Maharashtra said to have approached state coop bank for Rs 2,000-cr loan

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Pune | Updated: May 1, 2015 1:34:57 AM

Centre on Wednesday decided to remove the central excise duty on ethanol and pass on the benefits to sugar mills/distilleries as also to increase the import duty on sugar from the current 25% to 40%.

Hectic parleys are being held in Mumbai nearly three weeks after the government of Maharashtra announced an
interest-free loan of Rs 2,000 crore and waiver of sugarcane purchase tax to enable factories to pay FRP to cane growers.

Efforts are being made to push the loan through. According to top sources in the industry, the government has approached the state’s apex cooperative bank — Maharashtra State Cooperative Bank (MSCB) — as one of the financial institutions for the loan and modalities are being worked out for final implementation.

Industry sources said that while the government has expressed willingness to pay interest, the issue of collateral is posing a problem since the government may have to obtain consent from every factory to enable the loan and this may not look good on the books of sugar mills. Moreover, this could become a lengthy process, sources said.

While top bank officials were not available for comment, sources within the bank revealed that it has been informally approached by the government.

No formal proposal has come to the bank yet, the sources insisted.

The MSCB has sanctioned working capital of Rs 3,135 crore to 30 odd sugar factories in Maharashtra with positive net worth for the sugar season of 2014-15. The bank has stopped providing any working capital to factories with negative net worth.

CM Fadnavis at the sugar meet in Pune had stated that like the sugar sector, even the state government finds itself facing short margins to the tune of Rs 13,000 crore and a total debt burden of Rs 3.5 lakh crore. Yet, the government has decided to go ahead with a Rs 2,000 crore interest-free loan to assist the sugar sector, he had said.

State sugar commissioner Vipin Sharma is in Mumbai meeting the chief secretary of finance and possibly the CM to work out the final modalities of the loan.

He said the GR is likely to be issued in three to four days and the final modalities are being worked out, after which implementation shall begin. Till date, cane arrears have gone upto Rs 4,000 crore and of the 43 mills that were earlier paying FRP on time, only 5 mills in Maharashtra ( till April 15) are now paying FRP, officials said.

This is because the mills are expecting the loan to come through any time and have therefore decided to wait and watch and the gap in FRP payment is increasing. Maharashtra sugar mills have been under  pressure to make FRP payments to farmers. To add to their woes, the MSC Bank has been  lowering  valuations in the wake of falling sugar prices, leaving them with reduced funds in hand.

Sharma pointed out that the final sugar production figures in Maharashtra may go through to 105 lakh tonne after crushing 925 lakh tonne of cane by the end of the season. Of the 170 odd factories in the state, only 35 mills are still crushing and the rest have shut operations, he said. Buy May 20, only two to three mills will continue crushing.

The Centre on Wednesday decided to remove the central excise duty on ethanol and pass on the benefits to sugar mills/distilleries as also to increase the import duty on sugar from the current 25% to 40%.

The decision to remove excise duty on ethanol would increase net realization to sugar mills by around Rs 5 per litre of ethanol, which should incentivize some mills to divert ‘B’ heavy molasses or cane juice into ethanol  which will reduce some surplus sugar production from next year, ISMA had said.

Benefits of both these decisions would be realized by the industry in the long run, according to ISMA.

Officials of Maharashtra State Cooperative Sugar Factories Federation (MSCSFF) said if the mills purchased molasses from outside they may not be eligible for the setback which was earlier given to them. The federation officials also said that while the Rs 2,000 crore loan may come as temporary relief, in the long run it was a liability since the debt burden of the mills would increase and they may not be in a position to repay.

The Centre is yet to take a decision on the demand made by the industry on the need to reduce the surplus of 35 lakh tonne of sugar, blocking almost Rs 10,000 crore of cash flows and the need to improve the current ex-mill sugar prices which are at their lowest in the last six years.

ISMA has said that only this step will help the industry come out of the crisis in the short run and ensure that a major portion of cane price arrears of farmers are cleared before the start of the next season.

Meanwhile, as a follow up to the sugar meet held at Vasantdada Sugar Institute held in Pune, some 25 representatives from cooperative and private sugar factories in Maharashtra  met in Mumbai on Wednesday to review the flaws in the sugar sector.

Sanjeev Babar, MD of the federation, said the final meeting will be held on May 8 when the representatives will decide on the final recommendations to be made to the Centre.

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