LAHORE, Sept 27: Sugar mills are finding it tough to fully repay their working capital loans obtained from commercial banks against the security of their stocks by Oct 31, the deadline set by the central bank.

Owing to sluggish sales because of what millers dub as “heavy presence” of the Trading Corporation of Pakistan in the market, which is selling the sweetener at subsidised rate of Rs30.50 a kilo since the start of September, sugar traders have not been able to conduct the business normally.

The Pakistan Sugar Mills Association (PSMA) officials maintain that the mills will not be able to sell more than 50,000 tons of sugar during this month, and claim that the industry’s unsold stocks are likely to mount to 650,000 tons, equal to two months’ national requirements, at the beginning of October.

“Our sales have crashed down due to the TCP’s unprecedented presence in the market and its decision to cut the price of the sweetener from Rs34 per kilo to Rs30.50 even for retailers and large consumers like the confectioners and beverage companies,” said PSMA officials who asked not to be identified.

“We’re unable to sell stocks even at the rate of Rs32 per kilo, which is far below our production cost.”

In this situation, the PSMA officials said “it becomes simply impossible for the millers to adjust their loans by Oct 31. We shall need more time as we cannot repay the loans until we exhaust our unsold stocks.”

It may be recalled that the central bank had instructed the commercial banks on June 9, 2006 to “ensure that all advances against the security of sugar stocks are fully adjusted latest by July 31”.

The instructions had been given by the central bank to force the sugar mills to bring out their stocks in the market with a view to bring down the retail price of the sweetener which touched an all time high of Rs48 per kilo early this year.

The central bank extended the deadline for the adjustment of the loans to Oct 31 towards the end of July when the millers protested that it was impossible for them to sell their stocks and repay the bank loans.

They had also warned that the central bank’s insistence to fully adjust the loans by the end of July could delay payment to sugarcane growers.

In order to draw the attention of the government to the prevailing situation, the PSMA has sent a letter to Prime Minister Shaukat Aziz.

“In our letter we have apprised him of the situation and requested him to stop the TCP from bringing its stocks in the market to stabilise the prices at a reasonable level as well as to allow us some space for offloading our sugar stocks,” said the PSMA officials.

The government, they said, could convert the sugar stocks of 700,000-800,000 tons available with the TCP into buffer stocks, which could be released in times of shortage. The estimated sugar production of 3.5 million tons next year is expected to fall below the country’s requirements of 3.9 million tons.

“The letter also requests the prime minister to impose 20pc duty on the import of sugar because we fear that the recent slump in the international market rates because of huge Brazilian harvest could result in further pressures on local prices if duty-free import continued,” they said.

“It is also important to stabilise the market at reasonable prices as the cost of production for the next harvest is expected to go up as a result of increase announced by Punjab in the indicative sugarcane rate to Rs60 per maund from last year’s Rs45 per maund,” they said.

Sindh and the NWFP are also expected to raise the support price for cane farmers to Rs70 per maund.

The PSMA officials maintained that the delay in the implementation of their proposals would push the next harvest beyond December because “no mill in Punjab or Sindh was in a position to start crushing in November with its huge unsold stocks”.

In answer to a question, the PSMA officials said the prime minister had asked Dr Salman Shah, adviser on finance, to hold a meeting with them.

“Although we have had a meeting with Dr Shah last month, but it was before we had sent the letter. In that meeting he had agreed to our proposal to create a buffer stock of unsold sugar imported by the TCP”.

However, we were still waiting for an invitation from him for a formal meeting for a decision on our proposals submitted in the letter to the prime minister, they said.