The Hindu Business Line : Govt plans to check sugar exports via advance licence

New Delhi, Jan. 18 Sugar millers fulfilling export obligations under the advance licence (AL) scheme may soon have to obtain the Food Ministry’s ‘release orders’ (RO) for shipping out any consignment.

The proposal, under consideration, would practically put the clamps on all sugar exports, subjecting them completely to the Centre’s discretion.

Mills now cannot sell any sugar unless they get an RO from the Directorate of Sugar issued against their monthly ‘free sale’ quotas.

While the RO dispensation covers all domestic sales, exports were exempted through a notification dated July 31, 2007.

But with effect from January 1, exports under open general licence (OGL) have been brought back under the RO mechanism.

Thus, while OGL exports are ostensibly ‘free’, mills will not be allowed to despatch a single bag of sugar overseas without obtaining an RO, which may or may not be given.

To cover re-exports

The Centre is planning next to extend the RO dispensation to cover re-export commitments under the AL scheme as well. The scheme requires mills to re-export one tonne of white (refined) sugar for every 1.05 tonnes of raw sugar they import duty-free, with this obligation to be discharged within 24 months of the licence being issued.

The outstanding re-export obligation against ALs pending now is estimated at 7-8 lakh tonnes (lt).

The bulk of this is accounted for by south-based mills, mainly Thiru Arooran Sugars, Sakthi Sugars and Sagar Sugars.

“We are mooting an extension of the existing deadline period for discharge of all AL re-export obligations to December 31, 2009,” a Food Ministry official told Business Line. That means mills can defer re-exports till then without attracting any compounded fee (one per cent of the CIF value of imports for the first six months and two per cent for the next six months).

But what if they export before that?

“Well, we would prefer they do not because our concern is to retain the maximum possible sugar within the country. One way to do it is through the RO route, which will enable us to regulate (read ban) exports against ALs just as with OGL”, the official added.

Mills seen to benefit

Given current realisations from domestic sales – much higher than from exports – the Centre’s move could actually benefit those mills having large re-export obligations to undertake.

Interestingly, the pending re-export obligations are mostly against raw sugar imports made during the 2004-05 season (October-September).

The total white sugar re-export obligation of roughly 22 lt (against raw imports of 24 lt) should technically have been discharged by the 2006-07 season, but did not happen for a couple of reasons.

First, on July 4, 2006, the Centre – in response to perceived domestic shortages – banned all sugar exports, including those against ALs.

The ban on exports against ALs was lifted on January 3, 2007 and those against OGL on January 23, 2007.

AL holders were exempted from fulfilling their export obligations for the equivalent period for which the ban was applicable.

Then, on April 19, 2007, the Centre – this time responding to an unprecedented domestic glut – announced a freight subsidy of up to Rs 1,450 a tonne on sugar exports.

The subsidy, however, did not cover re-exports against ALs, rendering these unattractive. As a result, virtually the entire 49.56 lt exports during the 2007-08 season were on OGL account.

“Of the 22 lt total re-export obligation, around 14 lt has so far been discharged and within that, some 11 lt got shipped out before the export ban,” the official stated.

In other words, very little has been exported under the AL scheme since then. And probably, even still little will be this year.