling the mills in segregated phases rather than selling them en block. Hence, 11 operating units are being sold separately and 15 closed units are being sold separately on ?as is where is? basis,? said another official, requesting anonymity.
It may be mentioned that the government had earlier tried to sell all the 33 mills of the UP Sugar Corp together but there were no takers for the process. Apart from successfully selling 10 of the 11 operational mills, the state government?s efforts to sell the closed mills, too, is in a very advanced stage. Of the 15 closed mills on the block, bids have been invited for 13 under the Swiss Challenge Method as they had all received single bids and the date for submitting bids for the remaining two has been extended as they did not get any buyers. The remaining seven out of the 33 mills are not going to be sold as of now, as they are mired in legal hurdles.
Once the process of sale of the 11 operational and 15 closed mills of the Sugar Corporation is complete, it will herald the first step of privatisation in the country?s second largest sugar producing state. The second and complete privatisation will be achieved when the process of transfer of assets and liabilities of sugar mills of Uttar Pradesh Coooperative Sugar Factories Federation, which is also in process, is complete.
In fact, the move to pass on the sugar sector to the private sector came with the government setting itself on the path of fiscal correction. It was decided that those sectors which bleed the state exchequer most should be eased out of state control. Since the sugar sector in Uttar Pradesh is the most politically volatile and sensitive sector, various state governments, in their overzealousness to please the farming community, ending up paying extra as cane price than any other state. In fact, Uttar Pradesh is probably the only state in the country, which pays sugarcane farmers very high rates. Apart from sugar pricing, the fact that many of the sugar mills, both of the Sugar Corporation and Co-operative sector are old and loss-making and face the problem of overstaffing, add to the fact that they incur a huge loss on the state.