The Uttar Pradesh government’s move to hike the reserved quota of molasses from 12.5% to 16% for countrymade liquor has left the sugar industry dismayed. Private sugar millers have expressed concern over hike in the reserved quota, claiming it will not only impact their cash flow but also squeeze free availability of molasses towards ethanol making for mixing in petrol to that extent. Against the prevailing molasses market price of Rs 480-500 per quintal, the state distilleries lift their reserved quota at a controlled rate of Rs 70 per quintal, thus paying only 15% of the market rate.

The government has hiked the reserved quota to maintain adequate supply of molasses for distilleries to produce country liquor. The move has been prompted by the shortfall in molasses production from the estimated 5.5 million tonnes (MT) to about 4.7 MT during the last cane crushing season this year.

In fact, UP sugar mills have long been asking the state government to decontrol the commodity and abolish the system of reserving molasses for distilleries, so that they could buy the same from the open market. They observed since liquor was also a commercial commodity and produced by business entities, they were not entitled to subsidised price.

“The unexpected hike in the molasses reserved quota will definitely hit our finances apart from depressing the availability for ethanol production, especially in the backdrop of the UP sugarcane outstanding of about Rs 6,200 crore for the 2018-19 crushing season,”  said an official of a private sugar company.

UP, which is eyeing a robust excise revenue of more than Rs 31,000 crore for the current 2019-20 fiscal, does not want to affect the supply chain of country liquor, which could impact revenue collection. This has been sought to be addressed through hike in the reserved quota to 16% under the current 2018-19 UP molasses policy.

Molasses is a sugarcane byproduct generated during sugar production. Molasses recovery is pegged at about 4.75% of cane crushed. Molasses is processed to make ethyl alcohol and methyl alcohol. While ethyl alcohol is not for human consumption, methyl alcohol is used for making liquor by distilleries and it also has other medicinal uses.

Besides, sugar mills also allege that even the reserved quota was not lifted readily by distilleries, thus adding to their inventory costs and resulting in shortage of storage spaces. 

According to the latest figures available, against net molasses reserved quota of 0.49 MT in UP, the state distilleries had only lifted 0.28 MT till the end of July 2019.

Meanwhile, the UP Co-operative bank has decided to lend Rs 3,221 crore to  the cooperative sector sugar mills  for the next cane crushing season 2019-20 commencing from November. Currently, there are 23 factories operated by the government-managed UP Cooperative Sugar Factories Federation Limited in the state.

This will enable the mills to carry out necessary maintenance work on plant and machinery, apart from financing stocks and receivables, during the course of the cane crushing season, which is expected to start from November and extend till April-May 2020.

In the 2018-19 crushing season, the state government had given a similar guarantee worth nearly Rs 2,704 crore for the cooperative sector mills. Thus, the estimated working capital requirement by these mills for the coming season has risen by Rs 517 crore or by almost 20 per cent over the previous cycle.

Of the 119 sugar mills in UP, 94 belong to the private sector, making up 80 per cent of the total, followed by cooperative sector entities at 23 (20 per cent). One factory is run by UP State Sugar Corporation Limited. The state government plans to revive few more cooperative sector mills in the coming crushing season.