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November 23, 2017

Sugar mills fear Rs189bln default on payment as ‘govt indecisive’ on exports

Business

November 23, 2017

LAHORE: Sugar mills are feared to default on paying a huge Rs189 billion to the growers as government’s indecisiveness to allow sweetener’s exports on desirable rebates created liquidity crunch in the industry, a top official said on Wednesday.


Javed Kayani, chairman of Pakistan Sugar Mills Association (PSMA) said at least nine sugar mills have gone bankrupt in the past couple of years, while four are teetering on the verge of shutdown.


“The industry is starting new sugarcane crushing season with surplus of almost three million tons and if government permits export of half of surplus sugar within next 48 hours and agrees to desirable rebates and tax exemption then an impending crisis could be averted,” Kayani told journalists.


“Otherwise, delay in decision will cost heavily to the government, growers and industry which would lead to anarchy and lawlessness,” he said.


Mills usually start sugarcane crushing in October, but this year crushing was a little delayed as they lack funds to settle bills for cane purchases before the new season.


Sugar mills demanded rebate of Rs20/kilogram on exports.


PSMA chief said crushing costs the industry Rs48 to 50 per kg, which is over and above the manufacturing cost of Rs9/kg.


“If we export sugar at $340 to 350 per ton, we can recover only Rs32 to 35 per kg. The difference of cost of production and selling price is Rs20 to 23 per kg,” he added. “The current international sugar prices of around $340 to 350 per ton are not viable for the industry to crush the cane and make exports without any rebate.”


Late last week, inter-provincial body Sugar Advisory Board proposed the government to allow sugar export of 1.5 million tons after agreeing that the surplus stock would pile up to three million tons by the end of the current crushing season.


PSMA is expecting the highest ever sugar production of seven million tons for the current crushing year. Annual local demand is estimated at around 5.1 million tons.


Kayani said another option is to cut the rebate to Rs15 per kg as well as lower the tax rate on local sale.


He said ministry of commerce officials termed the demand unjustified.


“We asked the government to take over the mills, or deregulate the sector,” he added, referring to the industry’s officials meeting with Prime Minister Shahid Khaqan Abbasi on Tuesday.


“If the government deregulates the industry then at prevailing international sugar rates the sugarcane price should not be more than Rs120 per maund (40kg).”


The industry’s official further said in October last year the mills demanded of the government to allow exports without rebates to clear surplus of 1.5 million tons. At that time, international sugar price was hovering $550 to 600/ton.


He said government allowed export of 925,000 tons in different phases “in one go instead.”


“This resulted in further burden on the government as well as sugar industry, which pledged its stocks with banks to get financial limits to ensure payment to growers,” he added.


Sugarcane growers have already given a protest call in Lahore on November 25 against nonpayment of their dues by the mills, while in some parts of Punjab, including Rahim Yar Khan and Trimmu Barrage they already blocked roads and main arteries connecting Punjab and Sindh provinces.