Two months ago, the Uttar Pradesh (UP) Chief Minister, Ms Mayawati, was seen to have pulled off a masterstroke by effecting an up to Rs 40/quintal hike in the State Advised Price (SAP) of sugarcane payable by sugar mills for the current 2011-12 crushing season (October-September).
But that decision — just ahead of the announcement of elections for the State Assembly — could well backfire now, with factories beginning to pile up cane arrears.
Dues may accumulate
These are expected to mount further as the poll campaign gains momentum, with voting in 403 constituencies to take place over seven phases from February 4 to 28. Already, till now, notices have been issued to 22 mills that have not made full payments to growers within the stipulated 14-day period after taking delivery of cane.
These include the Malakpur and Modinagar units of the U.K. Modi Group (combined arrears of Rs 77.93 crore till January 4); Simbhaoli and Brijnathpur of Simbhaoli Sugars Ltd (Rs 32.19 crore); Mawana, Titawi and Nanglamal of Mawana Sugars Ltd (Rs 31.72 crore); Seohara and Aira of K.K. Birla Group (Rs 21.62 crore); Barkatpur, Shermau and Khaikheri of Uttam Sugar Mills (Rs 15.13 crore); and Belwara of Rana Sugars Ltd (Rs 12.86 crore).
“This is only the start. The real dues will accumulate during polling time, when the new plant-cane crop in the fields now is also ready for crushing from February. By then, the existing credit drawal limits of most mills would have got exhausted”, sources told Business Line .
Credit limit
For the current season, Ms Mayawati's Government had fixed the SAP at Rs 240 a quintal for normal cane and Rs 250 for early maturing varieties, against the corresponding Rs 205 and Rs 210 of 2010-11.
“The new cane prices translate into a production cost of Rs 33-34 a kg, against current ex-factory sugar realisations of Rs 29-30. Banks lend up to 85 per cent of the value of sugar stocks. Once that cash credit limit is reached, mills cannot borrow more working capital to buy cane, which is when they start defaulting on payments”, the sources added.