Centre may’ve to pay Rs 2.3k cr on levy sugar

NEW DELHI: The Centre may have secured additional levy sugar for the below poverty line (BPL) consumers for the festive season, but is staring at over Rs 2,300-crore bill due to them on account of depressed levy sugar payments for the current sugar year (Oct���08-Sept���09).

Levy sugar is that portion of sugar production, currently 10%, which the government takes away for supplying to the public distribution system (PDS). The liability came up after a Supreme Court ruling on levy sugar pricing earlier this month.

According to the Sugarcane Control Order, levy sugar pricing by the Centre has to be based on the statutory minimum price (SMP), the cost of conversion into sugar, excise and other taxes. Sugar mills have been arguing that the price of levy sugar should be based on the state advised price (SAP), the actual price paid by mills to farmers, and not SMP. Many states announce their own price for sugarcane, which is usually significantly higher than the centre���s SMP.

The judgement rejected Centre���s position that it would base levy sugar pricing on the SMP. The Centre informed the apex court that it is working out the additional burden it will have to bear on account of this. According to industry estimates, the Centre will have to fork out around Rs 2,300 crore for the 2008-09 sugar year alone.

Centre issued orders to sugar mills last week using Clause 2 (1) of the amended Levy Sugar Supply (Control) Order, 1979 to release additional sugar for the PDS at existing levy sugar prices. This forced mills to release all unsold sugar from the dissolved sugar buffer stocks. In addition, mills are also being directed, under threat of penal action, to handover all the levy sugar carryovers from the previous year not picked up by states.

Retail sugar prices are nearing the Rs 40/kg and the government is trying to contain prices. The acute sugarcane shortage in the country is likely to cause a sharp drop in sugar production from 26 million tonne in 2007-08 to only 15 million tonne for the 2008-09 season.

An even lower availability is projected for 2009-10 even as output is pegged at 16 million tonne since carryover stocks into that year (Oct���09-Sept���10). Low production and prospect of heavy imports from India, the largest sugar consumer in the world, have already driven international prices to record highs, which has made imports unviable.