Uttar Pradesh may roll back privatisation of ailing sugar mills

“A rollback (of the privatisation process) is the only option left as the bids received were far lower than the reserve price,” said an official who did not want to be named.

Against the reserve price of Rs 2,000 crore, the maximum bid received by the government was Rs 650 crore, from the Chaddha Group of Ghaziabad, sources said. They added that the current cane-crushing season had commenced and the government was left with no option but to resume the normal operations of the 17 mills as a delay could have triggered agitation by farmers.

The decision is seen as a major setback to the efforts of the government to attract investment in UP. The government failed to rope in buyers despite exhausting all its options to make the deal attractive for the private investors. It had even written off the accumulated losses of the PSU.

In the current fiscal 2008-09, a provision of Rs 1,000 crore was made to finance the Voluntary Retirement Scheme, which has been offered to all employees of the corporation.

In June 2008, the state government allowed change in land use norms for 18 mills, which are either within the municipal limits or on the outskirts. It permitted the investor to use the mill land as real estate.

Earlier this month, the governor promulgated an ordinance to amend the UP Sugar Undertaking (Acquisition) Act 1971 that governs the corporation. The amended ordinance incorporated the land-use change. The order issued in June is now covered by the legislation.

The Act empowered the government only to acquire the sick private sugar mills. The UP Sugar Undertakings (Acquisition) (Amendment) Ordinance 2008 arms the government with the powers to divest and sell the scheduled undertakings and sugar mills of the corporation and its subsidiaries.

On June 4, 2007, the UP government had decided to privatise all 61 sugar mills — 33 in public sector and 28 of the UP Cooperative Sugar Factories Federation — along with seven distilleries. The target was to complete the process by August 30 the same year.

For the divestment of PSU mills, the government invited bid from the private sector in May 2008 by floating expressions of interest. Following a poor response, the process was cancelled in June and fresh bids were invited in July.

After several extensions of the deadline, the bids were finally opened on September 26. Three companies — Chaddha Group, E-flux of Noida and Gammon India — filed the financial bids.

The accumulated loss of the PSU till the end of March 2008 was over Rs 2,000 crore and the government is set to incur a fresh burden of Rs 200 crore in 2008-09 in running the operations of 17 mills of the corporation.

Principal Secretary, Sugarcane, Net Ram could not be contacted despite repeated attempts, while Cane Commissioner Har Sharan Das refused to comment on the matter.