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Maharashtra government looks to revive at least 40 shuttered cooperative sugar mills

LiveMint logoLiveMint 12-09-2017 Abhiram Ghadyalpatil

Mumbai: The Maharashtra government is weighing a unique model to revive defunct cooperative sugar mills in the state, possibly by acquiring them and leasing them out to those who can turn them around.

Maharashtra is India’s second-largest producer of sugar, and the sweetener has for long had a central place in its political economy. Powerful politicians have held sway over its cooperative sugar mills but over time, many have been shut, sold or auctioned off.

Now, the Devendra Fadnavis government has formed a committee under state sugar commissioner Sambhaji Kadu-Patil to conduct a financial and technical evaluation of the assets of at least 40 shuttered sugar factories and submit a report by 20 September.

“The committee has to recommend if it is financially viable for the state government to acquire these factories and run them on lease,” one of the five members of the committee said, requesting anonymity. He said the intent behind this exercise was to see if the government could step in to prevent them from turning sick or non-performing assets in which case they could face acquisition under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act (Sarfaesi Act).

A 4 September government resolution announcing the committee said 40 co-operative factories have closed down in the state. It asked the committee to look at factories that are already sick, have gone into liquidation, or been acquired by banks under the Sarfaesi Act.

Milind Akre, general manager of the Maharashtra Co-operative Development Corporation, is member-secretary of the five-member panel which also includes Pramod Karnad, managing director of Maharashtra State Co-operative Bank.

Co-operative sugar factories in Maharashtra, mostly based in western Maharashtra and Marathwada, have been one of the main levers of the state’s political economy. They have historically been directly or indirectly controlled by politicians from the Congress, Nationalist Congress Party and the Bharatiya Janata Party, in that order.

Amit Deshmukh, Congress legislator from Latur and director of two co-operative sugar factories in Marathwada, welcomed the move, but sought more clarity. “It looks like a novel experiment since it is not exactly the government’s business to run sugar factories. But I welcome it as an option to see if these factories, instead of being auctioned off at a throwaway cost, can be turned around. The government has said that it would run the factories only if it is a viable option but more clarity is expected. Who would the government lease out these factories to? Sick or liquidated sugar factories have a lot of legal complications too, which need to be sorted out,” Deshmukh said.

Deshmukh’s co-operative sugar factory Vikas Sahkari Sakhar Karkhana in Latur recently acquired Priyadarshini co-operative sugar factory in Udgir, a sick unit, to turn it around. “It is not a hugely successful venture yet but it is not loss-making either,” Deshmukh said.

Maharashtra has 175 co-operative sugar factories, the highest in the country. However, only 93 are functional. Of the rest, 33 have been acquired under the Sarfaesi Act while six have been sold by the government. Three co-operative sugar factories have been bought over by private parties.

Sanjeev Babar, managing director of Maharashtra State Co-operative Sugar Factories Federation Ltd, said there are various reasons for the shuttering of sugar factories. “Low availability of sugar cane, lack of timely credit supply by banks, cycles of low rates for sugar stock and financial mismanagement are some of the reasons why these factories are not running. In drought years, a steep decline in the sugar cane yield forced many factories to shut down,” Babar said.

Apart from these factors, the government resolution says, factories have closed down also due to the high cost of sugar production, needless recruitment of labour, inefficient use of expensive machinery, and lack of fiscal discipline and professional approach.

A senior official at the state’s co-operation department, who did not want to be named, said a number of closed, sick, sold and acquired sugar factories have followed this pattern. “Once a factory gets into financial troubles, availability of capital becomes a problem. If the factory remains closed for a long time, it goes under liquidation under the Maharashtra Co-operative Societies Act. If the factory carries debt and the repayment of loan has stopped, the lender declares the factory as NPA, which opens up the last option of auction of assets either by the lender or liquidator under the Sarfaesi Act,” the official said.

“Such factories typically get sold off at throwaway costs which virtually closes the possibility of turning them around,” the official said. He added that the government wanted to see if it could acquire the assets of these factories and run them “profitably on lease”.

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