DAILY NEWS LETTER Friday,18-July-2014 Tel : 020-26899931,65262732/33Fax:020-26898047 Mail: kamaljaintrading@rediffmail kamaljaintrading@yahoo Kamal Jain Trading Services Pvt. Ltd. Sugar House, Row House No. 54, Erica, Magarpatta City, Hadapsar, Pune-411028. Dear Sir, Requesting all our valued readers to kindly subscribe to “Sugar Update” so as to get regular copy from us. WE REQUEST OUR SUBSCRIBERS TO PROVIDE US WITH ADDITIONAL E-MAIL IDS ON WHICH YOU WISH THE “SUGAR UPDATE” TO BE SENT. If you do not wish to receive it, please inform us to remove your name from recipient’s list. Dear readers, Please post us with your valuable commentson “Sugar Update” at our email ID’s which would help us serve you better with the latest newsand updates on the Sugar Industry. Special Editorial Hi Friends, You will find a number of topics and I am trying to put it to terms of importance and urgency Never ending cane arrears – Gifted to U.P sugar Mills Is it not mind boggling that 125 sugar mills from U.P (largest state in India) are unable to clear cane dues for years together and the drama of suffering losses is repeated annually? If so, why farmers are not agitating? Is there a back channel understanding between the farmers and the mills to dupe the Government? No doubt sugar barons command considerable political access; they can convince and force the new government (hardly one and half month old) to accept their right and wrong demands because BJP needs electoral and financial support from this largest state during next elections. 95% of UP parliamentary seats were won by BJP in last general elections and probably knowingly/ unknowingly they are taken for a ride by the sugar industry. Why should Central Government buckle under their unethical tactics? If UP sugar mills are a loss making industry for last so many years –as they claim of incurring loss of Rs 3 to Rs 5 per kg then they should have closed and locked their factories long back. What is the secret vitamin of their survival?? On one side they are shouting from the roof top of their red balance sheet, whereas, on the other side they have built up extra capacities for sugar, ethanol and power (co-generation) Some of them even are having largest power generation capacities i.e. 450 MW equivalent to a power plant which provides them revenue of millions of Rupees. Likewise some of them are having largest ethanol capacities and are executing regular tenders. Do by-products not provide enough compensation from direct loss in sugar? Should the balance sheet of mills be audited by CAG? Supreme Court has mandated that wherever private players have to share revenue or profit with Government CAG audit can be instituted. Conversely if Government is funding a supposedly ailing industry—it must get a diagnostic audit done from CAG. No doubt they have been compelled to pay higher SAP decided by the state govt. But in lieu, abolition of purchase tax on cane, additional subsidies etc. have been gifted to them as compensation. U.P. mills employ clever antics termed or jargoned as management strategies. At higher remunerative sugar prices their production rockets up. When prices decline, they let their output fall. During last three years they have produced 74 Lac MT, 69 MT, and 63 MT annually and thus it is clear that they can produce 100 Lac MT a year or drag it down to 50 Lac MT. Expansion or contraction of UP sugar output is a child’s play for them. Since last few months District Administration Authorities and High Court intervened without success for ensuring compliance by the mills for payment of cane arrears which exceeded 10,000 crore. On the contrary many mills readily cleared their overseas outstanding liabilities or borrowings or have ventured to put up latest refineries at port with state of art facilities or purchased / lease sugar factories in other states which are generating profits. However they remain habitual and perpetual defaulters on their cane payments. Why their culpability is treated lightly? Again the question arises why Government is supporting them and why farmers are not protesting on streets? What is going on behind the scene? The system is totally opaque. Can there be transparency? More than 57 sugar factories out of 125 have been served recovery notices. FIR has been filed with the local police station and in spite of final warnings for Auction of their land and properties; net result is next to nothing. They have threatened government of closing down mills during the next crushing period 2014-15. Probably, all their assets, including mills are hypothecated to banks and it appears they have nothing to lose or fear because all creamy earnings have been siphoned out. At harvest time Government will again be compelled to bail them out in the name of farmers. Is it not emotional blackmailing of the government, taking political advantage of the situation and robbing the monies of honest tax payers simply because state and central government are controlled by two different ruling parties? Find belowDETAILS about few large groups who has not cleared their cane arrears in spite of all such action:- Mills Cane Arrears Sugar stock in go down Modi 60,crores Gola 215 Crores Partly paid Palia 150 cr “ Khambharkhera 145 cr “ Era 80.61 cr “ Rosa 43.27 cr Maksudapura (Bajaj) 90.77 cr Nigohi 45.19 Cr Gadhmukhteshwer 125 cr Chilwariya (Simboli) 91 cr. A synoptic view of state of affairs of U.P. sugar mills is captured below which shows inventories of Rs 6800 of major mills supported by loan funds of banks, yet cane arrears of Rs 3600 crores are outstanding (Courtesy business standard 2nd July 2014) WILL THERE BE ANY SOLUTION? Government so far has twice allowed interest free loan against excise duty payment (repayable after 5 years without interest). U.P. based 72 sugar mills have got Rs. 1764.86/- cr. out of the first disbursement (Rs.6600/- cr. and hardly farmers could receive any substantial cane arrears payments). Inspite of such large payments long term solution is not available and neither any magic will bring the desired result. At last government has issued strict instructions to complete the above payments on or before 31st July failing which government may think of more serious action for the mills. U.P. sugar mills are not the only defaulters – others states like Karnataka, Andhra, Gujarat, and Maharashtra. Also has large cane arrears list. Outlook: - now it is clear that U.P based sugar mills are certainly taking advantage of the political situation. During 2004-2005, they were encouraged for large investments and expansion by the state governments they did it and today are capable to produce more than 100 lac tons sugar per year provided that they find it profitable as per their definition. We agree their recovery is slightly low (9.5-10 % compared to others which is up to 11%) Their argument that they are paying higher cane price i.e. Rs. 280 per quintal (Rs. 20 per quintal reimbursement from the state government.)THEY KEEP ON CRYING THAT THEIR COST OF PRODUCTION IS RS, 33-36 PER KG WHICH MAY BE TRUE ON PAPER BUT NOT IN REALITY. Can they be subjected to CAG audit? Whereas Maharashtra based mills have to pay Rs. 220- Rs. 265 per quintal directly and incur cost up to 90 per quintal towards seeds, harvesting, transportation, interest cost and various other expenses. It is worthwhile to mention that most of the factories in Maharashtra and Karnataka are under co-operative banner with lot of limitations and “IFS AND BUTS” but still are happy with almost nil cane arrears and prompt and higher cane payments to their workers and staff. Barring some exceptions, other mills are also far from port, are having higher cost of production along with lower recovery. They have better operational efficiencies, have never thought of closure or delayed cane payments rather are expanding, helping neighbouring factories for revival. To conclude NO DOUBT THERE IS SOMETHING FISHY OR MAY BE THEY BEING PRIVATE INDUSTRIALIST ARE CONCERNED ONLY WITH THEIR PROFITS AND THEREFORE THIS MAY BE THE REASON ALL THIN HUE AND CRY. REGRET THIS MAY BE THE WEAKNESS OF OUR AUTHORITIES AND GOVERNMENTS THAT THEY ARE INFLUENCED BY THEIR CROCODILE TEARS AND MONKEY THREATENING. ONCE THE GOVERNMENT TAKES TOUGH STAND AND DECIDES (DO OR DIE FORMULA” THEN PROBABLY ONLY SOLUTION MAY BE FOUND. Government has liberally given interest free 2 excise loans respectively of 6600 and 4400 crore to the sugar industry. 1st loan has been almost fully disbursed and Up’s share is almost more than 1/4th and Rs. 1800 crore so far has been received by them. With so much of money received from everywhere why their cane arrears are not settled? Chart given below explains the amount of money allotted and disbursed to all the various states out of the first lot and very soon the payment for the second lots also is available However THIS PAYMENT IS STRICTLY LINKED TO BE UTILIZE ONLY FOR THE CANE PAYMENT AND IN CASE OF NONCOMPLIANCE SECOND PAYMENTS WILL BE ON HOLD. SR. STATES NO. OF MILLS SANCTIONED AMOUNT (Rs in Crore) NO. OF MILLS DISBURSED AMOUNT (Rs in Crore) 1 Andhra Pradesh 19 138.79 17 130.04 2 Bihar 4 50.78 1 9.62 3 Delhi 2 175.06 2 175.06 4 Goa 1 2.98 1 2.98 5 Gujarat 13 286.96 13 283.64 6 Haryana 11 104.1 11 104.1 7 Karnataka 37 386.21 31 347.67 8 Madhya Pradesh 7 26.56 0 0 9 Maharashtra 107 1889.08 104 1724.99 10 Punjab 18 151.3 7 69.22 11 Telangana 1 1.04 1 1.04 12 Tamil Nadu 37 606.38 37 550.5 13 Uttar Pradesh 74 1875.27 72 1764.86 14 Uttrakhand 9 80.71 0 0 TOTAL 340 5775.22 297 5163.72 OTHER THAN UP MILLS CANE ARREARS COMBINED ALL OVER INDIA IS LESS, WHICH MEANS 60-70% ARREARS BELONG TO SELECTED LARGE GROUPS FROM U.P. WHO IN TURN ARE ACCEPTED AS STALWARTS OF THE TRADE. Is it not surprising that small mills alike Mouddinpur mill (Meerut), Snehroad mill (Bijnor), Khadd (Kushinagar) and Jarwal road (Bahraich) have been able to clear their dues fully in spite of their limited resources.Worthwhile it will be to record that groups like Balrampur and Dwarikadesish still are capable to clear the total dues as their balance sheets are not in red as they may be serious for the payments and not to spoil their names. Did apex bodies for sugar industry –ISMA / UPSMA has no responsibilities to find out timely amicable proper solution (not only one sided in favor of their members) Industry is lucky to have one of the largest Association / Bodies holding responsibilities to look after the interest of the industry on national / International level but regret probably something somewhere is missing and may be due to vested interest they may be in the hands of few influential large groups irrespective of their governing bodies / executive committees. In lighter vein most people in the trade comment that these Apex organisations may be labelled “only for U.P”. Further out of sheer discontentment and frustration many times members from all India are of opinion that apex body has failed look after interest of all the member mils and rather always has been pre dominated by North Indian mills particularly from U.P. How far it is true, we will keep our finger crossed and let the time itself decide this issue. Expected duty increase for import of raw sugar Sugar industry in India has misconceived idea that with increase of import duty markets will improve for local white sugar produced by Indian sugar industry With the current prices prevailing in India for sugar, import of raw sugar with payment of import duty at current rate 15% or at future anticipated rate 40% is totally unviable and only refineries based near to the port i.e. Kandla, Haldia, or Kakinada can do it. That too is feasible till Government permit terms the time leverage to complete the re-export by converting to refined sugar within the stipulated period. Presently refineries are allowed to re-export refined sugar converted from duty free raw sugar within 18 months which is a very long period. Because of this many times, refineries in past got the opportunity produce and sell in local market and complete their export obligation within the permitted time of 18 months which is very large period and exposed to gross mis-usage. This has happened in the past and therefore considering the very large volume of duty free raw sugar imports under transits authorities, a very careful vigil is required for its proper utilization by the refineries only for re-export. Such heavy arrival of duty free raw sugar will further add to the availability and surplus stocks of sugar unlike this year when raw sugar in big volume has been lifted by the refineries from the Indian sugar factories ,CHART GIVEN BELOW WILL JUSTIFY THE LARGE QUNATITY OF RAW SUGAR IN TRANSIT SHIPPED DURING LAST 4 WEEKS FROM BRAZIL. Duty Free Raw Sugar Imports by Refineries (Vessels in transit) as on 18th July 2014 Sr.No VESSEL PORT BULK BUYERS DATE 1 STX Rapido Santos 5,00,00,000 ED &F Man 11-06-2014 2 Arcadia Santos 4,82,00,000 ED &F Man 18-06-2014 3 Ocean diamond Paranagua 2,22,00,000 L.Dreyfus 18-06-2014 4 Arcadia Santos 4,82,00,000 ED &F Man 25-06-2014 5 Serenpidity Santos 5,25,00,000 Wilmar 25-06-2014 6 Ocean diamond Paranagua 2,22,00,000 L.Dreyfus 25-06-2014 7 Fortune Tiger Santos 5,50,00,000 Wilmar 02-07-2014 8 Four Kitakami Santos 5,31,00,000 Wilmar 02-07-2014 9 Massalia Santos 5,40,00,000 Wilmar 02-07-2014 10 Union Dede Santos 5,00,00,000 Wilmar 02-07-2014 11 Massalia Santos 5,40,00,000 Wilmar 09-07-2014 12 Intrepid Santos 5,50,00,000 Wilmar 09-07-2014 13 Union Dede Santos 5,00,00,000 Wilmar 09-07-2014 14 triton seagull Santos 5,25,00,000 Wilmar 15-07-2014 15 Massalia Santos 5,38,00,000 Wilmar 15-07-2014 16 Intrepid Santos 3,04,35,000 Wilmar 15-07-2014 Total 75,11,35,000 (Courtesy: Williams shipping information) EI NINO –how far India likely to be effected There had been enough Propaganda about drought in India due to late rain fall, but lucky we are Rain god is kind enough And hopefully although late, we are going to get enough rain needed for maturing of standing sugar cane crop which had been implanted last year. There will be no shortage neither of cane nor sugar in India again during the sugar season 2014-15. In terms of total production except Brazil all other major producing countries will close their sugar production with surplus stocks. Outlook / Suggestion:- 1. The main root cause of the problem is that our sugar industry depends mainly on sale of white sugars in local markets. And except very few factories others has hardly diversified their product range although everybody agree that 65-70% sugar is consumes by institutional buyers and if 10 % ethanol blending permitted they will be no surplus 2. Unfortunately ethanol blending will remain a dream on paper and hardly our OMC has reached 1.7 % blending levels and nothing concrete to be expected for the near future. 3. White sugar due to excess production will always remain as c/f stocks and for last few years we are with 8- 10 million tons every year as c/f stocks. 4. Neither demand nor market forces are able to decide the white sugar prices, time to time speculators and bulls lobby has taken the position but failed miserably every time due to excess availability of sugar stocks. UNDER THE CIRCUMSTANCES EXPORT ONLY IS THE SOLUTION TO REDUCE THE INVENTORY SO THAT MILLS CAN GET BETTER PRICE FOR WHITE SUGAR IN LOCAL MARKET. EXPORT NEEDS ONLY REFINED SUGAR 45 ICUMSA WHICH IS VIABLE ONLY WITH REFINERIES AND THE INDUSTRY CAN PRODUCE EXPORTABLE QUALITY OF RAW SUGAR ONLY THIS YEAR. RAW SUGAR EXPORT WAS PERMITTED WITH SUBSIDY AND AROUND 1 MILLION TONS WAS EXPORTED DURING MARCH /APRIL 2014, THEN AFTER FACTORY CLOSED, AND IF GOVERNMENT TAKES A TIMELY AND WISE DECISION TO CONTINUE THE RAW SUGAR EXPORT SUBSIDY ALONG WITH TRANSPORT SUBSIDY FEW MILLION TONS OF RAW SUGAR MAY BE EXPORTED AND CAN BRING AND IMMEDIATE AND READY SOLUTION TO THE INDUSTRY NOR THERE IS NO POINT IN BEATING THE BUSH, FINDING THE RAT IN MOUNTAIN AND BLAMING EACH OTHER AND CREATING A LONG STORY NOW BALL IS IN COURT OF GOVERNMENT AND AUTHORITIES. THEY HAVE TO DECIDE THEY WANT TO KEEP ALIVE THIS 80,000 CRORE REVENUE INDUSTRY ON WHICH FEW MILLION PEOPLE ARE DEPENDING DIRECTLY/ INDIRECTLY OR TO LEAVE IT TO ITS OWN DEATH. LET OUR NEW GOVERNMENT BE READY TO TAKE THE CREDIT OF SAVING THE INDUSTRY OR THE BLAME TO KILL IT .INDUSTRY HAS BECOME HABITUATED TO LIVE WITH UNLIMITED PROBLEM AND SUCH OLD SEASONED PATIENT WITH CHRONIC DISEASES HAS TO BE TREATED CAREFULLY AND CANNOT BE TREATED OVERNIGHT. WE ALSO LOOK FORWARD FOR THE BETTER DAYS (ACHE DIN AS PROMISED BY OUR NEW GOVT.) Disclaimer: The above are the independent views. However by coincidence if resemblance to anybody anywhere in past, present &future we are nowhere responsible & will not entertain/respond to claims or queries raised we have no intention to hurt anybody and our due apologies given in advance. But we would like to receive your comments, feedback and guidelines about the article and if you like we will continue such article.
Posted on: Fri, 18 Jul 2014 11:02:18 +0000
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