After the UP government refrained from giving into pressure by decreasing the price to be paid for sugarcane, SP Tulsian, chief executive officer, sptulsian.com, says the sugar mill owners are not left with any option but to start their mills now.
Speaking to CNBC-TV18, Tulsian said that no more relief can be expected from either the State or the Central government.
Tulsian said the UP government will not like to set a precedent of giving cash subsidy either to the mill owners or to the farmers and already present inflation woes will prevent the Central government from providing any relief.
Below is the edited transcript of Tulsian's interview to CNBC-TV18.
Q: You track the sugar sector very closely. The relief measures seemed to be on expected lines, but what was probably not expected was this deadline of the December 4. What do you make of the announcements coming in?
A: It is compulsory for the government to set any deadline and December 4 in my view has already got delayed by about three weeks, because farmers have to clear the farms to sow the wheat in the rabi season.
Also, I do not think that further fiscal relief can really be expected from the government now, because if one works it out, it comes down to out to about Rs 20-25 per quintal.
I do not see any reason why sugar mills cannot pay a price of Rs 250-255/quintal. So if they are talking to breach the gap of Rs 25 per quintal, that has largely been provided by the government, expecting any fiscal relief hereafter won't be likely.
Furthermore, if you really see, the government has shown their willingness that from next season they are prepared to link the sugarcane prices with the sugar prices. That seems to be a positive move on part of the government, plus they have given some assurance considering the interest relief and all that after three months.
Now. out of 21 mills, only four private sector mills have started. Sixteen mills are government mills which obviously will get started by the government. So, now the initiative has to be taken by the private sugar mills to start crushing and I hope that in next one week we will see the major mills will start crushing at least in the western region.
Q: Given these new set of relief measures coming in what kind of relief will this provide to sugar mill owners, as you said enough to start crushing by next week?
A: I do not think that now any relief can really be provided by the UP government. Now it is all for the Centre. If we are export 2 million tonne of sugar then obviously the domestic prices in our country will rise. However, I do not think that even central government will really be happy with that idea, because on one hand if they are struggling with inflation, with the onion, tomato, potato prices start rising, then rise in sugar prices will definitely be adding the woes of the central government further.
I do not think that any further relief was really expected, because UP government will not set a precedent of giving cash subsidy either to the mill owners or to the farmers. So, I do not think that now one can really expect any kind of relief from UP government and the central government also will not be very keen largely because of the inflation concerns. Going forward, I think sugar mills have to compromise within this formula. They cannot really lock horns with the UP government at this stage and they have to take this with a pinch of salt and start the mills.
Q: I was having a word with some of the sugar mills in UP and they clearly said that they are not happy with what has actually come out because the relief which is provided on interest subvention or the entry tax favour is less than 10 percent which will cover for the losses. Do you really think now with the kind of losses of Rs 4,000-5,000 crore what we have seen in the UP sugar industry and none of the banks actually helping these private sector companies will there be any capacity for them even to start crushing?
A: The mill owners have their case to present before the media. I do not agree that Rs 250 will really be pinching them, because many times if you really see the by-product generation- the realisations which they make from molasses processing - making ethanol and bagasse, they do not consider that while calculating the cost of production.
I agree that it will be difficult for the mills, but it will not be so difficult, because if you really see can sugar mills afford to displease the government which is going to remain in power for next four years?
Secondly, a couple of months back some overseas parties have started showing some interest in taking stake in the Indian sugar industry and when one talks to these people, they are quite hopeful. Informally, they tell that beyond Rs 230 it will not be possible for them and sometime they have also hinted that beyond Rs 250 they will really reach at a breaking point.
Hence, I agree that one has to really negotiate for a price of Rs 10-15/quintal, because if one sees the fiscal incentive, it works out to about Rs 15-20/quintal. One has to breach the gap of Rs 25-30, someone has to bear the brunt. So, that has been done by the UP government. They have done 50 percent, so obviously 50 percent has to fall on the sugar mills. I agree that they will be having the problems, but I do not think that they have really come at the breaking point of the cash insolvency kind of thing.
Q: Do you see any investor appetite coming back to industry at all even for trading purpose after whatever has been announced today by the government and what we could expect going ahead in the sugar sector as a whole?
A: No, I do not think so, because for that you have to take the sugar prices going to a level of maybe Rs 36 plus or expect that the country production falls to a level of 20 million tonne and we do not wish that both things should happen.
As long as these two things will not happen I do not think that interest in the sugar sector can really come back, because in this season we are expecting a production of at least 24-25 million tonne. Even if part of the sugarcane is diverted to gur and khandsari, in UP we are going to see a production of 24 million tonne. So, if we have this kind of situation prevailing I do not think that for next 12 months we will see any kind of interest getting revived in the sugar sector.
