How Mayawati sweetened the sugar mill deal for a liquor don

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The sale of state-owned sugar mills to Ponty Chaddha, the UP CM’s favourite business baron, is under scrutiny, reports Virendra Nath Bhatt

 Cane being crushed at a sugar mill near Moradabad
Sugar rush Cane being crushed at a sugar mill near Moradabad
Photo: Shailendra Pandey

UTTAR PRADESH Chief Minister Mayawati may find herself in choppy political waters over the disinvestment of sugar mills run by the public sector UP State Sugar Corporation Ltd (UPSSCL). Already, the move has been criticised in the CAG audit, and the Lokayukta is conducting a probe after a complaint by a farmer. Now, the Opposition parties have demanded a CBI probe into the sale of five sugar mills for a song — Rs 206 crore — to the CM’s favourite business group run by Ponty Chaddha, when their actual worth is more than Rs 2,000 crore.

Ponty Chaddha
Favouritism? Ponty Chaddha has made a windfall from the deal
Photo: Indian Express Archives

Of the 21 mills privatised in October last year, 10 were operational while the rest have been lying closed for several years. The total area occupied by the mills located in urban areas of west, east and central Uttar Pradesh, is more than 500 hectares. The state government claims that the mills were sold after due diligence and by adopting the most transparent method.

Ponty Chaddha, uncrowned king of the liquor business in Uttar Pradesh, already has a sugar mill at Dhanaura in Moradabad district. The acquisitions could thus help him in his existing business, as molasses, a byproduct of crushed sugarcane, is a key raw material for country liquor.

In 2008, the Mayawati government had created a special excise zone comprising of five divisions — Bareilly, Moradabad, Meerut, Saharanpur and Agra. Chaddha was given the exclusive rights to run the liquor vends for both country liquor and Indian-made foreign liquor. But in the end, through his proxies and associates, he ended up controlling the liquor business in all the 72 districts of the state. Repeated attempts by TEHELKA to contact Chaddha elicited no response.

After the denouement in Karnataka, where BS Yeddyurappa was forced to step down as chief minister following indictment by the Lokayukta on illegal mining, the probe by the Uttar Pradesh Lokayukta, Justice (retd) NK Mehrotra, could become a potent weapon for the Opposition parties in the state to campaign against the ruling Bahujan Samaj Party (BSP) during the Assembly election due in early 2012. The BSP is already at the receiving end for rampant corruption in the National Rural Health Mission, which is being investigated by the CBI.

Besides the Lokayukta, much to the discomfiture of the Mayawati regime, the CAG is also conducting an audit into the sale of the sugar mills, asking inconvenient questions. “We have detected three clear irregularities in the disinvestment of the 21 sugar mills — the method adopted for the valuation of assets like the plant, machinery and land, the bidding process and huge loss to the state exchequer on account of evasion of stamp duty,” says a CAG official.

“As per our initial estimates, the state government lost close to more than Rs 100 crore on account of evasion of stamp duty alone. We have sent the audit objections to the UP government and we are waiting for their reply. We hope to complete the report by November next,” he adds.

Bleak future Bareilly’s Nekpur mill, closed since 1993, has been sold to private firm Adarsh Sugar Solutions

Sources in the CAG, citing Parliamentary privilege, are not willing to speak on record on this issue. “We cannot share our findings with the media before the report is tabled in the Assembly, the leakage of some part of our report on CWG before the report was tabled in Parliament has caused problem for our officers,” they argue.

The scam came to light in October 2010 when VM Singh, who heads the Pilibhit based Rashtriya Kisan Mazdoor Union, filed a case with the state Lokayukta claiming that the state-owned Amroha Sugar Mill in Jyotiba Phule district and Bulandshahr Sugar Mill in Bulandshahr had been sold at prices below market rates.

Singh complained that the Amroha Sugar Mill, which has a cane crushing capacity of 3,000 metric tonnes per day and located in an area of 31 hectares, was sold for just Rs 13.94 crore. If one takes the real estate value into account, the property is worth around Rs 250 crore (see box).

Similar is the case with the 32-hectare Bulandshahr Sugar Mill, which has a cane crushing capacity of 5,000 metric tonnes per day. It was sold for Rs 29.75 crore when the market value is around Rs 225 crore.

The Lokayukta shot off a notice to the state government asking it to explain the discrepancy in the prices. The government justified the lower prices by claiming that the private investor will have to operate the mills and not be able to use the land as real estate.

Amroha Sugar Mill
Jyotiba Phule DistrictCane Crushing Capacity
3,000 metric tonnes per day
Area
31 hectares 
Sale Price
Rs 13.94 crore 
Market Price
Rs 250 crore 
Complainant
Pilibhit farmer VM Singh
Bijnor Sugar Mill
Bijnor DistrictCane Crushing Capacity
7,500 metric tonnes per day
Area
15 hectares 
Sale Price
Rs 101 crore 
Market Price
Rs 500 crore
Complainant
Kirit Somaiyya, BJP MP
Bulandshahr Sugar MillBulandshahr districtCane Crushing Capacity
5,000 metric tonnes per day 
Area
32 hectares
Sale Price
Rs 29.75 crore 
Market Price
Rs 225 crore 
Complainant
Pilibhit farmer VM Singh
Lord krishna Sugar Mill
SaharanpurCane Crushing Capacity
2,500 metric tonnes per day 
Area
60 hectares
Sale Price
Rs 35 crore 
Market Price
Rs 450 crore
Complainant
Yogesh Dahiya, Farmers’ Forum
Jarwal Road Sugar Mill
BahraichCane Crushing Capacity
2,500 tons per day 
Area
22 hectare 
Sale Price
Rs 27 crore 
Market Price
Rs 250 crore 
Complainant
Kirit Somaiyya, BJP MP

IN THE reply to the Lokayukta, the then principal secretary (sugarcane) Net Ram wrote, “For getting maximum value of the mills from disinvestment, the UP government had amended the UP Sugar Undertakings (Acquisition) Act in 2009, allowing the land use change subject to certain conditions.” But the move was quashed by the Allahabad High Court in April 2010. The UP government approached the Supreme Court, which in its interim order said the buyers of the mills will be covered by the final order of the apex court. Net Ram concluded that this order also adversely affected the bid values to be offered by the prospective investors.

Interestingly, Chaddha, who has a couple of multiplexes, will be able to use the land for real estate development if this change in land use is allowed by the apex court, which is considering the matter.

When asked about the investigation, the Lokayukta told TEHELKA: “I am examining the matter. I have sought more information from the government on the valuation of the assets of the 21 sugar mills and the bidding process adopted for the disinvestment of the mills.”

The larger question is: why are so many mills in bad shape and is their privatisation justified? The answer is not easy to find. Of the total 33 mills under UPSSCL, only 11 are operational. Five mills were closed in 1998-99, six in the next year and 11 in 2008- 10. All of them were written off due to mounting losses.

In his reply submitted to the Lokayukta, Net Ram said the total financial assistance given to the UPSSCL by the state government since inception in 1971 to 2009-10 was Rs 2,285 crore. The assistance was given in the form of loan, share capital, for meeting the liabilities of the labourers and for payment of the sugarcane dues of the farmers. Despite the assistance, the total accumulated losses of the public sector unit by the end of fiscal 2009-10 were Rs 1,549 crore — the major cause of losses being lack of modernisation and expansion.

In the absence of expansion, their capacity remains unviably low. Only nine mills have the daily crushing capacity of 2,200-3,000 metric tonnes per day while the capacity of the remaining mills is 700- 1,800 metric tonnes per day. Fresh investment was required to make them viable and enhance the capacity to at least 5,000 metric tonnes per day. The capacity of more than two dozen sugar mills established in UP under the new sugarcane policy adopted during the previous Mulayam Singh Yadav regime (August 2004-May 2007) ranged from 7,000 metric tonnes per day to 15,000 metric tonnes per day.

For all these reasons, the new mills are doing better. Besides enhanced capacity, they have other avenues of generating revenue like distilleries for producing country liquor and industrial alcohol and co-generation units for producing electricity from bagasse. The new mills sell surplus power to UP Power Corporation Ltd.

Besides the state Lokayukta, the CAG is also conducting an audit, asking awkward questions

Right now, all eyes are on the longawaited CAG report. Confirming the objection raised by the CAG, the Secretary (cane department), Kamran Rizvi, who is also the Cane Commissioner, said, “The UPSSCL has submitted its reply to the objections in the audit of the disinvestment of mills raised by the CAG. We are confident that they will be satisfied by our submission.” He claimed that there is nothing sensational in the CAG findings.

Rizvi was however willing to admit that “CAG had raised questions over the stamp duty evasion, under valuation of the assets of the mills and flaws in the bidding process for the disinvestment of the mills’’. The CAG has conducted the audit in two parts: first for the 10 operational mills and then for the 11 closed mills, he added.

Of the total 33 mills under UPSSCL, only 11 are operational. The rest were closed between 1998-2010

If the Mayawati government’s privatisation of all the mills comes through, Uttar Pradesh would have come full circle: the UPSSCL was established on 26 March 1971 as a government company to run 29 lossmaking sugar mills acquired by the state government to protect the interests of sugarcane farmers and mill workers. Now these mills will again be in the domain of the private sector, mostly business groups picked by the CM. Whether they will care about the interests of beleaguered farmers and mill workers is a moot question.

virendranathbhatt@gmail.com

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