With the new sugar season commencing, sugar mills in Tamil Nadu find themselves handicapped with regard to two of their major revenue streams –cogeneration and alcohol – that could have an impact on payments for sugarcane to farmers.

According to industry sources, the Tamil Nadu Electricity Board owes the sugar mills nearly Rs 300 crore on the surplus power fed to the State electricity grid. The dues have been building up for over a year and based on the financial condition of the electricity utility, the industry is not optimistic on an immediate solution.

Those most affected by this are primarily the private sector sugar mills which account for nearly 540 MW of cogeneration capacity out of the total installed capacity of 610 MW. The balance is with the cooperative sugar mills.

Alcohol inventories

On the distillery front, a senior executive at a leading sugar mill said the local industry has been affected by adverse State taxation policy and restrictions on selling rectified spirit outside the State. Distilleries that use molasses, a by product from sugar mills, as a raw material supply the alcohol to Indian Made Foreign Spirits manufacturers as distilleries are not allowed to move the alcohol out of the State.

But local distilleries face a VAT of 12.5 per cent while the IMFS producers can bring in the alcohol from out of the State with a CST of about 2 per cent. This makes the local industry unviable.

Alcohol inventories are building up to ‘dangerously high levels' with the sugar mills holding nearly 3 crore litres of alcohol stocks. At about Rs 20 a litre the total value of is about Rs 60 crore. Once the current season peaks, molasses outflow could choke storage capacities and affect operations.

Ethanol blending

Sugar industry representatives point out that there is a ready solution for this if the State Government were to allow units to sell alcohol outside the State and encourage the ethanol-blended fuel programme which is yet to take off in Tamil Nadu.

With estimates of 236 lakh tonnes of sugarcane to be crushed in the coming season, the industry is confident that this would generate over 25 crore litres of alcohol from molasses.

Even providing for 16 crore litres needed for IMFS production, there is a surplus of more than 9 crore litres which could be utilised for ethanol-blended fuel programme. This would give the sugar mills much needed support.

Revenues from distillery and cogeneration are key revenue sources for sugar mills which find sugar prices stagnating or dropping as production increases.

In Tamil Nadu, sugar mills pay a State Advised Price of close to Rs 2,000 a tonne including Rs 100 transportation cost. This is Rs 610 more against the Fair and Remunerative Price of Rs 1,395 a tonne fixed by the Centre, a sugar mill head pointed out.

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