Maharashtra’s electricity distribution company has asked the state’s sugar mills to ensure that payments to sugarcane farmers for their cane is made only after adjusting power dues owed by these farmers to the electricity company.
Maharashtra State Electricity Distribution Company Limited (MSEDCL) has warned the sugar mills that it will buy electricity from them at a lower price if the mills are unable to recover pending dues from the farmers.
Most sugar mills in the state produce their own electricity using bagasse, the fibrous material that is left after juice is extracted from the sugarcane. Much of this electricity is used for running the mill and the surplus is bought by the MSEDCL for distribution elsewhere.
The contracts for this sale of electricity to MSEDCL is up for renewal, and the electricity company has inserted new provisions that put the onus of recovery of power dues of the farmers on the mills. Sugar mills are resisting this.
Across the country, 360 sugar mills cumulatively produce 7,562 MW of electricity in their cogeneration units. Maharashtra is the leader in the sector with 124 cogeneration plants and a total installed capacity of 2,600 MW. Uttar Pradesh (70 mills with production of 1,800 MW) and Karnataka (58 mills with production of 1,600 MW) are the next two leading states in cogeneration.
In Maharashtra, mills enter into long-term power purchase agreements (PPAs) of 12 years with the MSEDCL to sell electricity generated at a pre-decided rate. While the rates were higher earlier, since 2013 sugar mills have had to join competitive bidding to sell their electricity. The current rate is below Rs 5/unit which, according to mills, just about meets their cost of production.
For mills whose PPAs had lapsed, the agreements were renewed this year at a base rate of Rs 4.75/unit. While the rate is lower than expected, it was the inclusion of a ‘recovery clause’ by MSEDCL in agreement that has worried mills more. The mills are expected to recover power utility’s dues from Fair and Remunerative Price (FRP) it pays to farmers.
Jaiprakash Dandegaonkar, vice-president of the Cogeneration Association of India, said, “In case mills are not able to recover 10 per cent of the pending bills in the area, the rate of purchase will be lower at Rs 4.51/unit.”
Dandegoankar and other sugar millers have slammed this clause, saying it is illogical as other than harvesting and transportation charges, they are not allowed to deduct any amount from FRP that is offered to the sugarcane farmers. In case a farmer avails of loans from cooperative banks, the same can also be adjusted in FRP payment. But mill owners said they neither had means nor legal right to deduct anything else from FRP.
For years, the mounting amount of dues from the agriculture sector has been a major issue for the cash-strapped MSEDCL. Farmers, however, have blamed irregular power supply and inflated bills as the main reasons for pending dues in the sector.
In 2020, the then Maha Vikas Aghadi government had launched a special initiative for recovery of power dues from agricultural pump owners. The Maharashtra government had allowed cooperative bodies, such as sugar mills, self-help groups and village panchayats to recover power dues, even offering 10 per cent financial incentive on recovery.
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Until now, only 13 mills have renewed their PPAs with the new clause, but most of them have refrained from any aggressive measures to recover power dues.
The owner of a cooperative mill in Kolhapur said legally, they are not allowed to deduct such amounts from FRP payment without the written consent of farmers.
“During the season, we had written to the power utility every fortnight, asking it to send us a break-up of dues of each farmer, along with written consent for deduction of dues. However, there was no response, so we didn’t deduct any amount,” miller said.
When contacted MSEDCL officials said asking sugar mills to recover electricity dues from farmers was “not a policy” but did not explain the reasons for inserting provisions in new PPAs. “It is not our policy to ask sugarcane factories entering for PPA with MSEDCL to recover arrears from the farmers. There are 115,515 agriculture (electricity) consumers in Pune zone having arrears of Rs 310 crore,” am MSEDCL official said.