The Indian Sugar Mills Association (ISMA), on Tuesday, suspended the crushing operations in the UP sugar mills in 2014-15, starting October . The mills are constantly at loggerheads with the state government, which has been forcing sugar companies to pay a premium to farmers over the cane price fixed by the state government.
Speaking to CNBC-TV18's Shereen Bhan, Kushagra Bajaj, CMD, Bajaj Hindusthan says the problem of state advised price (SAP) always existed but has aggravated over the last two years. According to him, the prices of sugarcane have gone up by 70 percent over the last four years and the price of sugar has gone up by 7 percent over the last four years.
Bajaj says sugar companies are witnessing losses led by high cane prices with the industry being incapable of paying the high prices. The sugar producer company is expecting losses in Q1 as the situation has been really grim and may worsen if the government does not link cane prices with sugar prices soon.
"We still haven't defaulted to banks and I don't think we will default until the end of this year. But if mills don't start at all this year then the situation is going to get far worse," he adds.
Below is the verbatim transcript of the interview:
Q: The story has in fact worsened over the past year, there has been absolutely no breakthrough as far as key demands are concerned of the government moving forward with the rationale cane pricing policy or providing more financial assistance. Is this now going to be another day where we are going to see the government putting coercive pressure, getting you guys back on the table, some kind of an interim arrangement being worked out till the crisis ebbs for a bit and then we come back to have same conversation a year later?
A: Suppose that does happen how does that resolve the problem? Last year we said that we won't be able to pay farmers, we haven't. Suppose if we make a start on gunpoint, farmers won't even get paid for last year and they won't get paid for next year either. So, how does that resolve the problem? Until you fix the problem on cane pricing nothing will get resolved.
Secondly, they broke one sugar mill owner and everybody caved in which was a strategic blunder. This year we have decided that even if one or two promoters break and decide out of shear pressure to start, the rest of the mills won't start.
Third, last year banks were willing to give certain facilities like working capital to start, this year, because of the aggravated problem even those facilities have completely dried up. So, what is the possibility from day one if you start a mill and you are not able to make salary payments, you are not able to make payments to farmers, you are not able to pay interest to banks, what is the point of even starting because that will be even a bigger problem from a political perspective for the state government.
Q: Nothing changed, the industry finally caved in, gave in to pressure and we saw an interim arrangement being worked out and you guys revoked your suspension notices and got back to work. That is exactly the point I was trying to make that are we likely to face with the same scenario where again some kind of interim midway solution is worked out and the problem remains unfixed?
A: They had given a commitment that they will give us the subsidy amount of Rs 5,000 crore and by April 2014 they will find a linkage formula and implement it by April 2014, none of which happened. So, we had to go on written promises which the state government gave and none of them have been honoured and so, it is unlikely that now we will go on written promises.
We have warned them to pay us and come out with a notification before anything happens. That's the resolve with which this is done. You don't make Rs 30,000 crore of investment over years to shutdown the business, nobody does that. This only shows pathetic financial situation that every company and the entire UP sugar industry is in because this is the first time in the history of modern India that an entire industry has shutdown, come live on television and taken on the government.
It only shows that we have our back completely towards the wall and there is nothing left to do because they have taken all its course of action that they have, they filed FIR against all promoters, against all key employees.
They have taken possession of all sugar stocks and all inventory, they are harassing all our employees, they have been raid by the police, by the pollution department, by the excise department across all units and across all manufacturers. So, the only thing left for them to do is arrest some of the promoters. If that happens then whichever promoter gets arrested, his bank accounts will be ceased overnight by the company and no transaction can happen in that company and that has been conveyed to the state government.
Now the ball is on the side of the state government because even if they make a start, it's going to hurt them even more politically because 175 seats out of 403 seats of MLAs is directly affected in the sugarcane growing areas. So, this will also have a huge political impact. So, this question must be better posted to state government rather than to industry.
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