Sugar coop privatisation

Gouri Athale / TNN / Jun 13, 2005, 19:11 IST

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PUNE: The state's powerful sugar lobby has chosen the leasing route as the way out of a situation of mills remaining shut without crushing or leasing out capacities to private players.

PUNE: The state's powerful sugar lobby has chosen the leasing route as the way out of a situation of mills remaining shut without crushing or leasing out capacities to private players.
"Leasing out capacities is the need of the hour," said Prakash Naik Navare, managing director of the Maharashtra Rajya Sakhar Sangh, the apex body for the state's cooperative sugar mills.
Critics said the move to lease out capacities in the sugar cooperatives was a back door entry for privatisation of the sector.
"What were the options for the sugar factories? They had reached the stage of higher lease capacities and get a lease of life for the unit. Or, allow the unit to die, which they would have if they had not been allowed to lease out capacities," he said.

"This is not a sale but a lease, with regular tendering which gives the first option to neighbouring cooperatives," Naik Navare added.
While Naik Navare was categorical that only a handful, he named four, of the 182 registered SSKs would lease out capacities, industry watchers cited a figure of 30-35 SSKs adopting this route.
In Naik Navare's list were Ajara SSK, which is in the second year of its two-year lease; Panjarakand SSK, in Dhule district, and two in Sangli district, the Tasgaon SSK and the Mohanrao Shinde SSK.

Among those mills whose names are doing the rounds are Kothe Mahankal SSK, Vita SSK and Jath SSK. Private sugar factories across the border, in Karnataka, particularly Renuka Sugars, have been very active in taking on capacities on long term, upto three years, leases.
The move to lease out capacities began last season, October-March 04-05, with SSKs finding it more and more difficult to raise financing from banks and other financial institutions.
"Advertisements for this have begun and between 30-35 SSKs are in the process of completing the formalities," Kanhaiyalal Gidwani, Shiv Sena MLC, said.
"If this continues, it will lead to a large number of SSKs closing as the government of Maharashtra has granted permission to cooperative sugar mills to be privatised or given on long leases," he remarked.
Naik Navare pointed to the 425 lakh ton of cane likely to be crushed in the coming season, 05-06. With a crop this size, it was unlikely that more SSKs would lease out capacities. They would prefer to crush the cane themselves, he said.
Private sugar mills across the Maharashtra border, in Karnataka, work quickly to get central government permission for the multi-state purchase of cane. Using the three -year lease route to access capacity which could be closed or under-utilised is a cheaper option for such players, since they have to merely fix the rate per tonne of cane crushed. They need to make no investment in creating capacities.
While Naik Navare said the move protected the interests of the unit, employees and farmers, others were quick to point to the state government's investments in these mills. In Maharashtra, SSKs have to put up a mere 10 per cent of the share capital, the state government putting up 30 per cent and the balance 60 per cent is put up by banks, backed with state government guarantees. The 10-30-60 formula actually amounts to the state government underwriting 90 per cent of any SSK which is often run as a fiefdom by the management.
Naik Navare admitted that leasing out capacities left the current management in charge. This is the aspect which has worried observers, that the interests of a management which ran the SSK into its current state of financial ill-health will be protected.
"Over a period of two years, more SSKs could look at leasing out capacities. This will amount to a backdoor privatisation," they said.

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