Pune: Cooperative sugar mills foraying into ethanol production face banking roadblocks

Ethanol, a fuel additive, has been promoted as a solution for sugar mills to tackle the problem of excess production and subsequent unsold sugar stock.

Banking roadblocks have resulted in 67 cooperative sugar mills in Maharashtra failing to make a head-start in ethanol production, even as the state and Central governments had given them the green signal to do so earlier. On Thursday, former union agriculture minister Sharad Pawar chaired a meeting of millers, bankers and representatives of NABARD to discuss projects that had failed to find any mid-way, with NABARD shifting the onus on banks to find solutions for the problem.

Ethanol, a fuel additive, has been promoted as a solution for sugar mills to tackle the problem of excess production and subsequent unsold sugar stock. Instead of sugar, mills were encouraged to divert a substantial portion of their cane towards ethanol production. Since 2018, the Central government has fixed incentive-based pricing for ethanol manufactured directly from sugarcane juice or sugar syrup, as well as B heavy and C molasses, which would also result in lower sugar production.

Back in 2018, the Central government had announced an interest subvention scheme for mills that wished to either construct or expand their ethanol facilities. As many as 67 cooperative sugar mills from the state had applied under the scheme and had their projects sanctioned. However, two years down the line, barring for four mills, cooperative banks have not extended any finance towards these projects.

Banks have cited several reasons for not extending loans to the mills. Primarily, the banks have pointed to the negative Net Disposable Resource (NDR) among other financial strains as their main limitation in extending finances. They also cited RBI regulations as the reason. Earlier meetings with NABARD had failed to solve the problem.

Earlier this year, the Central government had allowed tripartite agreements to be filed between banks, mills and oil marketing companies (OMCs), which would allow banks to access finances in lieu of payment for the ethanol manufactured. In addition, mills had suggested the creation of separate balance sheets for their sugar and ethanol businesses, which would allow banks to finance based on ethanol balance sheets only.

Senior millers present for the meeting said NABARD representatives had thrown the ball in the banks’ court for financing.

“NABARD was of the opinion that banks should form a policy of their own, based on prudential banking norms…In case the lending is questionable, NABARD would step in,” a miller said.

When millers discussed the tripartite agreement, NABARD asked banks to take calls on their own. Banks refused to provide finances based on dual balance sheets.

Source: Read Full Article