ISLAMABAD, Jan 16: The sugar industry has informed the government that it was facing a cash shortfall of Rs30-42 billion on account of sugarcane price and production cost that would lead to major defaults by the mills and crop losses to farmers.
Informed sources, however, told Dawn the caretaker minister for finance Dr Salman Shah was reluctant to offer any rescue package to the industry on the grounds that it would be politically too difficult for the government to defend dolling out subsidies to sugar industry that it accused last year of amassing ‘indecent profits’.
Informed sources said a secretary-level committee has been directed by the caretaker prime minister to look into the sugar crisis in detail and consider some of the proposals presented by the industry.
The committee is yet to hold a meeting, but the industry has recommended exemption of 15 per cent GST on sugar at least for the current year, coupled with the purchase of surplus commodity by the government at a fixed price rather than tenders that was sure to crash sugar prices.
The sugar mills have told the government the sugarcane prices of Rs65 and Rs67 per 40kg were fixed by the provincial governments on the assumption of mill-gate sale price of sugar at Rs29 per 50 kg of last year that has come down to Rs22-23 per kg matching a sugarcane price of Rs40-45 per 40kg.
They said with the present sugarcane prices, the sugar mills would be able to utilise about 50 million metric tons and able to generate Rs80 billion to pay the growers without adding any financial charges.
On the other hand, the return expected from the sales with the present price would be in deficit of about 30 per cent.
After including the general sales and special excise duty, the total manufacturing cost of 4.4 million tons of sugar would reach Rs121 billion while the companies would be able to generate a revenue of Rs91.58 billion on the sale price of Rs21 per kg ex-mill fixed by the government. This would leave a cash shortfall of about Rs30 billion and if shareholders minimum profit of 10 per cent is included, the net profit would surge to Rs42 billion.
In the meanwhile, the total sugar availability for the next year has been estimated at 5.36 million metric tons, including a carryover stock of about one million tons, as of October 2007. With a total consumption of 4.2 million metric tons per annum, the industry expects a surplus of about 1.16 million metric tons for the current year and add to the glut in the market.
To resolve this problem, the government has indicated to purchase about one million tons of sugar from the mills to reduce their cash problems. But the industry believes that international market was also experiencing surplus production that would create problems for the farmers during the current season.
Not only that many sugar mills could lead to closure due to liquidity problems, their inability to pay dues to the farmers would lead to discouragement to growers who would tend to avoid sowing sugarcane crop next year because of problems this year.
