The Uttar Pradesh government has put on hold its earlier decision to privatise the state?s sugar industry. With this, the state has decided to start crushing operations for the 2008-09 season.
The state would also give bank guarantees of about Rs 1,700 crore to facilitate crushing. Of this, bank guarantees of Rs 1,350 crore will be given to the co-operative sector and Rs 350 crore to the corporation mills.
The Cabinet decided to shelve, with immediate effect, the move to sell the entire state equity in the 33 sugar mills of the UP State Sugar Corporation and privatise 25 co-operative sugar mills in which it had a 51% stake.
The state government had started off the process of privatising the sugar sector almost a year-and-a-half back. In fact, the government left no stone unturned in its efforts to get this strategic sale of the corporation mills through. After suffering many setbacks and extending the dates for submission of bids several times, the government had got an ordinance promulgated by the governor. Despite all this, the three companies that had finally come forward to place the financial bids were not able to match the reserved sale price set by the government.
Still, the government had made up its mind to wash its hands off the mills, as they were bleeding the state exchequer by Rs 700 crore every year, because of sugar cane pricing. When the process of handing over the mills to the Ponty Chadda group, the highest among the three bidders, had almost reached the final stage, the matter was suddenly taken to the Allahabad High Court.
According to sources in the sugar sector, the state decision to put the matter on hold is also based on the realisation that despite the government changing the land use pattern of the closed mills to benefit the private sector, the financial bids received hadn?t matched even the reserved price because of the slump in the real estate sector.
?The 33 sugar corporation mills have around 25,000 acres of land among themselves and almost half of that comes within city limits. As a result, the land value of these mills is far greater than the value of the plant & machinery. Despite this, not many companies have shown the kind of interest that had been anticipated. As a result, the government feels it is better to put the decision of privatisation on hold rather than indulge in distress selling?, said a source closely associated with the process.
Uttar Pradesh is the country?s second largest sugar producing state and sugar is the most politically volatile and sensitive sector in the state, with every dispensation trying to outdo the other by giving better sops. In their overzealousness, the governments end up paying high prices to sugar cane. ?Uttar Pradesh is probably the only state which pays sugarcane farmers very high rates. This year, too, the same process has been repeated, with UP fixing the State Advised Price for sugar at Rs 140 per quintal, while the Centre has fixed a price of Rs 81.18 per quintal for the ?08-09 season? says an insider.
