This Report contains proprietary and confidential information regarding to Bihar State Sugar Corporation Ltd (BSSC) or the Corporation).This has been prepared by SBI Capital Markets Ltd. (SBICAP) on the basis of information provided by the corporation, technical consultants, valuers, legal advisor and publicly available sources, to be used for the purpose of providing Advisory Services to the Corporation or Sugarcane Industries Department, Government of Bihar for exploring the possibility of revival of the closed sugar units of the Corporation..
This report is based on information made available by BSSC. No assurance can be provided that the assumptions or data upon which these recommendations have been based are accurate or whether this business plan will actually materialize.
Neither SBICAP, nor State Bank of India or any of its associates, nor any of their respective directors, employees or advisors make any expressed or implied representation or warranty and no responsibility or liability is accepted by any of them with respect to the accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, projections, or other information set forth in this Report or the underlying assumptions on which they are based .There is no assurance on the success of the assignment and it is solely based on the judgment of the investors and the current market conditions.
This Report is furnished strictly on confidential basis. Neither this Report, nor the information contained herein, may be reproduced or passed to any person or used for any purpose other than stated above. By accepting a copy of this Report, the recipient accepts the terms of this Notice, which forms an integral part of this Report. Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 2 TABLE OF CONTENTS SECTION I ..................................................................................................................................... 4 1. INTRODUCTION............................................................................................................ 5 2. BACKGROUND.............................................................................................................. 6 3. APPROACH AND METHODOLOGY ADOPTED.................................................. 10 SECTION II............................................................................................................................... 12 4. THE SUGAR INDUSTRY............................................................................................. 13 4.1 Nature of Industry and Current Trend ...................................................................... 13 4.2 Possible business models for a sugar company ........................................................ 14 4.3 Revival of Mandatory Ethanol-Blending Programme ............................................. 14 4.4 Status of sugarcane based industry in Bihar Vs. other states.................................. 15 4.4.1 Area under cultivation in State of Bihar ................................................................ 17 4.4.2 Annual production of sugar in State of Bihar ....................................................... 17 4.4.3 Yield of sugarcane production in State of Bihar ................................................... 18 4.4.4 Sugarcane crushed in State of Bihar ....................................................................... 19 4.4.5 Duration of crushing season in State of Bihar....................................................... 19 4.4.6 Recovery Rate in State of Bihar ............................................................................... 20 4.5 STUDY OF EXISTING SCENARIO IN STATE OF BIHAR..................................... 21 4.6 Conclusion...................................................................................................................... 23 5 SUGAR UNITS-LOCATIONAL MAP.............................................................................. 24 SECTION III ................................................................................................................................ 25 6 SCOPE OF WORK............................................................................................................... 26 7 APPROPRIATE TRANSFER MODEL.............................................................................. 31 7.1 Mode of Transfer ........................................................................................................... 31 7.2 Rationale of Leasing Model.......................................................................................... 32 7.3 Lease Period for Land................................................................................................... 32 8 VALUATION & FAIR VALUE ......................................................................................... 35 Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 3 8.1 Valuation ........................................................................................................................ 35 8.2 Fair Value........................................................................................................................ 35 9 SETTLEMENT PROCESS, SACRIFICE & UTILISATION OF THE PROCEEDS ....... 37 9.1 Settlement process......................................................................................................... 37 9.2 Sacrifices ......................................................................................................................... 37 9.3 Utilisation ....................................................................................................................... 40 10 LITIGATIONS AND SETTLEMENTS........................................................................ 42 10.1 Litigations................................................................................................................... 42 11 SUGGESTED PLAN OF ACTION.............................................................................. 44 12 TENDERING/BIDDING PROCESS........................................................................... 45 13 SELECTION CRITERIA................................................................................................ 46 14 TRANSFER PROCESS .................................................................................................. 49 15 SUGGESTIONS FOR ADDITIONAL INCENTIVES FOR INCLUSION IN SUGAR POLICY........................................................................................................................................ 51 16 RECOMMENDATIONS............................................................................................... 53 Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 4
Section I
G G G e e e n n n e e e r r r a a a l l l Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 5
1. Introduction Bihar State Sugar Corporation Ltd. (a Government of Bihar Undertaking) was incorporated in 1974 to manage, operate and control the loss making sugar and distillery units under the control of State Government. The Government of Bihar (GoB) under the Bihar Sugar Undertakings (Acquisition) Ordinance 1976 and Sugar Undertakings (Acquisition) Act 1985 acquired 15 sick Sugar Mills and 2 distilleries from private companies/owners between 1977-1985. The said takeover of the sick units was undertaken with an objective to revive them and make them operational and viable.
Most of the units could not sustain the mounting pressure of declining prices and increasing input costs and thereby the units started closing down one after another. The units thereafter could not be revived and all the units were closed by the crushing season 1996-97.
The machineries have not been refurbished since the closure. Due to the same, the conditions of the units are presently not satisfactory.
The Government of Bihar, constituted a high level committee under the chairmanship of Cane Development Commissioner in February 2006. The Committee was of the opinion that a financial advisor shall be appointed for valuation of the units and to suggest appropriate revival plan for the closed sugar units of BSSC.
Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 6 With a view to finalise the policy for making these units operational, GoB, finally invited bids for Advisory Services to suggest the Methodology and Approach for Revival/Restructuring/Sale/Lease of the closed sugar units of Bihar State Sugar Corporation Limited.
Accordingly, SBI Capital Markets Limited was appointed to advise the Government in adopting appropriate strategy subject to the approval of the State Government. SBICAP will also assist the Government in preparing the Bid Documents for inviting expression of interest, preparing Request for Qualification and Request for participation etc as is necessary to attract investor for revival/lease/sale of sugar units based on various parameters.
2. Background Incorporated in 1974 under the companies Act 1956, the Bihar State Sugar Corporation Limited (BSSC) was formed to acquire and manage sugar units of Government of Bihar. The units were facing problems in satisfying their cane growers dues, labour dues as also the statutory dues. Considering the same, the Government of Bihar under the Bihar Sugar Undertakings (Acquisition) Ordinance 1976 and Bihar Sugar Undertakings (Acquisition) Act 1985 acquired various units under the aforesaid provisions. Since then the units were managed under the BSSC.
The financial statement of BSSC was internally audited in FY 2001-02. The Balance Sheet as on March 31, 2002 is as under:
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Bihar State Sugar Corporation Ltd. 7
Rs. Crores PARTICULARS 2006 Rs. SOURCES OF FUND: SHAREHOLDERS FUND: Shareholders Fund H.O 20.00 Reserve & Surplus H.O 0.00 Unit 9.24 LOAN FUND Secured Loan H.O 0.00 Unit 8.42 Unsecured Loan H.O 692.57 Unit 13.30 TOTAL : Rs. 743.53 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block H.O 0.16 Unit 32.09 Less : Depreciation H.O 0.12 Unit 19.39 Net Block 12.74 Capital Work in Progress 1.19 Investments H.O 0.00 Unit 0.20 Current Asset , Loans & Advances Inventories H.O 0.00 Unit 13.13 Sundry Debtors H.O 0.00 Unit 1.61 Cash & Bank Balance H.O 0.23 Unit 1.47 Loans & Advances H.O 306.64 Unit 54.40 TOTAL : (A) 377.48 Less : Current Liabilities & Provisions H.O 3.28 Liabilities Unit 455.60 TOTAL : (B) 458.88 NET CURRENT ASSETS : (A-B) (81.40) Suspense Account (Head Office) 0.10 Suspense Account (Goraul Office) 0.08
Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 8 The details of the unsecured loans are as follows: Rs. Crores Particulars Amount Loan from Government of Bihar against Share capital 0.35 Loan from Government of Bihar 288.19 Interest accrued & due on above Loan 395.21 Penal interest accrued on Government Loan 8.79 Evolving fund for Cane Development 0.03 Total 692.57
BSSC is not operating and is functionally defunct. The liabilities of the corporation to Government of Bihar are in the form of unsecured loan. The details of the various units are as under:
Sl No Unit Name Name of the Previous Owner Date Of Establishment Capacity (tcd)
Acquisition by Government of Bihar Date of Closure 1. Samastipur Samastipur Sugar Central Sugar Limited 1920-21 808 1977 1997-98 2. Ryam Tirhut Co- operative Sugar Co. Limited 1914-15 925 1977 1994-95 3. Goraul Sheetal Sugar Works Limited 1932-33 800 1977 1994-95 4. Siwan S.K.G. Sugar Limited 1932-33 1000 1985 1993-94 5. Guraru Guraru Chini Mill Limited 1932-33 850 1979 1991-92 6. New Siwan New Siwan Sugar & Gur Refining Company 1918-19 935 1979 1991-92 7. Lohat Darbhanga Sugar Co. Limited 1914-15 1320 1977 1997-98 8. Bihta South Bihar Sugar Mills Limited 1932-33 1240 1977 1991-92 9. Sugauli Sugauli Sugar Works Limited 1933-34 900 1985 1997-98 10. Hathua S.K.G. Sugar Limited 1933-34 1728 1985 1997-98 11. Lauria S.K.G. Sugar Limited 1905-06 1626 1985 1997-98 12. Motipur Motipur Sugar Factory 1933-34 1219 1985 1997-98 Private &Confidential Viability Report
3. Approach and Methodology Adopted The approach and methodology adopted for executing the assignment has been detailed below: Diagnostic Study
On obtention of the above information a Revival Strategy has been adopted. The framework of the same is as follows: Unit Visit Collection of Preliminary information Unit Valuation-Assets Analysis of the existing liabilities Litigation Status against BSSC/units Land Title Deed SBICAP Team along with Sugarcane Industries Department To assess the status of the sugar units Sugarcane Industries Department To understand the details about the financial position of the respective sugar units. To assess the current value & remaining life of the assets. Through Chartered Engineers: K.S. Projects & Process Engineers Private Limited. To suggest measures of settlement/waiver of liabilities. Reports submitted by the SID. Through Land valuer
To assess the value of land . To understand the legal implications in case of reorganization of units amid existing pending cases. Through Legal Consultant.
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Bihar State Sugar Corporation Ltd. 11
Unitwise Analysis Viable Units Un-Viable Units Suggestions for unitwise strategy Proposal submitted to SID, GoB for approval/suggestions Approval from GoB along with suggestions/alterations and appropriate strategy Invitation for Bids (RFP-RFQ) Selection of Investor Preparation of Transfer Documents Handholding Support to SID for transfer of units to Investors Private &Confidential Viability Report
Bihar State Sugar Corporation Ltd. 12
Section II
U U U n n n i i i t t t
L L L o o o c c c a a a t t t i i i o o o n n n a a a l l l
M M M a a a p p p
A A A n n n d d d
S S S u u u g g g a a a r r r
I I I n n n d d d u u u s s s t t t r r r y y y
P P P r r r o o o f f f i i i l l l e e e
Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 4. The Sugar Industry
4.1 Nature of Industry and Current Trend Sugar is a cyclical Industry. The cycle is pictorially explained below:
At present the Indian Sugar Industry is passing through the phase of recession. Sugar production in India is expected to cross 27 mt in SY07 taking closing inventories (end September 07) to over 50% of the forward demand. Therefore, domestic prices are expected to remain subdued and it is expected that current levels of sugar price of Rs.13.5 per kg (UP) would be continuing in the near future as well.
Further, export market profitability remains muted because of low international prices and the rupee being strong export subsidy is unlikely to help the industry in a meaningful manner. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14
This brings us to the view that standalone sugar mills would always be vulnerable when the Industry go downward, as compared to integrated units.
4.2 Possible business models for a sugar company
1) Sugar Mollases Bagasse Model - Only sugar manufacturing & selling by- products without any value addition
2) Sugar Alcohol Bagasse Model Sugar manufacturing and molasses being again converted into alcohol & further to ethanol and bagasse is sold without any further value addition.
3) Sugar Molasses Power Model Sugar manufacturing and bagasse based co-generation, however, molasses is sold without any value addition.
4) Sugar alcohol power model This is the integrated and most widely preferred model wherein apart from the sugar manufacturing even the by- products are further processed to manufacture alcohol/ ethanol and generate power. An integrated model helps in protecting revenues and improving profitability during periods of downturn in core sugar business. For e.g. sugar prices fell sharply due to oversupply in the market but alcohol/ power sprices were relatively stable and contributed heavily to the profitability.
4.3 Revival of Mandatory Ethanol-Blending Programme
The policy has again got revived and a national programme to blend 5% ethanol with petrol has become effective from November 01, 2006. The programme has Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 been extended to the entire country except the states in North-east, J&K, Lakshadweep and Andaman and Nicobar islands. However, the programme has not been made mandatory and oil companies have been given freedom to protect their commercial interests at arriving at a viable ethanol pricing. It is estimated that by 2010-11, around 2500 mn ltr of alcohol/ ethanol will be required to meet the demand for blending and for industrial, potable and other purposes. In the event 10% blending becomes mandatory than around 3500 mn lts of alcohol/ ethanol will be required to satisfy the demand. In the event, even if the entire molasses produced is processed into alcohol, the quantity of molasses required to meet the projected demand will be 11.3 mn tones and 15.5 mn tones at 5% and 10% blending respectively .
4.4 Status of sugarcane based industry in Bihar Vs. other states
In 1930s, State of Bihar contributed around 30% of the total sugar production of country which has now come down to 2% [Chart given below]. In 1930s 35 sugar mills existed as against 28 in 1980s and 9 in 2006. Sugar mills are mostly concentrated in two districts viz. West Champaran and Gopalganj.
STATEMENT SHOWI NG NET BI HAR SUGAR PRODUCTI ON % TO ALL I NDI A PRODUCTI ON ( 5 YERS AVERAGE) FROM 1931- 36 TO 2001- 06 31.74 25.21 2.02 2.07 2.76 3.40 3.73 4.21 4.89 7.79 10.77 14.13 16.37 18.67 18.41 0 5 10 15 20 25 30 35 1931- 36 1936- 41 1941- 46 1946- 51 1951- 56 1956- 61 1961- 66 1966- 71 1971- 76 1976- 81 1981- 86 1986- 91 1991- 96 1996- 01 2001- 06
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SBI Capital Markets Ltd. 16
The downfall of the sugar industry in the state of Bihar was mainly due to non- availability of sufficient quantity of sugarcane on account of lack of infra- structure such as main and village link, lack of irrigation facilities, non- availability of power, water logging in the absence of drainage etc. and non- availability of good sugarcane varieties on a regular basis.
In Bihar the intensity of cane is not as high as compared to several sugarcane producing regions in North India and the main reason for the same is that out of the total cultivable area a sizeable portion is low-lying area which is not suitable for cultivation of sugarcane in the absence of drainage facilities. The productivity of sugarcane i.e. yield is 41.4 tonne per hectare in Bihar is much lower than the national average of 59.4 tonne per hectare (Source- Co-operative Sugar, Nov.,06).
Among other major sugar producing states, sugar factories of Uttar Pradesh are facing Cane War since new factories have been allowed to be established in close proximity to existing sugar factories. In Tamil Nadu, the sugar factories normally bring sugarcane from distance ranging from 50 to 60 kms and in some cases even from distances upto 100 kms. In Maharashtra, the main cause for sickness in the sugar sector is the establishment of sugar factories in the close proximity of each other resulting in lack of availability of sufficient quantity of sugarcane to each factory.
An effort has been made to map the status of sugarcane based industry in State of Bihar vis--vis various others Indian states based on the various parameters to understand the hidden and upside potential of sugarcane based industry in Bihar. It may be mentioned that the data down below in the tables is upto 2004- 05 during which period it was draught in the state of Maharashtra and Karnataka and a slight distortions and the decline in performance and Private &Confidential Viability Report
SBI Capital Markets Ltd. 17 parameters has been seen in respect of these two states which may be considered as temporary.
4.4.1 Area under cultivation in State of Bihar
The area under sugarcane cultivation in Bihar as compared to states which are not much larger in size is very small and thus there is a great potential for enlargement of the sugarcane growing area. This should be considered in the perspective of the fact that Bihar has very fertile land and also has some perennial rivers flowing through it there is very heavy rainfall in the state. All this further underscores the potential of Bihar to emerge as a major sugarcane growing state.
Table 1: State wise area under cultivation (in '000 hectares) Year 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05P State Maharashtra 460 530 590 595 578 573 443 324 Uttar Pradesh 1985 1975 2011 1938 2035 2149 2030 1955 Karnataka 310 339 373 417 407 383 243 178 Tamil Nadu 283 306 316 315 231 261 192 232 Bihar 108 107 97 94 113 107 104 104
4.4.2 Annual production of sugar in State of Bihar
The annual sugar production in the state is also very low when compared to other states. This is mainly due to the very small area under sugarcane cultivation but also due to less scientific way in which sugarcane is grown in Bihar. This can be significantly improved by bringing in more area under Private &Confidential Viability Report
SBI Capital Markets Ltd. 18 sugarcane cultivation and cultivating high yielding varieties of sugarcane in the state. Table 2: State wise annual production (in 000 tonnes) Year 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05P State Maharashtra 38174 47151 53143 49589 45140 42167 25668 20475 Uttar Pradesh 129267 116483 115419 106068 117982 120948 112754 118715 Karnataka 28332 34771 37567 42924 33017 32485 16015 14276 Tamil Nadu 30183 33765 34285 33188 32620 24165 17656 23396 Bihar 4960 5101 4089 3988 5211 4521 4286 4112
4.4.3 Yield of sugarcane production in State of Bihar
The yield per hectare is much below that of other sugar producing states, highlighting the fact that cultivation is not done in a very scientific manner and that hybrid high yielding varieties that are currently in cultivation in other states are most probably not grown in the state. However, this indicates that there is scope for great improvement.
4.4.5 Duration of crushing season in State of Bihar The sugarcane growing season is also of a smaller duration than other sugarcane growing states which means that the sugar mills would remain in operation only during a small part of the year. This in turn reduces the viability of standalone sugar mills and emphasizes the importance of both increasing the duration of the crushing season and establishing integrated mills that can remain profitable during the time of the year when crushing is not possible.
4.4.6 Recovery Rate in State of Bihar When we take a look at the sugar recovery rate in Bihar we find that it is not very bad compared to the other states, which means that a sugar industry in Bihar is operating at almost comparable efficiency as the other states. The state thus has the potential of becoming a major sugarcane producer and thus can generate revenues for the state and direct - indirect local employment for thousands of people once the sugarcane based industry is revived. But then as mentioned in the other paragraphs, concrete steps have to be taken to grow adequate quantity of good quality of sugarcane so that any new unit set up does not suffer from supply constraints.
It may be concluded from the above six tables that there is lot remains to be done with respect to sugarcane based industry in State of Bihar. It is evident from the above that the efficiency in terms of yield etc can be improved drastically with a well thought strategies and programme. The chart below shows the 5 years average recovery in State of Bihar vis--vis all India recovery since 1931.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 21 8.74 8.86 9.40 9.44 10.60 10.06 10.22 9.93 10.08 9.88 9.54 9.85 9.38 9.86 9.50 9.70 8.89 9.81 9.11 9.84 9.07 9.96 9.08 9.93 9.09 10.02 9.11 10.08 9.23 10.25 8.00 8.50 9.00 9.50 10.00 10.50 11.00 1931- 36 1936- 41 1941- 46 1946- 51 1951- 56 1956- 61 1961- 66 1966- 71 1971- 76 1976- 81 1981- 86 1986- 91 1991- 96 1996- 01 2001- 06 STATEMENT SHOWING SEASON-WISE (5 YEARS AVERAGE) BIHAR AND ALL INDIA RECOVERY FROM 1931-36 TO 2001-06 BI HAR RECOVERY% ALL I NDI A RECOVERY%
4.5 STUDY OF EXISTING SCENARIO IN STATE OF BIHAR
a) Number of units in operations Year No. of sugar mills Crushing capacity (tonnes) 1980 28 34000 2006 9 34450
It is evident from the table above that the crushing capacities have remained the same mainly due to the fact that most of the units have closed and the existing units have increased their capacities. The mills who have ploughed back their profits in ramping up the capacities have survived and rest others have closed.
Going forward, ramping up of capacities backed by the adequate availability of sugarcane for feeding mills and achieving economies of scale would be important consideration in reviving the sick sugar mills.
c) Distance Criteria
The Central Government vide its recent notification has specified that no sugar factory shall be set up within the range of 15 kms of an existing sugar factory or another new sugar factory, provided that the State Government may with prior approval of the Central Government, notify such minimum distance higher than 15 kms in their respective States.
The above distance criteria of 15 kms in the case of sugar factories in Bihar may considered to be highly inadequate, in view of both low intensity of sugarcane and low productivity of sugarcane due to reasons mentioned above. As a result the sugar factories have historically faced the chronic problem of lack of availability of adequate quantity of cane commensurate with their crushing capacity resulting in large scale sickness in the industry due to which out of Private &Confidential Viability Report
SBI Capital Markets Ltd. 23 twenty eight factories in 1980, nineteen factories have closed down and only nine factories in the private sector are presently working.
In this connection it may be mentioned that Tuteja Committee (set up by the Food Ministry under the Chairmanship of Shri S.K. Tuteja secretary, Department of Food and Public Distribution in March, 2004 for suggesting measures for revitalization of sugar industry) has also recommended a minimum radial distance of 25 km between two sugar factories, based on the availability of sugarcane for a 5000 TCD plant. 4.6 Conclusion To attain the long term sustainability / viability of sugar mills, the focus should be to create the large capacities integrated sugar complexes. Further it needs to be ensured that the mills getting revived under this package could eventually expand their capacities to 10000 tcpd each. It is therefore essential, in the larger interest of these mills (getting revived), to identify the command area which could eventually cater to above capacities of sugar mills.
Accordingly, GoB should adopt the policy of long term reservation of cane areas. Once the units are confident that the given area would remain with them on a permanent basis, they can undertake intensive cane development work which would help in improving the productivity of sugarcane, which will ultimately benefit the sugarcane farmers and the mills. Private &Confidential Viability Report
SBI Capital Markets Ltd. 24
5 Sugar Units-Locational Map
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SBI Capital Markets Ltd. 25
Section III
R R R E E E V V V I I I V V V A A A L L L
P P P L L L A A A N N N
Private &Confidential Viability Report
SBI Capital Markets Ltd. 26 6 Scope of Work As per the work order awarded by Government of Bihar (GoB), a diagnostic study on as is where is basis, which inter alia included valuation of assets, analysis for future viability based on operational and financial parameters, and suggestions for revival plans. Accordingly, technical consultants & valuers were appointed to value the assets and analyse the units health on as is where is basis. Further, financial analysis of the units has been done by SBICAP based on the internal audit report of the units provided. The viability and unviability of the operations have been discussed in detail in the unitwise report, however, summary of the same is given below:
Unitwise Summary Plan S. No. Unit Name Remarks 1 Banmankhi Can be expanded to 2500 TCPD + 60 KLPD distillery + 12 MW Co-Gen plant with an additional investment of Rs. 164 crore approximately. However, it is felt that since there is no sugar mill in the close vicinity, therefore cane growing area suitably be allocated to take care of the future expansions.
The unit also has a farm land area of 55 acres which may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
There is no sugar unit in the vicinity and therefore it is proposed that GoB shall allocated a can growing area based on the proposed investment plans of the potential investor which may even be sufficient to cater to the integrated sugar complex with a capacity of 10000 TCPD. 2 Bihta The unit is located about 35 kms from Patna. The plant was installed in 1938 and condition of the plant is dilapidated. No substantial expansion is possible since Private &Confidential Viability Report
SBI Capital Markets Ltd. 27 land area including colony is only 24 acres only, which is located in the town area. The unit may be used for other industrial/ commercial purposes.
A Greenfield plant may be considered in the farm land (located at Jinneswargarh) based on the availability of sugarcane in the area. 3 Goraul A juice based distillery of 90 klpd can be planned taking into account the milling capacity of the existing plant for which a boiler, TG and a distillery will have to be installed. The estimated cost of the project would be around Rs. 140 crore. The unit also has a farm land area of around 6.83 acres which may also be given alongwith the transfer of unit.
The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
4 Guraru The plant is very old and of small capacity. It is also in poor condition and cannot be expanded in a small area and can be explored for alternative commercial / industrial uses. 5 Hathua & Hathua Distillery Located in Gopalganj district, where three private sugar mills are operating with a total capacity of 9700 TCPD. The unit may be expanded to 2500 TCPD alongwith 12 MW Co-gen plant. Hathua distillery of 60 KLPD may be used for production of alcohol/ ethanol out of the juice produced from Hathua unit. The estimated cost of the unit would be Rs. 164 crore approximately. The attachment of Hathua distillery with Hathua sugar unit will improve the viability and thereby investors interest.
The unit also has a farm land area of around 10 acres which may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
As indicated above, GoB can allocate the maximum Private &Confidential Viability Report
SBI Capital Markets Ltd. 28 possible cane growing area to this unit taking into account the requirement of existing units and their expansion plans, if any. 6 Lauria & Lauriya Distillery Located in West Champaran district, where four private sugar mills are operating with a total capacity of 21000 TCPD. The unit may be expanded to 1500- 2000 TCPD to cater to juice based distillery of 90 KLPD. The estimated cost for refurbishment of the sugar unit would be around Rs.140 crore approximately.
Lauriya distillery of 60 KLPD may be used for production of alcohol/ ethanol out of the juice produced from the Sugar unit initially. The other 30 KLPD old distillery has become technically obsolete and therefore may be scraped.
The attachment of Lauriya distillery with Lauriya sugar unit will improve the viability and thereby investors interest.
The unit also has a farm land and outcentre land area of around 164 acres which may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
As indicated above, GoB can allocate the maximum possible cane growing area to this unit taking into account the requirement of existing units and their expansion plans, if any. 7 Lohat There are two more sick units Sakri & Ryam which are located adjacent to the Lohat unit. Sakri is located at a distance of 15 km and Ryam is approximately 20 km from the unit.
Can be expanded immediately to 2500 TCPD + 60 KLPD distillery + 12 MW co-gen plant with an additional investment of Rs.164 crore approximately.
Lohat has a factory & colony land area of around 95 acres which augers well for future expansion. Given the potential of Lohat, it is proposed that Sakri may not Private &Confidential Viability Report
SBI Capital Markets Ltd. 29 be revived for sugarcane based industry, which is aunit in the vicinity.
Therefore cane growing area be suitably allocated to take care of the future expansions of capacity of the mill.
The unit also has a farm land area of 115 acres which may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
8 Motipur Can be expanded immediately to 2500 TCPD + 60 KLPD distillery + 12 MW co-generation plant with an additional investment of Rs. 164 crore approximately.
Motipur has a factory & colony land area of around 66 acres which augers well for future expansion and accordingly cane growing area be suitably allocated.
The unit also has a farm land area of 1297 acres out of which 300 acres may be given along with the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
9 New Siwan The unit is inside the town of New Siwan. Transport of cane through the township is difficult. The unit can be used for other commercial / industrial purposes. 10 Ryam Ryam has a land area of around 26 acre which is very small and possibility of reviving may be difficult since Lohat unit, having better potential for revival is in close proximity. The unit can be used for other commercial / industrial purposes. However if there is no potential bidder for Lohat, Ryam may be looked for revival. 11 Sakri The unit is inside the town of Sakri and is near to Lohat (which has a bigger potential of revival). Thus while Lohat may be revived, Sakri may not be used as Sugar unit. The unit can be used for other commercial / Private &Confidential Viability Report
SBI Capital Markets Ltd. 30 industrial purposes. 12 Samastipur The unit is inside the town of Samastipur. Transport of cane through the township is difficult. The unit can be used for other commercial / industrial purposes. 13 Siwan The unit is inside the town of Siwan. Transport of cane through the township is difficult. The unit can be used for other commercial / industrial purposes. 14 Suguali Located in East Champaran district with a land area of 82 acres and farm land area of around 319 acres. Can be expanded immediately to 1500 TCPD + 90 KLPD distillery + 7 MW co-generation plant with an additional investment of Rs. 140 crore approximately.
Suitable cane growing area be allocated to take care of the units requirement.
The farm land of 200 acres out of 319 acres may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
15 Warisaliganj Can be expanded immediately to 1500 TCPD + 90 KLPD distillery + 7 MW co-generation plant with an additional investment of Rs. 140 crore approximately. The unit also has a farm land area of 36 acres which may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land. Note :
1) The above estimated cost has been worked out considering the usable plant & machinery of the respective unit. The actual investment may differ from the suggested investment based on the capacities ad configuration of machinery, as per the plan of the new investor. Thus the costs are only indicative in nature.
2) It is proposed that Farm Land which is not given to the Investor along with the unit may be used by the Government for some other industrial or agricultural purpose. Alternatively the GoB may decide to allocate the entire farm Land and outcentre Land to the investor along with the units which have been proposed viable for sugarcane based industry. Private &Confidential Viability Report
SBI Capital Markets Ltd. 31 7 Appropriate Transfer Model
7.1 Mode of Transfer The Government had acquired the units to protect the labor and cane growers from hardship, which they were facing due to units not doing well during those times. The acquisition was primarily oriented at ensuring continued production of sugar and other goods, safeguard the interest of the sugarcane farmers and laborers engaged therein. Therefore, any transfer model shall primarily ensure the well being of cane growers as also the labours. The various transfer models has been discussed hereunder:
The units can be transferred to the successful bidder in three possible ways.
i. Outright Sale of the Unit The first option of outright Sale of the unit may invite litigation as the purpose of the Government at the time of acquisition was revival of the units and thereby outright sale of the units to private owners may lead to difficulty in transfer.
ii. Public Private Partnership (PPP) While Public private partnership has been successful in infrastructure sector, in manufacturing sector, the investors generally like to run the unit free from any possible external interferences. Secondly, accepting the shareholding by carving out a unit under PPP model would also tantamount to sale (equity holding of BSSC in JV Company being consideration for land, building and Plant & machinery) and may lead to legal hurdles. In addition to the above, conversion for the value assets into equity may not bring direct cash flow which would be required for settlement of some of the liabilities.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 32 iii. Long Term Lease of the Unit In case of opting for long term lease the ultimate ownership of the Land remains with the BSSC/Government. Again the investors may also benefit for having access to land with adequate infrastructure for sugar mill/ industrial production. The Government has right and option to renew the Lease after the Lease period. In view of the above, it is proposed to adopt the Lease Model for successfully transferring the assets for smooth revival of the units.
7.2 Rationale of Leasing Model a) GoB will be the actual owner of the land, and its only the right of use is being transferred to the investor on lease basis. b) In an event when the Investors have not been able to implement the project in specified time then the GoB would reserve the right to take back the unit after providing adequate time and paying adequate compensation. c) The lease model would avoid the possible litigations as indicated above. d) The Lease model shall be adopted for sugarcane based industries in case of revival or else the Land would be leased out for commercial or industrial activity.
7.3 Lease Period for Land A lease period of 60 years (further renewable for 30 years) is being proposed for the consideration of GoB. The above lease period is being proposed because of the following reasons:
a) It has become generally accepted norm of offering lease of land on Long Term basis to provide continuity. Private &Confidential Viability Report
SBI Capital Markets Ltd. 33 b) Long term lease provides a comfort to the lenders community for purpose of creating mortgages.
c) Investment in manufacturing sector is generally made with a long term horizon. Once substantial investment has been made, the investors needs longer period to get adequate return on the investment. If the lease period is short, long term investment may not be viable for the investor. Thus a long term lease may be more attractive to the investor for considering substantial investment in the unit.
d) Discussions were carried out with the prospective investors who had earlier shown interest in investing in sugar sector in the state, and they were comfortable only on outright sale basis, and thus it is felt that any lesser period of Lease may not attract potential bidders for Long Term investment in the state.
It may be mentioned that farm land attached to the unit have not been offered in the bid process management. In order to enhance the attractiveness of the bid process, it may be recommended to allot a portion of farm land preferably as suggested in the table below to the potential investors in sugarcane based industry only the prices for which has not been considered in the fair value. The farm land would be allotted on lease basis for the similar period of 60 years and would be utilized only for the sugar industry. The balance farm land may be utilized by Government of Bihar for other agricultural/ industrial/ commercial purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 34
The details of the available land as provided by the GoB are as follows:
8.1 Valuation The valuation of a unit is normally done on running concern basis or fair value of the assets. All the units of BSSC are inoperative and therefore the basis of valuation have broadly been fair value of the assets. Valuation of both land and plant & machinery have been done by the independent valuers and the land valuation has been done based on both market and government rates while the valuation of plant & machinery have been done based on the usable and scrap value of equipment.
a) Land : Land have been valued at both market rates as also based on the government rates. Generally, it has been observed that value as per market rate have been more than that as per government rate and that the aggregate market value for all the 17 units is more than the aggregate government value.
b) Plant & Machinery: An effort has been made to segregate plant & machinery into usable and scrap items and accordingly have been valued by the independent Chartered Engineer. The valuation report has been provided in the unitwise reports.
8.2 Fair Value Sugar industry in India is facing a downturn cycle due to steep fall in prices of sugar. Further in Bihar, the cane growers have shifted to alternate crops and although are keen to see the revival of these units to cash on this cash crop viz. sugarcane, but at the same time are jittery as the units have remained closed for long. From the point of view of investors, they would need to create the complete Private &Confidential Viability Report
SBI Capital Markets Ltd. 36 infrastructure for running the sugar mill successfully, which would include right from starting of development of sugarcane cultivation to ensure the availability of sugarcane required for the mill.
In light of the above backdrop, it is felt that attracting the investor in the current industry scenario would be difficult unless some attractive pricing structure is framed for luring the investments in the State so that the deal becomes attractive for the prospective investors.
The basis of arriving at Fair Value that may be considered during Bid evaluation process has been separately discussed and suggested. Private &Confidential Viability Report
SBI Capital Markets Ltd. 37 9 Settlement Process, Sacrifice & Utilisation of the Proceeds
9.1 Settlement process The settlement process is based on the fact that the new investors would be interested only if the units are handed over to him free from all encumbrances and liabilities settled before the units are actually handed over. The annual reports of the units (internal audit) have been analysed and it has been observed that all possible liabilities as prevalent in any closed unit are there. However, for the purpose of settlement of liabilities of these units, we have considered labour and secured liabilities (bank dues) as the basic liabilities which are expected to be settled out of the bid proceeds. Apart from the labour and secured liabilities (bank dues) all other liabilities would either be waived or settled by GoB. Further, government would indemnify the potential investor of all such liabilities which may accrue in future as a result of takeover.
It may be mentioned that while the Land has been proposed to be offered on Long term Lease, the ownership for Plant and Machinery including scrap is to transferred to the Investors who would have right to sale or use the same as per their convenience.
9.2 Sacrifices As indicated above, not all the liabilities can be met out of proceeds and therefore certain liabilities have to be waived or met by GoB. The liabilities which have been identified and is expected to come up in course of revival is given in the table below. Besides certain other unidentified liabilities may also arise because of certain court decrees or other reasons, which would also need to be settled by GoB.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 38 The liabilities which are to be settled and the mode of settlement /sacrifice are as follows: SL. No. Nature of Liability Settlement Process Reasons/Remarks Possible Problems 1. Labour Dues
To be settled out of the bid realization proceeds The claims of labour including settlement claims need to be satisfied before transferring the units to the investors for smooth transition of the revival package. In case shortfall from the proceeds, the full settlement may not take place and thereafter, GoB has to settle the liabilities. 2. Payment arising due to Court Order May be settled out of the remaining surplus (Proceeds-1) The amount is contingent upon award of any compensation to any aggrieved party by Court of Law and therefore the amount cannot be estimated currently. In case the amount cannot be paid out of the surplus, the same has to be settled by GoB. 3. Secured Loans To be settled out of the remaining (Proceeds -1-2) The secured loans are generally from Banks/SDF/Co- Operative Banks who have charge on the assets of the unit. In case of shortfall, the Government has to settle the liability. 4. Cane Growers Settled/in the process of As per the information provided to us, the No difficulty envisaged Private &Confidential Viability Report
SBI Capital Markets Ltd. 39 Dues settlement by GoB same has been settled by GoB. 5. Unsecured Loans To be waived off The unsecured loans are by GoB and may be waived off since the proceeds would not be able to service the same. No difficulty envisaged 6. Other Liabilities (State Government) To be waived off Any amount due to the GoB may required to be waived off, since sufficient inflow from the investor towards settling the same may not be available. No difficulty envisaged 7. Other Liabilities To be settled by GoB If any other liability exists or accrues in the process of bidding, the same is suggested to be taken care of by GoB. There might be legal issues involved during the bidding process from any aggrieved party. The same has to be managed appropriately by GoB. 8 Excise dues Hathua Distillery To be waived off by GoB Hathua & Lauriya distillery have been attached to the Liabilities needs to be waived by GoB as excise on Private &Confidential Viability Report
SBI Capital Markets Ltd. 40 Rs.64.72 crore and Lauriya Dstillery Rs. 42 crore respective units in the bidding process and therefore settlement of excise liabilities is important without which Hathua and Lauriya units could not be put on bidding process. distillary is a state subject.
9.3 Utilisation Once the bid price is decided (of the possible alternatives provided separately) by the appropriate authority, the same may be considered as the Reserve Price for the unit in the Bid documents.
However the proceeds from the above may not be able to satisfy the entire liabilities of the units and it is proposed that the proceeds may be utilized for the following priority payments:
a. Settlement of Labor Liabilities including compulsory retirement. b. Settlement of Bank/SDF dues to the extent of principal amount only. c. Settlement of dues for any claim for which Court may/has ordered for payment of any specific amount or guided any method of calculation for payment of such amount.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 41 However, in an event where the proceeds from the bidding is lower than the above claims, the Government has to make necessary arrangement for settlement of the above dues. The liabilities shall not be transferred to the asset transferee. Private &Confidential Viability Report
SBI Capital Markets Ltd. 42
10 Litigations and Settlements
10.1 Litigations
An effort was made by the Legal Counsel to identify the legal cases pending against Bihar State Sugar Corporation/ GoB with respect of the above units, which have been mentioned in the reports of individual units. Apart from those there are certain other major legal cases, which has the propensity to adversely affect the entire revival process. The legal opinion on these cases is detailed as under:
i. Settlement of Labour Issues As per section 11(2) of Bihar Sugar Undertakings Acquisition Act, 1985 all persons who were workmen within the meaning of Industrial Disputes Act, 1947 engaged under the scheduled undertakings on or before 29.10.1978 became employee of the State Sugar Corporation and there services legally deemed to be continued without any break.
It may be worthwhile to mention that any investor would be interested to invest only if the units are offered to him free from all encumbrances, litigations as also the liabilities (including labour liabilities).
The units of BSSC (excluding the two distilleries) employs 1574 labours/ staffs/ officers as on February 2007. The unitwise labour liabilities both in terms of arrears as also the settlement (based on 15 days for each completed year of service and 45 days for the remaining service period) has been provided by the officials of the respective units. It may be mentioned that the settlement terms Private &Confidential Viability Report
SBI Capital Markets Ltd. 43 was based as per the provisions of Section 25F of the Industrial Disputes Act, 1947.
ii. Settlement of Pending Suits It has been observed that majority of the pending legal cases are from aggrieved labors for payment of their dues. The same would be settled once the proceeds from the bids are allocated towards settling their dues. As per the legal opinion the above type of issues would not be affecting the transfer process. The unit wise litigation cases has been separately discussed in the unitwise reports and more specifically provided in the report submitted by the Legal Counsel and provided hereto. Besides certain erstwhile owners have also filed suit against the GoB.
iii) Excise Matter Excise on distillery is a state subject payable to the department of excise, GoB and therefore the GoB can very well fix a moratorium, waive or otherwise deal with these dues. Private &Confidential Viability Report
SBI Capital Markets Ltd. 44
11 Suggested Plan of Action a) The model suggested in this report is required to be approved by appropriate authority of GoB, with/without suggestions/ modifications. Thereafter, permission from the High Court is required to be taken since Liquidation petition is pending before the Honorable Court. b) Legal opinion regarding Winding up Petition Already Filed: Since no winding up order is yet been passed and no Official Liquidator is appointed, it is within the powers of the corporation to file application for closure and / or negotiate the matter with the concerned parties. But once winding up order is passed and Official Liquidator is appointed then nothing can be done unless consented and permitted by the Company Judge. However as the Honbe Company Judge is in the seisin of the matter, the Court should be apprised about all the steps including unit wise bidding and order be obtained so that the winding up petition remain pending in the court
Private &Confidential Viability Report
SBI Capital Markets Ltd. 45 12 Tendering/Bidding Process Once the plan is approved by Honorable High Court, bids shall be invited from various parties for Long Term Lease of the units. The investors shall have the right to utilise/sell the existing plant and machineries to their satisfaction. The investor would not have right to sell the land. The investor would however be allowed to mortgage the land and other assets to its lenders for arranging debt for the unit. The Tendering Process shall be as follows:
a. An advertisement will be issued by GoB in major dailies with regard to the proposed Revival package and asking the potential bidders for about the package and units being offered. b. The Bid documents shall also be uploaded on Government of Bihar website. c. The bidders shall be given a time period of 30 days for submission of the Bid. d. The Bid selection criteria shall be described in the Bid documents. e. The successful Bidder has to submit a Bank Guarantee for the balance bid proceeds at the time of execution of transfer agreements.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 46 13 Selection Criteria
The Bidding shall be carried out in two separate parameters i. Technical Bid ii. Financial Bid The eligibility of the technical part shall be the first stage of selection. The basis of selection of Technical Bid has been enumerated in the table below. SL No. Criteria Legend Weightage (%) 1. Group turnover <25 Crore-0 Rs. 25-100 Crore-5 >Rs.100 Crores-10 20% 2. PBT of the Group <1 Crore-0 Rs. 1-10 Crore-5 >Rs. 10 Crores-10 15% 3. Net worth of the Group <50 Crore-0 Rs.50-100 Crore-5 >Rs.100 Crores-10 20% 4. Proposed Total Investment # <Rs25 Crores-0 Rs.25-50 Crores-2.5 Rs. 50-100 Crores-5 Rs.100-150 Crores-7.5 >Rs. 150 Crores-10 20% 5. Management Capability Experience in Sugar Manufacturing=> 3 Years-10 Experience in other Manufacturing Sector=>5 years-10 Business experience in Other 15% Private &Confidential Viability Report
SBI Capital Markets Ltd. 47 than manufacturing Sector >10 Years -10 None-0 6. Proposal for setting up sugar unit in Bihar already approved by GoB Yes 10 No 0 10% # Performance guarantee of 5% of the investment amount as indicated in the bid documents to be furnished at the time of execution of transfer agreements. The guarantee will be released once the 80% of the investment proposed is made and the unit becomes operational.
The Minimum selection Criteria value shall be 3.75 based on the selection criteria above. However in case the same is not met by sufficient number of bidders, the minimum selection base may be further relaxed after analyzing the quality of the bids received.
Once the Bidder is selected on the above criteria, the H1 Bidder shall be selected based on the Highest Bid Value. The names of H2 and H3 Bidders shall also be announced and in case of non-performance of the obligations of H1 bidder for payment of fees, the units would be offered to the next highest bidder. However, in case there is a tie in the financial bids then bidder with highest score in technical evaluation will be declared as the winner.
The Bidders shall also have to submit Earnest Money Deposit of Rs.10 lakh with their bids. The EMD of the unsuccessful Bidders shall be released after the announcement of the H1, H2 and H3 Bidders. The EMD of H2 and H3 would be released after part payment by H1 in a specified time. In case H1 has failed the payment of the Bid value, the unit would be automatically allotted to H2 at a Private &Confidential Viability Report
SBI Capital Markets Ltd. 48 price of H1 and EMD of H1 shall be forfeited. Similarly H3 will be considered in case H2 fails under the bid process management.
The successful bidder would have to arrange for Bank guarantee for the unpaid bid amount, before the documentation of the handing over of units. The signing of lease/transfer documents would complete the process.
However in case of failure on payment by all the three Bidders above, GoB may take appropriate decision.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 49 14 Transfer Process The transfer of units to be done through the following process: a. The Bihar State Sugar Corporation/GoB shall enter into a Lease Agreement of the unit with the Investor for a period of 60 Years to be renewed further for 30 years. b. The Lease Deed shall provide for Government consent for subleasing the Land. However the initial lock in period shall be 20 years before which the Land cannot be transferred to any other party other than to the GoB. c. Lease deed shall provide mortgageable rights. d. The Investor shall make the payment of the Bid amount as per follows: Sl No. Stage % Payment Payment Time Line 1. At the time of award of selection 10% of the Bid Value Payment to be made within one month from the date of such award 2. At the time of Signing of the Transfer Agreement 40% of the Bid Value Payment to be made on the day of signing the Transfer Documents 3. After 1 year from the signing of the Transfer Agreements 25% of the Bid Value To be made on the 13 th
month of the signing of the Transfer Agreements 4. After 2 years from signing of the Transfer Agreements 25% of the Bid Value To be made in the 24 th
month of the signing of the Transfer Agreement
The investor shall be required to submit a Bank Guarantee to the extent of balance amount of the Bid value to GoB (i.e. 50%) at the time of signing of Transfer Agreement. The BG shall be released proportionately at the time of payment of the balance Bid amount as per the above schedule. Private &Confidential Viability Report
SBI Capital Markets Ltd. 50
e. The Labour liabilities for each unit shall be settled by the proceeds from the Bid amount. The payment may be structured in a phased manner based on the receipt of the proceeds. However an agreement to this effect has to be entered with the Labour Unions by the GoB whereby the Government has to undertake the payment as per a specified schedule. f. Depending on the success of Bids, the units for which investors are not interested may be suitably used for some other commercial / industrial purposes. g. GoB may decide on identifying a nodal agency for assisting the units, collection of lease premium and appropriating the same towards payment of the liabilities. h. The Government may consider to dispose of the assets of the units for which no interest is being received from investors and may Lease the Land for alternate commercial/ industrial / any other purposes. i. GoB shall indemnify the potential investor for losses incurred in the event of transfer process not being successful even after the investor meeting his obligations in entirety. Further, GoB shall indemnify any unidentified liabilities / events which may tend to disrupt the implementation/ operations of the unit. j. GoB shall transfer the unit free from all encumberances to the successful bidder within 3 months from the date of award of the unit and the initial payment received by GoB, failing which GoB will have to pay an interest of 15% p.a. for next 3 months on the amounts received from the investor. If GoB fails to handover the unit in the above six months then either with mutual agreement the time frame for handing over the land can be extended or GoB shall refund the amount alongwith interest to the investor.
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SBI Capital Markets Ltd. 51
15 Suggestions for additional incentives for inclusion in Sugar Policy Sugar industry has been a politically sensitive industry and governmental intervention is frequent to control on the supply as well as the prices of sugar. It is evident that sugar industry in Bihar is lagging both in sugarcane cultivation as also the yield because of which there has not been any substantial investment in the recent past. Further, governmental support to promote the sugar industry in the state was also not very visible so far. As a result, canegrowers have shifted to alternate crop making the things more difficult for the government. It is therefore advised to formulate a comprehensive sugarcane policy to exploit the sugarcane growing potential of the state as also to promote the industrial development in the state. The revival of closed sugar mills is a step in the right direction. However, these units are closed for more than a decade and a substantial support /concessions would need to be granted to these units to see the effective revival of the units. It is therefore suggested that the following measures may be considered by GoB for an overall inclusive growth and attract Investors in the state on the continuous basis :
i. Decontrol of Molasses: Considering a downturn in Sugar Industry, the investors shall be considering economically viable alternatives for sustainable growth. The control on sale of molasses might act as a hinderance to the independent sugar producing units. The Government may approve decontrol of molasses produced by sugar mills. Further free sale of molasses produced in the state to any other state should be allowed. The Alcohol manufactured in the state should also be permitted to be exported outside the state. ii. Decontrol of Bagasse Disposal: The Baggase Disposal Policy may be suitably framed to allow the companies to sale the Bagasse Private &Confidential Viability Report
SBI Capital Markets Ltd. 52 interstate/intrastate without any control. Again the same should also be free from any trade tax. iii. Capital Subsidy: Presently the Government is providing 10% subsidy on plant and Machinery subject to a maximum of Rs. 10.00 crores. To attract bigger investment the maximum ceiling should be removed and the subsidy may be 10% of the Plant and Machinery. iv. For captive power plant/cogen, the current capital incentive is to the extent of 10% which may be increased to 50% as per the present industrial policy. v. The State Electricity Board has to enter into a firm PPA with Co- generation owners for excess sale. The payment mechanism may be guaranteed by the Government of Bihar for generating interest and better security mechanism i.e. By way of revolving Letter of Credits which is generally followed by most of the states. vi. Permission should be granted to sugar mills to manufacture alcohol/ethanol from cane juice directly at the choice of manufacturer. vii. The government may formulate proper policy for enhancing irrigation support to the farmers by providing subsidies and equipment. viii. It is highly recommended that the Government should provide commitment to the investors by allocating an area of minimum 30 km of radius directly to the new sugar unit and restriction on setting of any other new unit in the designated area. The same is required to be announced in the Bid document and at the time of tender process to elicit interest from the investors. Private &Confidential Viability Report
SBI Capital Markets Ltd. 53 16 Recommendations Based on the analysis indicated above, it is proposed that GoB may approve the following: 1. Revival plan for units and suggested course of action. 2. GoB shall approve the reserve price and Bid criteria as also the Bid Process Management. 3. GoB shall approve the estimated cost of revival scheme and means of finance and shall agree to fund the deficit, if any from its own sources. 4. GoB shall agree to indemnify the investor against all the present and future liabilities which may arise out of these units in course of revival process. 5. GoB shall agree to transfer the land within 3 months failing which it would pay interest for next 3 months @ 15% p.a. and further extension would be only with mutual consent. 6. GoB shall waive all the unsecured loans owed by the unit and shall also agree to settle / waive excise liabilities, sales tax, any other tax liabilities and other liabilities. 7. GoB shall settle all the labour issues and litigations related to labour as also other issues. Any further liability arising out of these settlements shall also be borne by GoB directly. 8. GoB shall allow conversion of residential and colony Land for industrial purpose and in case farm land is attached, the farm Land to be used for factory purpose. 8. GoB shall assure the investors that they would be given single window clearance as is being done presently by few other State Governments including Central government in case of Ultra Mega Power Project. 9. GoB shall ensure infrastructural support to the units viz. flood control, roads, power, irrigation and other related issues as present or support for any other Private &Confidential Viability Report
SBI Capital Markets Ltd. 54 such issues which may hinder the implementation process as also the operations of the unit. 10. GoB shall agree to lease the land for a period of 60 years (further renewable for 30 years) and attach the farm land to the concerned unit as suggested above, the price of which does not form part of the bid price. Incidentally, the farm land so attached would also be on lease basis, the usage of which would be restricted to sugarcane based industry including setting of the Greenfield unit (sugarcane based). 11. GoB may consider providing exemptions/ incentives etc as indicated above in the note and such exemptions shall be continued on continuous basis. 12. It is proposed to provide suitable approving powers to Industrial Development Commissioner or any other appropriate authority for approving various documents relating to the Bid process Management such as Tendering, Request for Qualification, Lease Agreement and other Transfer Agreements including modifications in the Bid process criteria and any other Act which may be necessary for smooth revival of the units.
The Banmankhi Sugar Unit is located 500 mtrs away from nearest Banmankhi Railway Station of Purnia District and 38 Km away from District Town of Purnia. The factory is situated at a distance of 2 Km from approach road of Purnia- Saharsa Road. No other Sugar Unit is located in the radius of 15 km from this unit.
The Banmankhi Sugar Unit with 1000 TCD capacity, was incorporated in 1970 by Purnia Co-operative Sugar Factory Limited. In 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1977.
The unit has land of 64 acres which is being used as Factory Premises-cum- Colony Premises. It has also 55 acres of land as Farm Land.
After the take over of the unit by BSSC, the maximum cane of 10.68 lakh quintal was crushed in the year 1982-83 (Assuming the no. of crushing days as 180 days, capacity utilization during that year was 59%). The unit was operational till 1996- 97 but the management of BSSC took the decision of closure of the mill due to continuous losses. Private &Confidential Viability Report
BANMANKHI Sugar Unit Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit-Banmankhi 3. Technical Snapshot SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been attached to this report. A brief snapshot of the technical report is provided below:
Crushing Capacity 1000 TCD Per day Make of Plant consisting of Milling Unit: Crushing capacity 1000 TCD, Boiler Station, Power House, Clarification Section and Boiling House Triveni Engineering Value of the Usable Mill House Rs.3.51 crore Value of the boiler house equipments Rs.0.91crore Value of the boiling house equipments Rs.1.32 crore Value of the clarification house equipments Rs.0.37 crore Value of the power house equipments Rs.0.88 crore Value of the other equipments (incl. Boiling House Structure & Weigh Bridge) Rs.1.64 crore Scrap Value of material including spares Rs.0.51 crore Land Value (Valuation report enclosed) Rs. 17.00 crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. Crore) Land Details Area ( Acres) Govt value Mkt. Value Factory & Colony Premises 64 17.00 17.00 Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit-Banmankhi 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Banmankhi unit as on March 31, 2006 is as follows: Break up of Liabilities [Rs. Crore] PARTICULARS 2006 Rs. SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus 0.08 LOAN FUND 0.08 Secured Loan 0.09 Unsecured Loan 9.04 9.13 TOTAL : Rs. 9.21
APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 2.37 Less : Depreciation 2.17 Net Block 0.20 Capital Work in Progress INVESTMENTS : CURRENT ASSET , LOANS & ADVANCES Inventories 0.79 Sundry Debtors 0.01 Cash & Bank Balance 0.22 Loans & Advances 4.03
TOTAL : (A) 5.05 LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 41.89 Provisions 0.96 TOTAL : (B) 42.85 NET CURRENT ASSETS : (A-B) (37.80)
a)Miscellaneous Expenditure to the extent Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit-Banmankhi not written off or adjusted Profit & Loss Account 46.81 Suspense Account TOTAL :Rs. 9.21
4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006. a.Secured Loan PARTICULARS Rs. in Crore Sugar Development Fund 0.09
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b.Unsecured Loan Particulars Rs. in Crore Working Capital 0.36 Clean Loan 0.98 Revolving Fund Loan 0.06 Loan from BSFC Patna 0.20 Loan from Co-Op Bank, Patna 0.25 Investment accrued & Due 7.19 TOTAL : Rs. 9.04
The unsecured loans were infused at the time of takeover and are currently outstanding. It has been informed that no interest is being charged on the same.
c. Cane Growers Dues Rs Crore Cane Growers 0.50
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled. Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit-Banmankhi d. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
e. Labour Dues The labour dues position based on the information submitted by the unit is as under:
Data as on Mar 2007 Labour Age Profile Age No. of labour Above 60 11 50 to 60 95 40 to 50 13 30 to 40 0 Records not available 1 Total 120 Liability Profile (Rs. In crore) General Labour Basic Wages 8.60 PF incl. interest 12.40 Overtime 0.05 Bonus 0.88 Leave Encashment 1.52 Retention Allowance 1.14 Total 24.59 Exit Scheme for all Employees 2.70 Total Liabilities including Exit Scheme 27.29 Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit-Banmankhi
f. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: Particulars
Rs. Crore Creditors for goods supplied 0.12 Statutory deduction 2.25 Inter unit transaction 0.02 Other liabilities 8.95 Current A/c with Hqrs. 22.36 TOTAL: Rs. 33.70
The details of inter-unit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit-Banmankhi 5. Proposed Revival Plan Based on the technical assessment, the Banmankhi unit has available infrastructure to enable it to be expanded to 2500 TCD. The Plant can be further diversified/integrated by setting up Cogeneration plant of 12 MW and Distillery of 60 KLPD using B Hy molasses.
The expansion process would require an implementation period of about 15-18 months. Hence it can be inferred that the unit is viable with above proposed expansion. However, to revive the unit, sugarcane an appropriate command area would required to be notified and necessary support from GOB would be needed.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if the farm land of 55 acre attached to the factory and colony premises is converted into industrial land for doing the expansion of the unit. This shall provide more land for further expansion of the unit. It is also proposed that the colony land may be allowed for usage for expansion of unit, if required. The colony may be shifted to some other location. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
Considering the revival possibility with expansion to 2500 TPD with Cogeneration plant of 12 MW and Distillery of 60 KLPD using B Hy molasses, an incremental cost of Rs. 164 crores would be required, if some of the usable machineries of the existing mill are refurbished and used. For efficient operation Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit-Banmankhi of the unit post-revival, and considering such additional amount to be invested, it may be worthwhile to invite private players for running the unit.
The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit-Banmankhi
6. Sacrifice/Waiver/Settlement a. Secured Loans (Rs.0.09 Cr.) It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Un-Secured Loans (Rs.9.04 Cr) The unsecured loans are from Government of Bihar. Under the current stage it would be difficult to get back any recovery of the loan. Considering the state of affairs of the Corporation, it is proposed to be waived off by GoB.
3. Cane Growers Dues (Rs.0.50 Cr) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability, if any, under the above head, may be settled by the Government of Bihar.
d) Labour Dues (Rs.27.29 Cr) No investors would normally like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees, investors may have the right of appointment. It may be further mentioned that the new investor would be averse to recruiting the existing labour based on their own screening process.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit-Banmankhi Hence an amicable settlement on all the labour issues i.e. Payment of arrears, Exit scheme, etc has to be arrived between the Labour unions and the BSSCL before transferring the unit to the new investor. It may be mentioned that BSSCL has already estimated an amount of Rs.2.70 cr in the event exit scheme is offered to all its employees. It is desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. Further it may be ensured that after the change of management, the existing employees shall be retained/employed at the sole discretion of the new management.
e. Other Liabilities ( Rs 33.70 crore) All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit-Banmankhi
7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed. On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions incl. SDF loan, if any. 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit-Banmankhi 8. Litigation Cases
SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the following cases are pending before various Courts: 1. C.W.I.C No. 15906 of 2005 (Sri Shyamdeo Sharma vs. Bihar State Sugar Corp. & ors.) 2. M.S. No 24 of 1995 (M/s Minakshi Enterprises, Muzaffarpur) pending in the court of Muzaffarpur for payment of dues against the supplies of different articles to the Godown of the Unit. 3. M.S. No 23 of 1995 (M/s Vaishali Distributors, Muzaffarpur) pending in the court of Muzaffarpur for payment of dues against the supplies of different articles to the Godown of the Unit. 4. M.S.No 1 of 2006 ( Food Corporation of India vs The State of Bihar and Others) pending in the court of Sub-ordinate Judge, Purnea for payment of difference of Levy Sugar price of Rs.21,26,936/- together with interest @12% p.a. The case is still pending. 5. A demand of Rs.4,20,87,703.23 of the Employees Provident Fund Organisation and for non payment of which an order of attachment of immovable property of the unit was ssued vide letter no. BGP/BR/RRC/1983/2006/10596 dated 13.06.2006. The dues is still outstanding. 6. Case No. 2 of 1989 (Sri Madhav Prasad Singh, Lab Chemist) pending in the court of Purnea relating to promotion. Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 Unit-Banmankhi The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, if the implementation of the revival scheme cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may need to address the legal issues arising if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 16 Unit-Banmankhi
9. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
BIHTA
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: BIHTA, DISTRICT - PATNA, BIHAR............................. 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................. 6 c. Cane Growers Dues ........................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 f. Other Liabilities ............................................................................................................... 7 5. ASSESSMENT OF THE UNIT ................................................................................. 9 6. ALTERNATE STRATEGY.........................................................................................10 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................11 8. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................13 9. LITIGATION CASES ...............................................................................................14 10. CONCLUSIONS AND RECOMMENDATIONS.................................................15 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- Bihta 1. Brief Background
The Bihta Sugar Unit is located 200 m away from Bihta Railway Station of Patna District and 40 km away from District Town of Patna, the capital of Bihar. The factory is situated at a distance of 1 km from approach road of Patna-Paliganj Road. No other Sugar Unit is located in the radius of 15 km from this unit.
The Bihta Sugar Unit with 1240 TCD capacity, was incorporated in 1934 by South Bihar Sugar Mills Limited and after 43 years of its operation i.e. in 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1977.
The unit has a huge land of 593.22 acres out of which 23.78 acres of land is being used as Factory Premises, 531.59 acres of land as Farm Land at Jineshwargarh and 28.31 at Khedalpura. They have only 9.54 acres of land as Out Centre Land. It has also a huge Sugarcane Area of land of approximately 37650 acres.
After the take over of the unit by BSSC, the maximum cane of 4.34 lakh quintal was crushed in the year 1981-82 (Assuming the no. of crushing days as 180 days, capacity utilisation during the year was 59%). The unit was operational till 1990-91 but the management of BSSC took the decision of closure of mills due to poor cash management and continuous losses due to non-disposal of sugar & molasses etc. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 3 Unit- Bihta 2. Locational Map: Bihta, District - Patna, Bihar
Bihta Sugar Unit Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- Bihta 3. Technical Snapshot
SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been enclosed. A brief of the technical report is provided below:
Crushing Capacity 1240 TCD Make of Plant consisting of-Mill Unit, Boiler Station, Power House, Clarification Section, Boiling House, Effluent treatment Plant Herry Meriolle, Delatters, France Scrap value of the equipments Rs. 4.32 Crore Land Value (valuation report enclosed) Rs. 16.39 Crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory & Colony Premises 23.78 16.39 TOTAL 23.78 16.39
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- Bihta
4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Bihta unit as on March 31, 2006 is as follows:
Break up of Liabilities Amount (Rs. crores) PARTICULARS 2006 SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus 0.01 0.01 LOAN FUND Secured Loan 0.08 0.08 Unsecured Loan 1.21 1.21 TOTAL 1.30 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 0.03 Less : Depreciation 0.01 Net Block 0.02 Capital Work in Progress 0.15 INVESTMENTS : CURRENT ASSET , LOANS & ADVANCES Inventories 0.17 Sundry Debtors 0.09 Cash & Bank Balance 0.03 Loans & Advances 1.02 TOTAL 1.31 LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 19.40 Provisions 0.04 TOTAL 19.44 NET CURRENT ASSETS : (18.13) a)Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 19.24 TOTAL 1.30
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- Bihta 4.1 Details of Liabilities The dues are based on the Internal Audit report as on March 31, 2006: a. Secured Loan PARTICULARS Rs Crore Bihar State Financial Corporation Ltd, Patna 0.07 TOTAL : 0.07
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues.
b. Unsecured Loans PARTICULARS Rs Crore Other loans 0.24 TOTAL: 0.24
c. Cane Growers Dues Rs Crore Cane Growers 0.03
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled. d. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- Bihta e. Labour Dues As far as the records are available from the Internal Audit Report for the FY 2005-06 an amount of Rs 6.81 crores is due to the employees consisting of 32 permanent employees. However based on the subsequent information collected from BSCC the due to labour as on February 2007 is as under:
f. Other Liabilities
The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS 2006 Statutory deduction 0.99 Old Management 1.73 Liability for expenses 0.28 Creditor for goods supplied 0.29 Loan A/C HO Patna 11.61 TOTAL: 14.90 Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 0 50 to 60 24 40 to 50 3 30 to 40 1 Unknown 0 Total 28 Liability Profile General Labour Rs. in crores Basic Wages 4.60 PF incl interest 0.80 Other O/s Allowance 1.38 Gratuity 0.78 Bonus 0.51 Total 8.07 Exit Scheme-considering All Employees 0.57 Net Dues including Exit policy settlement 8.64 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- Bihta The details of interunit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- Bihta
5. Assessment of the unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit is both technically incompetent and financially unviable. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co- generation unit and distillery. In light of above, the broad reasons for the Bihta unit being unviable is as under:
a. The total land area including the colony area is 23.78 acre would not be sufficient for setting up or expanding the sugar unit. Further the unit has come within the township area. b. The unit is located in an area where there is currently not much of sugarcane area under cultivation. The area is also developing as an industrial hub for other industries. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- Bihta
6. Alternate Strategy Considering the above facts, it is recommended that the available land may be used for the following Industrial/ Commercial Activity such as:
a. Food Processing Zone b. Commercial Complex c. Handicraft Park d. Warehouse/Cold Storage
The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor based on a minimum Reserve price. Liabilities etc. would need to be settled accordingly to generate the investors interest. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- Bihta
7. Sacrifice/Waiver/Settlement The unit may not be revived as sugarcane based unit due to difficulties envisaged and noted above. Therefore the same has to be developed for other industrial purpose some of which has been mentioned above. However the liabilities for existing dues has to be satisfied.
a. Secured Loans (Rs. 0.07 Cr.)
It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
The dues from Bihar State Financial Corporation Ltd as on date has to be settled/waived and necessary initiative has to be taken by the Sugarcane Industries Department.
b. Unsecured loans (Rs. 0.24 Cr)
The unsecured loans are from GoB. Under the current stage it would be difficult to get back any recovery of the loan. Considering the state of affairs of the corporation, it is proposed to be waived off by GoB.
c. Cane Growers Dues (Rs. 0.03 Cr)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- Bihta new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
d. Labour Dues (Rs. 8.64 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land.
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSCL before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants. The payment of compensation structure to labour may be structured in installment basis.
e. Other Liabilities (Rs. 14.90 Cr)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- Bihta
8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential Investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the price from the highest bidders, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks, Financial Institutions and SDF, if any (in case not settled by the Government of Bihar), 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments. However in case the labour liabilities are not being able to settled from the above realization, the balance has to be settled by the Government of Bihar.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- Bihta
9. Litigation Cases
SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the possibility of the same way not be ruled out.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government shall make good the losses suffered if any. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 15 Unit- Bihta
10. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit does not have an investment attractiveness for sugarcane based industry. Therefore we suggest SID, GoB to consider the rehabilitation scheme as suggested in the proposed Plan.
GORAUL
TABLE OF CONTENTS 1. BRIEF BACKGROUND.................................................................................................. 2 2. LOCATIONAL MAP : GORAUL, DISTRICT- VAISHALI, BIHAR......................... 3 3. TECHNICAL SNAPSHOT............................................................................................. 4 4. FINANCIAL POSITION................................................................................................. 5 4.1 Details of Liabilities......................................................................................................... 6 5. PROPOSED REVIVAL PLAN........................................................................................ 8 6. SACRIFICE/WAIVER/SETTLEMENT...................................................................... 10 7. UTILISATION OF PROCEEDS IN THE SETTLEMENT PROCESS....................... 12 8. LITIGATION CASES .................................................................................................... 13 9. CONCLUSIONS AND RECOMMENDATIONS...................................................... 14 Private &Confidential Viability Report
SBI Capital Markets Ltd. 2 Unit- Goraul
1. Brief Background
The Goraul Sugar Unit is located approximately 3 Km. away from approach road of National Highway and 1 Km. from Goraul Railway Station. It is situated around 25 Km from District Town Hazipur of Vaishali District, Bihar. The Unit is adjoined by another BSSC owned Sugar Factory i.e. Motipur Sugar Unit.
The Goraul Sugar Unit with 800 TCD was incorporated in 1933 under the banner of M/s. Sheetal Sugar Works Limited. After 44 years of its operation i.e. in 1977 it was taken over by BSSC under Bihar Sugar Undertakings (Acquisition) Ordinance 1977. The BSSC was incorporated as a wholly owned Government Company in December 1974 without having its own Sugar Mills. The unit has land area of approximately 54.41 acres. Out of which 47.58 acres of land was being used for Factory Premises and Colony Premises and 6.83 acres of land as Farm Land. After the take over of the unit by BSSC, the maximum cane was crushed in 1982- 83 season that was 7.23 lac quintal. The unit was operational till 1993-94 but the management of BSSC took the decision of closure of mills due to continuous losses. Private &Confidential Viability Report
Goraul Sugar Unit Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit- Goraul 3. Technical Snapshot SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report for Goraul submitted by KSPL has been attached to this report. A brief snapshot of the technical report is provided below: Crushing Capacity 800 TCD Make of Plant consisting of-Mill Unit, Boiler Station, Power House, Clarification Section, Boiling House Buckau Wolf Krupp, Germany Scrap Value of the equipments Rs 3.44 Crore Land Value (Valuation report enclosed) Rs. 23.79 Crore
Land (Rs. Crore) Land Details Area ( acres) Govt. Value Market Value Factory Premises & Colony Premises 47.58 20.42 23.79
The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value above has been considered at government rates prevailing in the district.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit- Goraul 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Goraul unit as on March 31, 2006 is as follows:
Break up of Liabilities Amount (Rs. crore) PARTICULARS 2006 SOURCES OF FUND: SHAREHOLDERS FUND: Capital - Reserve & Surplus - LOAN FUND Secured Loan 0.28 Unsecured Loan 0.38 TOTAL : Rs. 0.66 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 0.22 Less : Depreciation 0.07 Net Block 0.15 Capital Work in Progress INVESTMENTS : CURRENT ASSET , LOANS & ADVANCES Inventories 0.55 Sundry Debtors 0.01 Cash & Bank Balance 0.04 Loans & Advances 1.29 Total Current Assets 1.89 LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 27.37 Provisions 0.64 NET CURRENT ASSETS : (26.12)
Profit & Loss Account 26.55 Suspense A/c 0.08 TOTAL :Rs. 0.66
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit- Goraul 4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006.
a. Secured Loan Rs Crore Sugar Development Fund Loan 0.28
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Unsecured Loan Rs Crore Loan from GoB 0.38
The unsecured loan was infused at the time of takeover of these units by BSSC and are currently outstanding. It has been informed by BSSC that no interest is being charged on the same.
c. Cane Growers Dues Rs Crore Cane Growers 0.05
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement. d. Electricity Dues Rs Crore Electricity Nil
There are no dues under the above head.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit- Goraul
e. Labour Dues The labour dues position based on the information submitted by the unit is as under:
f. Other Liabilities The break up of other liabilities are as follows: PARTICULARS Rs. in Crores Loan A/c Ho, Patna 17.25 Statutory Deduction 1.76 Inter Unit Transaction 0.02 Other current liabilities 8.34 TOTAL 27.37
The details of inter-unit transaction and current account with head quarters has not been verified. Data as on Mar 2007 Labour Age Profile Age No Above 60 0 50 to 60 86 40 to 50 42 30 to 40 1 Unkonwn 0 Total 129 Liability Profile Rs. in Crore General Labour Basic Wages 6.69 Bonus 0.75 Overtime 0.02 Leave Encashment 0.14 Retention Allowance 0.45 Total 8.05 Exit Scheme for all Employees 2.30 Total labour liabilities including Exit Scheme 10.35 Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit- Goraul 5. Proposed Revival Plan The Goraul Sugar plant is an old plant. Based on the technical assessment it was suggested that except the milling tandem most of the equipment needs to be replaced. The unit may be expended to 1500 TPD with a distillery based on juice. For this a boiler, Turbine Generator Set and a distillery have to be installed. The entire unit shall be converted to an electric driven plant and mills may have to be relocated and driven by individual drives provided with rake type inter carriers, Donnelley chutes etc. The capacity distillery may be around 90 KLPD. Hence it can be inferred that the unit is viable with the above proposed expansion. However, to revive the unit, sugarcane an appropriate command area would required to be notified and necessary support from GOB would be needed.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if portion of the farm land attached to the factory, if any, and colony premises is converted into industrial land for doing the expansion of the unit. This shall provide more land for further expansion of the unit. It is also proposed that the colony land may be allowed for usage for expansion of unit, if required. The colony may be shifted to some other location. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
Considering the revival possibility with expansion to 1500 TPD with a 90 KLPD distillery based on juice, an incremental cost of Rs.140 crores would be required, if some of the usable machineries of the existing mill are refurbished and used. For efficient operation of the unit post-revival, and considering such additional amount to be invested, it may be worthwhile to invite private players for running the unit. Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit- Goraul
The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit- Goraul
6. Sacrifice/Waiver/Settlement a) Secured Loans (Rs.0.28 cr) It may be mentioned that the unit would need to be transferred to the potential investors free of charge on the assets; NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the SID prior to the bid process.
b. Un-Secured Loans (Rs. 0.38 cr) The unsecured loans are from Government of Bihar. Under the current scenario it would be difficult for the unit to pay back the above loan. Therefore, it may have to be waived off by GoB.
c. Cane Growers Dues (Rs.0.05 cr) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability, if any, under the above head, may be settled by the Government of Bihar.
d. Labour Dues (Rs.10.35 cr) No investors would willing to takeover the unit along with any obligation (including the labour liability), and with regard to appointment of existing employees, investors may have the right of appointment. It may be further mentioned that the new investor would be averse to recruiting the existing labour based on their own selection process.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit- Goraul Hence an amicable settlement on all the labour issues i.e. Payment of arrears, Exit Scheme etc has to be arrived between the Labour unions and the BSSCL before transferring the unit to the new investor. It may be mentioned that BSSCL has already estimated an amount of Rs. 2.30 cr in the event of Exit Scheme is offered to all its employees. It is therefore desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. Further it may be ensured that after the change of management, the existing employees may be retained/employed at the sole discretion of the new management.
e. Other Liabilities (Rs. 27.37 cr) All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit- Goraul
7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions incl. SDF loan, if not settled by BSSCL. 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units. It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit- Goraul 8. Litigation Cases
SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the information provided by the legal advisor, there are no pending suits/cases for recovery of compensation by the erstwhile owner. However the following cases are pending at various courts: 1. Certificate Case No. 1/ 1996-97, pending before District Certificate Officer, Hazipur, Vaishali against the Unit for electrical dues filed by Executive Engineer BSEB, Muzaffarpur for certificate dues of Rs.17,90,705.92/- 2. Complaint Case No.135/2001, files by Ex-Employee, Gonour Ram for retirement dues. The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, if the implementation of the revival scheme cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may need to address the legal issues arising if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit- Goraul
9. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
GURARU
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: GURARU, DISTRICT- GAYA, BIHAR ........................... 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. Financial Position ...................................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................. 6 b. Unsecured Loans ............................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 f. Other Liabilities ............................................................................................................... 7 5. ASSESSMENT OF THE UNIT ................................................................................. 8 6. ALTERNATE STRATEGY........................................................................................ 9 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................10 8. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................12 9. LITIGATION CASES ...............................................................................................13 10. CONCLUSIONS AND RECOMMENDATIONS.................................................14 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- Guraru
1. Brief Background
The Guraru Sugar Unit is located 0.5 km away from Gaya Railway Station and is very near the District Town and National Highway Road.
The Guraru Sugar Unit with 808 TCD capacity, was incorporated in 1933 under the ownership of Guraru Chini Mill Limited, later on after 46 years of its operation i.e. in 1979 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Ordinance 1977. The BSSC was incorporated as a wholly owned Government Company in December 1974 without having its own Sugar Mills.
The unit has only a land of 24.51 acres which is being used as Factory Premises-cum-Colony Premises and 2.85 acres as Farm Land.
After the take over of the unit by BSSC, the maximum cane was crushed in 1981-82 that was 4.48 lakh quintal in 1981-82 season. The unit was operational till 1990-91 but the management of BSSC took the decision of closure of mills due to poor cash management and continuous losses. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 3 Unit- Guraru
2. Locational Map: Guraru, District- Gaya, Bihar
Guraru Sugar Unit Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- Guraru 3. Technical Snapshot SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been enclosed. A brief of the technical report is provided below:
Crushing Capacity 808 TCD Make of Plant consisting of-Mill Unit, Boiler Station, Power House, Boiling House Krup Wolf Scrap Value of material including spares Rs. 2.83 Crore Land Value (valuation report enclosed) Rs. 2.81Crore
Land
The Land valuation has been done by M/s. Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory Premises & Colony Premises 24.51 2.81
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- Guraru 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Guraru unit as on March 31, 2006 is as follows: Break up of Liabilities Amount (Rs. crores) PARTICULARS 2006 SOURCES OF FUND: SHAREHOLDERS FUND: Capital - Reserve & Surplus LOAN FUND Secured Loan Unsecured Loan 0.63 0.63
TOTAL : Rs. 0.63
APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 0.41 Less : Depreciation 0.00 Net Block 0.41 Capital Work in Progress
LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 13.70 Provisions 0.36
TOTAL : RS. 14.06
NET CURRENT ASSETS : -13.58
a)Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 13.80
TOTAL :Rs. 0.63 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- Guraru
4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006. a. Secured Loan
PARTICULARS Rs Crore Secured Loan Nil TOTAL : Nil
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Unsecured Loans Rs. Crore PARTICULARS 2006 Loan from GoB 0.55 Revolving Fund 0.01 Agriculture Development Loan 0.02 Interest Accrued & Due 0.05 TOTAL : 0.63
c. Cane Growers Dues Rs Crore Cane Growers Nil
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement. d. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- Guraru e. Labour Dues We have collected the latest age profile and dues position which is as under:
The above labour details are based on the Internal Audit Report submitted by SID and further information collected from the unit. We have prepared the above details and O/s dues based on the information submitted by them. f. Other Liabilities
The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS 2006 Security Deposit 0.01 Inter Unit Transaction 0.09 Current account with HO 7.79 TOTAL: 7.89 Data as on Mar 2007 Labour Age Profile Age No of Labourers Above 60 0 50 to 60 38 40 to 50 8 30 to 40 0 Unknown 1 Total 47 Liability Profile General Labour Rs. in crores Basic Wages 3.40 PF 1.20 Upadhan 0.96 Leave Encashment 0.19 Retention Allowance 0.00 Total 5.89 Exit Scheme-considering All Employees 0.70 Net Dues including Exit Scheme settlement 6.59 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- Guraru 5. Assessment of the Unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit is both technically incompetent and financially unviable. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co- generation unit and distillery. In light of above, the broad reasons for the Goraru unit being unviable are as under:
1. The plant is very old and of small capacity. It is also in poor condition and can not be expanded in a small area that it has. 2. Given the milling size, the crushing capacity can be increased to 1500 TCPD, however the crushing unit of this size would need a 90 klpd distillery for which there is no space in the factory; 3. The plant is very congested and the equipment is placed on brick structure. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- Guraru
6. Alternate Strategy Considering the above, it is recommended to use the Land for some other Industrial/Commercial Activity such as:
1. Food Processing Zone 2. Commercial Complex 3. Handicraft Park 4. Warehouse/Cold Storage
The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor based on a minimum Reserve price. Liabilities etc. would need to be settled accordingly to generate the investors interest. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- Guraru
7. Sacrifice/Waiver/Settlement
a. Secured Loans (Nil)
It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Un-Secured Loans (Rs. 0.63 Cr)
The unsecured loans are from Government of Bihar. Under the current stage it would be difficult to get back any recovery of the loan. Considering the amount of loan, it is proposed to be waived off by GoB.
c. Cane Growers Dues (Nil)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
d. Labour Dues (Rs. 6.59 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land.
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSC Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- Guraru before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants. The payment of compensation structure to labour may be structured in installment basis.
e. Other Liabilities (Rs 7.89 Cr)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- Guraru
8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential Investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the price from the highest bidders, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks, Financial Institutions and SDF, if any (in case not settled by the Government of Bihar), 3. Balance, if any would be transferred to BSSC A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments. However in case the labour liabilities are not being able to settled from the above realization, the balance has to be settled by the Government of Bihar.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- Guraru
9. Litigation Cases
SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSC for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the following cases are still pending at various courts: 1. Certificate Case No. 121/1993 94, pending in the court of Certificate Officer, Gaya filed by the Bihar State Electricity Board, for Electrical Dues and the demand notice for certificate dues of Rs. 16,37,679.24 plus interest thereon a total demand of Rs. 29,34,380.76 is issued which is still pending. 2. C.W.J.C. No. 4606 of 2006 (ram Balak Vs. SugarCorp. And ors.) Service Matter. Retirement Dues 3. C.W.J.C. No. 5028 of 2000 (Krishna Kumar Vs. Bihar State Sugar Corp.) Service Matter
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government shall make good the losses suffered if any. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- Guraru
10. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit does not have a investment attractiveness for sugar unit Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
HATHUA
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: HATHUA, DISTRICT- GOPALGANJ, BIHAR.............. 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 5. PROPOSED REVIVAL PLAN (HATHUA SUGAR UNIT AND DISTILLERY)9 6. SACRIFICE/WAIVER/SETTLEMENT.................................................................11 7. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................13 8. LITIGATION CASES ...............................................................................................14 9. CONCLUSIONS AND RECOMMENDATIONS.................................................16 Private &Confidential Viability Report
SBI Capital Markets Ltd. 2 Unit- Hathua & Hathua Distillery
1. Brief Background
Sugar Unit The Hathua Sugar Unit is located 1 km away from nearest Hathua Railway Station of Gopalgunj District and 20 km away from District Town and 1.5 km distance from National Highway approach road on Siwan-Gopalgunj Road. The Unit is adjoined by another private sector owned Sugar Unit i.e. Gopalgunj Sugar Unit which is at a distance of 20 km approximately. The Hathua Sugar Unit with 1728 TCD capacity, was incorporated in 1933 under the ownership of S. K. G. Sugar Limited, it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1985. The BSSC was incorporated as a wholly owned Government Company in December 1974 without having its own Sugar Mills. The unit has an area of 55.24 acres, out of which 25.96 acres of land is for Factory Premises and 18.92 acres of land as Colony Premises.
Distillery The Hathua Distillery of 30 KLPD capacity was under the ownership of S.K.G. Sugar Limited till 1981. Thereafter the same was sold to United Distillery Private Limited (UB Group). In 1986 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1985. The acquisition was challenged by UB Distillery Ltd. in the Honbe Supreme Court mainly on the ground that vesting under Section 3(1) of the Act 1985 is only for the Sugar Schedule undertaking and not for the Distillery and vide interim order dated 7.02.1986, the Honbe Supreme Court stayed the take over of the Distillery and allowed the company to operate the Distillery. However as per the final judgment of the Honbe Supreme Court dated 18.02. 2003, the Distillery became the undertaking of BSSC. Private &Confidential Viability Report
SBI Capital Markets Ltd. 3 Unit- Hathua & Hathua Distillery
Hathua Sugar Unit & Distillery Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit- Hathua & Hathua Distillery 3. Technical Snapshot A. Hathua Sugar SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. A brief snapshot of the technical and valuation report is provided below:
Particulars Capacity Hathua Unit 1728 TCD Make of Plant consisting of-Mill Unit, Boiler Station, Power House, Clarification Section, Boiling House, Effluent treatment Plant Henry Merielle, France and A.W. Smith & Co., Glasgow Value of the Usable Mill House Rs 4.92 Crore Value of the boiling house equipments Rs 4.03 Crore Value of the other equipments Rs 3.03 Crore Scrap Value of material including spares Rs 1.83 Crore Land Value-at market rates (Valuation report enclosed) Rs. 32.19 Crore Hathua Distillery 30 KLPD Make of Plant CVL Value of the Plant Rs 8.47 Crore Scrap Value of material including spares Rs 0.29 Crore Land Value-at market rates (Valuation report enclosed) Rs. 17.22 Crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. in Crore) Land Details Area ( Acres) 1 Govt. Value Market Value Hathua Sugar Unit 44.88 25.55 32.19 Hathua Distillery 22.48 13.10 17.22
1 The unit area has been provided by GoB . Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit- Hathua & Hathua Distillery
4. Financial Position As per the Internal Audit Report made available, the break up of Balance Sheet of Hathua unit as on March 31, 2006 and that for Distillery as on March 31, 1999 is as follows: Break up of Liabilities-Sugar Mill/ Distillery Amount (Rs. crores) PARTICULARS Hathua Hathua Distillery 2006 1999
SOURCES OF FUND: SHAREHOLDERS FUND: Capital 0.00 Reserve & Surplus -2.02
LOAN FUND Secured Loan 2.25 Unsecured Loan 1.02 1.02 TOTAL 1.02 0.23 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 5.74 6.07 Less : Depreciation 5.26 2.89 Net Block 0.48 3.18 Capital Work in Progress 0.00
INVESTMENTS : 0.21 CURRENT ASSET , LOANS & ADVANCES Inventories 1.86 5.59 Sundry Debtors 0.73 9.17 Cash & Bank Balance 0.01 2.59 Loans & Advances 3.28 1.59 TOTAL 5.88 18.94
LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 50.22 22.10 Provisions 1.39 TOTAL 51.61 22.10 NET CURRENT ASSETS : (45.73) -3.16 a)Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 46.27 0 TOTAL 1.02 0.23
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit- Hathua & Hathua Distillery 4.1 Details of Liabilities
The dues in Hathua unit are based on the Internal Audit report as on March 31, 2006 while in case of Hathua distillery it is based on Internal Audit report as on March 31, 1999 submitted by BSSC. a. Secured Loan Unit PARTICULARS Rs. in Crore Hathua Bihar State Co-operative Bank Limited (31.03.2006) 1.02 Hathua Distillery Bihar State Co-operative Bank Limited (31.03.1999) 2.25 TOTAL 3.27
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Cane Growers Dues Rs. Crore Cane Growers 2.21
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled.
c. Electricity Dues Rs. Crore Hathua Sugar Unit Nil Hathua Distillery 1.59 TOTAL 1.59
d. Labour Dues Based on the Internal Audit Report for the financial year 2001-2002, an amount of Rs. 6.34 crore was due to all the employees. However, we have collected the latest age profile and dues position which is given below. Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit- Hathua & Hathua Distillery Hathua unit
Hathua Unit
Hathua Distillery
The above details are based on the information provided by the unity and has not been backed by written confirmation.
2 The above liability is only indicative based on information provided and may vary with the actuals. Data as on March 2007 Labour Age Profile Age No. of Labour Above 60 8 50 to 60 87 40 to 50 28 30 to 40 0 Unknown 1 Total 124 Labour Dues Break-Up Rs. in crores General Labour Basic Wages 5.29 PF incl interest 4.28 Gratuity 2.37 Bonus 0.88 Retention Allowance 0.00 Total 12.82 Exist Scheme for All Employees 1.47 Total Liabilities including Exit Scheme settlement 14.29 Liability Profile Rs. in Crores General Labour Total o/s salary including PF, Gratuity, Bonus, Retention Allowance 15.00 Total 15.00 Exit Scheme for All Employees 3.00 Total Liabilities including Exit Scheme 18.00 2
Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit- Hathua & Hathua Distillery e. Other Liabilities
The break up of other liabilities appearing in the internal audit report are as follows: Hathua Unit PARTICULARS Rs. in Crores Statutory deduction 3.21 Contractors 0.01 Creditors for cane supplied (year wise) 2.21 Cane Grower Advance 0.02 Current A/c with Hqrs 33.32 Vendor account Cane commission (year wise) 0.13 TOTAL 38.90
The details of interunit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006.
Hathua Distillery PARTICULARS Rs. in Crores Sundry Creditors 22.03 Sales Excise Liability 64.72 TOTAL 86.75
Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit- Hathua & Hathua Distillery
5. Proposed Revival Plan (Hathua Sugar Unit and Distillery) Based on the technical assessment, the Hathua unit has available infrastructure to enable it to be expanded to 2500 TCD along with a new 12 MW Co-generation Power Plant. The expansion process would require an implementation period of about 16-18 months. In this connection it may be mentioned that a sugar mill is expected to have a minimum economic size of 2500 TCD. Hence it can be inferred that the unit is viable with above proposed expansion. It may also be suggested that the existing Hathua Distillery of capacity 30 KLPD to be combined along with the Sugar unit to attract the investors and enhance the viability of the unit.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if portion of the farm land attached to the factory, if any, and colony premises is converted to industrial land. This shall provide more land for further expansion of the unit. It is also proposed that the colony land may be allowed for usage for expansion of unit, if required. The colony may be shifted to some other location. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
Considering the revival possibility with expansion to 2500 TPD with a 12 MW Co Generation Plant, an incremental cost of Rs. 164 Crore would be required, if some of the usable machineries of the existing mill are refurbished and used. For efficient operation of the unit post-revival, and considering such additional amount to be invested, it may be worthwhile to invite private players for running the unit.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit- Hathua & Hathua Distillery The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit- Hathua & Hathua Distillery
6. Sacrifice/Waiver/Settlement Hathua Sugar / Hathua Distillery Unit
a. Secured Loans (Rs. 3.27 Crore)
It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Cane Growers Dues (Rs. 2.21 Crore)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
c. Labour Dues (Rs. 32.92 Crore)
No investors would normally like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees, investors may have the right of appointment.
Hence an amicable settlement on all the labour issues i.e. Payment of arrears, Exit Scheme, etc has to be arrived between the Labour unions and the BSSC before transferring the unit to the new investor. It may be mentioned that BSSC has already estimated an amount of Rs 4.74 crore in the event of exit Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit- Hathua & Hathua Distillery scheme is offered to all its employees. It is desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. It may be further mentioned that the new investor would not be averse to recruiting the existing labour based on their own screening process.
e. Other Liabilities (Rs. 38.90 Crore)
All other liabilities (including contingent liabilities) in case of Hathua unit, but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. The other liabilities also include current account with Head office of Rs. 33.32 crore which has been infused as capital.
f. Sundry Creditors (Rs. 22.03 Crore)
The detailed break up of the creditors is not available through the Balance Sheet of Hathua distillery. However the above liability being substantial in nature, the claims cannot e taken care out of the bid proceed and may be settled/waived by the GoB.
g. Excise liability of Hathua Distillery (Rs. 64.72 Crore)
The amount is statutory in nature. However it is unlikely that the bid value would be able to clear this liability. Excise on distillery is a state subject payable to the department of excise, GoB and therefore the GoB can waive or otherwise deal with the dues. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit- Hathua & Hathua Distillery 7. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed. On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions incl. SDF loan, if any. 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit- Hathua & Hathua Distillery
8. Litigation Cases
SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
The following cases have been found against the Hathua Sugar unit: 1. Misc. case No. 215 of 2004 (United bank of India Vs. SKG Sugar Ltd & others) disposed off vide order dated 5.10.2005 by the Member Board of revenue cum authorized Officer, Bihar by which a Compensation of Rs. 5.48 Crore was awarded against the GoB/BSSC.
In the present case United Bank of India, filed a claim for compensation amount to be paid to S.K.G. Sugar Ltd under section 7 of the Acquisition Act 1985 and after detailed hearing, the Member board of revenue cum prescribed Authority under the Act has passed the order dated 5.10.2005 for payment of compensation of Rs. 5.48 Crore to S.K.G. Sugar Ltd.
In the above case any surplus is generated after meeting the liabilities of the unit, the same is required to be used for the payment of the above claim.
The following cases have been found against the Hathua Distillery unit: 1. CWJC 1152 of 2003 (S.K.G. Sugar Mill Labour Union, Distillery Unit (Mirganj) Vs. The State of Bihar & others. The case is in the nature of Public Interest Litigation filed by the Labour Union of Distillery unit for payment of their wages and is not a hurdle in the process of bidding. 2. Title Suit No. 423 of 2003 (McDowell & company Vs. The State of Bihar & others) pending in the court of Sub Judge-I, Gopalganj, seeking relief that the assets and properties i.e. plant and machinery valued about Rs. 23. 7 Lac are the absolute properties of plaintiff and the defendants including BSSC has no Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 Unit- Hathua & Hathua Distillery right or title of the assets and further seeking directions for directing the State of Bihar to hand over the assets and properties set out in the Schedule Annexure I to the plaint. The Plaintiff claim certain machineries given under the Schedule of the plaint as its own which they claim, never vested I the State of Bihar. The case does not seem sustainable; however the case has to be taken care of so that no adverse order is passed.
The Legal Advisor has also verified the title deeds pertaining to the Land as opined that the BSSC has marketable Title over the property. However some of the Title deeds were not available and therefore the valuation has been based on the area confirmed by GoB.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may undertake to make good the losses suffered if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 16 Unit- Hathua & Hathua Distillery
9. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit along with the Distillery has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
LAURIYA
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: LAURIA, DISTRICT- WEST CHAMPARAN, BIHAR.. 4 3. TECHNICAL SNAPSHOT....................................................................................... 5 4. FINANCIAL POSITION........................................................................................... 7 4.1 Details of Liabilities................................................................................................... 8 5. PROPOSED REVIVAL PLAN (LAURIA SUGAR UNIT AND DISTILLERY).12 6. SACRIFICE/WAIVER/SETTLEMENT.................................................................13 7. UTILISATION OF PROCEEDS IN THE SETTLEMENT PROCESS..................15 8. LITIGATION CASES ...............................................................................................16 9. CONCLUSIONS AND RECOMMENDATIONS................................................17 Private &Confidential Viability Report
SBI Capital Markets Ltd. 2 Unit- Lauria & Lauria Distillery
1. Brief Background
Sugar Unit The Lauria Sugar Unit is located on the Bettiah Main Road, 25 km from Bettiah Railway Station Town of West Champaran District of Bihar, adjoining by three other major Private Sector Sugar Units viz. Bagaha Sugar Unit (40 km), Harinagar Sugar Unit (20 Km) and Narkatiaganj Sugar Unit (20 km).
The captioned Lauria Sugar Unit with 1626 TCD capacity, was incorporated in 1905 under the banner of M/s. S.K.G. Sugar Limited; after 80 years of its operation i.e. in 1985 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1977 and 1985. The BSSC was incorporated as a wholly owned Government Company in December 1974.
The unit has substantial land approximately 225.72 acres. Out of which 17.27 acres of land is being used for Factory Premises, 31.47 acres for Colony Premises and 45.65 acres of land for its Agricultural use. Moreover, 118.63 acres of land is there as Out Center Land and 12.70 acres of land for its Distillery Production.
After the take over of the unit, the maximum cane of 21.96 lac quintal was crushed in 1990-91 season. The unit was operational till 1996-97 but the management of BSSC took the decision of closure of mills due to receivables management and continuous losses due to non disposal of sugar & molasses etc.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 3 Unit- Lauria & Lauria Distillery
Distillery
The Lauria Distillery of 90 KLPD capacity was under the ownership of S. K. G. Sugar Limited till 1986. In 1986 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1985. The acquisition was challenged by S. K. G Sugar Ltd. in the Honbe Supreme Court mainly on the ground that vesting under Section 3(1) of the Act 1985 is only for the Sugar Schedule undertaking and not for the Distillery and vide interim order dated 7.02.1986, the Honbe Supreme Court stayed the take over of the Distillery and allowed the company to operate the Distillery. However as per the final judgment of the Honbe Supreme Court dated 18.02. 2003, the Distillery became the undertaking of BSSC. Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit- Lauria & Lauria Distillery
2. Locational Map: Lauria, District- West Champaran, Bihar
Lauria Sugar Unit & Distillery Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit- Lauria & Lauria Distillery 3. Technical Snapshot A. Lauria Sugar SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. A brief snapshot of the technical and valuation report is provided below: Particulars Lauria Unit Crushing Capacity 1728 TCD Make of Plant consisting of Milling Unit: Crushing capacity 1626 TCD, Boiler Station, Power House, Clarification Section Boiling House, Centrifugal and Grading Section Stork Workspoor, Holland Value of the Usable Mill House Rs.2.59 Crore Value of the boiler house equipments Rs.2.48 Crore Value of the clarification house equipments Rs.0.33 Crore Value of the power house equipments Rs.0.58 Crore Value of the other equipments (incl. Centrifugal and Grading Section, Boiling House Structure & Weigh Bridge) Rs. 1.39 Crore Scrap Value of material including spares Rs.1.40 Crore Land Value-at market rates (valuation report enclosed) Rs 15.78 Crore Lauria Distillery Capacity 90 KLPD Make of Plant Alfa Level, Thermax & Kirloskar Value of the Plant Rs 3.47 Crore Scrap Value of material including spares Rs 0.43 Crore Land Value-at market rates (valuation report enclosed) Rs. 1.18 Crore
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit- Lauria & Lauria Distillery Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. in Crore) Land Details Area ( Acres) 1 Govt. Value Market Value Lauria Sugar Unit 48.74 14.33 15.78 Lauria Distillery 12.60 0.98 1.18
1 The unit area has been provided by GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit- Lauria & Lauria Distillery
4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheets of Lauria sugar units as on March 31, 2006 and of Lauria Distillery as on March 2001 are as follows: Break up of Liabilities-Sugar Mill/ Distillery Amount (Rs. crores) PARTICULARS Lauria Sugar Unit Lauria Distillery 2006 2001 SOURCES OF FUND: I. SHAREHOLDERS FUND: Capital 1.20 Reserve & Surplus 5.44 II. LOAN FUND: Secured Loan 6.58 1.91 Unsecured Loan 1.61 0.02 TOTAL: RS. 8.19 8.57 APPLICATION OF FUNDS: I. FIXED ASSETS: Gross Block 1.61 27.51 Less: Depreciation 1.49 13.27 Net Block 0.12 14.24 II. INVESTMENTS: 0.33 III. CURRENT ASSETS, LOANS & ADVANCES Inventories 2.56 8.39 Sundry Debtors 0.31 4.22 Cash &Bank Balance 0.08 1.84 Loans & Advances 5.60 16.94 Interest accrued 0.40
TOTAL : RS. 8.55 31.79 IV. LESS: CURRENT LIABILITIES & PROVISIONS Liabilities 45.50 42.91 Provisions 1.89 4.86 47.77 NET CURRENT ASSETS: (38.85) (15.98) V. a) Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 46.92 9.99 TOTAL : Rs. 8.19 8.57
Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit- Lauria & Lauria Distillery
4.1 Details of Liabilities The dues in Lauria unit are based on the Internal Audit report as on March 31, 2006 while in case of Lauria distillery the are based on Audited Report as on March 31, 2001.
a. Secured Loan Unit PARTICULARS Rs. in Crore Lauria Sugar Unit Bihar State Co-operative Bank Limited (31.03.2006) 6.58 Lauria Distillery Not available 1.91 TOTAL: 8.49
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues.
b. Unsecured Loan Rs. Crore Particulars 2006 Sugar unit-Revolving Fund 0.03 Distillery 0.02 TOTAL : Rs. 0.05
As per the internal report prepared by BSSCL, the above loans pertain to March 31, 2006 and March 2001 for the sugar unit and for distillery respectively.
c. Cane Growers Dues Rs. Crore Cane Growers 2.74
Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit- Lauria & Lauria Distillery It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement.
d. Electricity Dues Rs Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
e. Labour Dues Based on the subsequent information collected from BSCC the due to labour as on February 2007 is as under:
Name of the Unit: Lauria Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 11 50 to 60 88 40 to 50 17 30 to 40 1 Total 117
Liability Profile (Rs. In Crore) General Labour Basic Wages 8.42 Overtime 0.24 Bonus 0.19 Gratuity 1.78 Retention Allowance 0.00 Total 10.64 Estimated cost of Exit Scheme 3.33 Net Dues including Exit Scheme 13.97 Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit- Lauria & Lauria Distillery The above labour details are based on the information submitted by SID and further information collected from the unit. We have prepared the above details and O/s dues based on the information submitted by them.
Lauria Distillery
The above information for distillery is based on the information provided by the unit. However no written confirmation for the same has been received and therefore may vary.
e. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: Particulars Amount Liabilities for Expenses 7.28 Statutory deduction 2.66 Inter unit transaction 0.12 Other liabilities 0.03 Current A/c with HO 26.40 Lauria Distillery 14.99 TOTAL: Rs. 51.48
The details of inter-unit transaction and current account with headquarters has not been verified. The current account with HO pertains to the capital infused by BSSC.
2 The above liability is only indicative based on information provided and may vary with the actuals. Liability Profile Rs. in Crores General Labour Total o/s salary including PF, Gratuity, Bonus, Retention Allowance 7.50 Total 7.50 Exit Scheme for All Employees 1.50 Total Liabilities including Exit Scheme 9.00 2
3 The Excise Liability is indicative only and may vary from the actual. Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit- Lauria & Lauria Distillery
5. Proposed Revival Plan (Lauria Sugar Unit and Distillery)
Located in West Champaran district, where four private sugar mills are operating with a total capacity of 21000 TCPD. The unit may be expanded to 1500-2000 TCPD to cater to juice based distillery.
Lauriya distillery of 60 KLPD may be used for production of alcohol/ ethanol out of the juice produced from the Sugar unit. The other 30 KLPD old distillery has become technically obsolete and therefore may be scraped.
The attachment of Lauriya distillery with Lauriya sugar unit will improve the viability and thereby investors interest.
The unit also has a farm land area and outcenter land of around 164.28 acres which may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
As indicated above, GoB can allocate the maximum possible cane growing area to this unit taking into account the requirement of existing units and their expansion plans, if any.
The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit- Lauria & Lauria Distillery
6. Sacrifice/Waiver/Settlement Lauria Sugar Unit and Lauria Distillery
a. Secured Loans (Rs.8.49 Cr) It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets; NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
The dues of Bihar State Co-operative Bank Ltd. and of others in case of Distillery as on date has to be settled/waived and necessary initiative has to be taken by the Sugarcane Industries Department.
b. Un-Secured Loans (Rs.0.05 Cr) The unsecured loans are from Government of Bihar. Under the current stage it would be difficult to get back any recovery of the loan. Considering the amount of loan, it is proposed to be waived off by GoB.
c. Cane Growers Dues (Rs. 2.47 Cr) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit- Lauria & Lauria Distillery d. Labour Dues (Rs. 22.97 Cr) No investors would normally like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees, investors may have the right of appointment.
Hence an amicable settlement on all the labour issues i.e. Payment of arrears, Exit Scheme, etc has to be arrived between the Labour unions and the BSSC before transferring the unit to the new investor. It may be mentioned that BSSC has already estimated an amount of Rs 4.83 crore in the event of exit scheme is offered to all its employees. It is desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. It may be further mentioned that the new investor would not be averse to recruiting the existing labour based on their own screening process.
e. Other Liabilities (Rs. 36.49 Cr) All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB.
f. Excise liability of Lauria Distillery (Rs. 42 Crore) The amount is statutory in nature. However it is unlikely that the bid value would be able to clear this liability. Excise on distillery is a state subject payable to the department of excise, GoB and therefore the GoB can waive or otherwise deal with the dues.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 Unit- Lauria & Lauria Distillery 7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed. On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions incl. SDF loan, if any. 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 16 Unit- Lauria & Lauria Distillery
8. Litigation Cases SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
The following cases have been found against the Lauria Sugar unit: 1. CWJC No 4792 of 1999 (Purushottam Mishra Vs. The State of Bihar & others0 pending in the High Court, Patna relating to the Payment of wages. 2. CWJC No 10989 of 2004 (N.E.C.D. Union Secretary Vs. The State of Bihar) pending in the High Court, Patna relating to the cane price payment. 3. CWJC No 98452 of 2003 (S.N Mishra Vs. The State of Bihar & others) pending in the High Court, Patna relating to the Payment of dues of emloyees.
The following cases have been found against the Lauria Sugar unit: 1. Cr. Rev 96 of 1994 ( Sri Girish Shankar Ex- Managing Director vs The State of Bihar) matters relates to filing a criminal case by the Excise Department (the case has no relevance at the moment)
The Legal Advisor has also verified the title deeds pertaining to the Land as opined that the BSSC has marketable Title over the property. However some of the Title deeds were not available and therefore the valuation has been based on the area confirmed by GoB.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may undertake to make good the losses suffered if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 17 Unit- Lauria & Lauria Distillery 9. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit along with the Distillery has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
LOHAT
TABLE OF CONTENTS 1. BRIEF BACKGROUND.................................................................................................. 2 2. LOCATIONAL MAP : LOHAT, DISTRICT- MADHUBANI, BIHAR..................... 3 3. TECHNICAL SNAPSHOT............................................................................................. 4 4. FINANCIAL POSITION................................................................................................. 5 4.1 Details of Liabilities......................................................................................................... 6 5. PROPOSED REVIVAL PLAN........................................................................................ 9 6. SACRIFICE/WAIVER/SETTLEMENT...................................................................... 11 7. UTILISATION OF PROCEEDS IN THE SETTLEMENT PROCESS....................... 13 8. LITIGATION CASES .................................................................................................... 14 9. CONCLUSIONS AND RECOMMENDATIONS...................................................... 15 Private &Confidential Viability Report
SBI Capital Markets Ltd. 2 Unit-Lohat
1. Brief Background
The Lohat Sugar Unit is located 8 Km from Pandaul Railway Station of Madhubani District and 10 Km. away from National Highway approach road of Pandaul. The Unit is adjoined by another BSSC owned closed down Sugar Unit i.e. Sakri Sugar Unit (15 Km).
The Lohat Sugar Unit with 1320 TCD capacity, was incorporated in 1914 under the ownership of Darbhanga Maharaj as Darbhanga Sugar Co. Limited, in 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1977.
The unit has a substantial 207 acres of land, out of which 62 acres of land is being used for Factory Premises, 30 acres as Colony Premises. It has also 115 acres of land as Farm Land and 6 acres of land for residential purpose. After the take over of the unit by BSSC, the maximum cane of 7.20 lakh quintal was crushed in the year 1978-79 (Assuming the no. of crushing days as 180 days, capacity utilization during that year was 59%). The unit was operational till 1996- 97 but the management of BSSC took the decision of closure of the mill due to continuous losses. Private &Confidential Viability Report
LOHAT Sugar Unit Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit-Lohat 3. Technical Snapshot SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been provided in Annexure II of this report. A brief snapshot of the technical report is provided below:
Crushing Capacity 1270 TCD Make of Plant consisting of-Mill Unit, Boiler Station, Power House, Clarification Section, Boiling House, Effluent treatment Plant Mirless Watson, George fletcher, Babcok & Wilcok Value of the Usable Mill House & Boiling house equipments. Rs 7.28 Crore Value of the other equipments Rs 1.71 Crore Scrap Value of material including spares Rs 0.25 Crore Land Value (valuation report enclosed) Rs. 16.90 Crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. in Crore) Land Details Area ( Acres) Govt. Value Market Value Factory 62.00 6.89 12.40 Colony Premises 30.00 2.90 4.50
Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit-Lohat 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Lohat unit as on March 31, 2006 is as follows: Break up of Liabilities Amount (Rs. crores) PARTICULARS 2006 SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus 0.02 0.02 LOAN FUND Secured Loan 0.51 0.51 Unsecured Loan TOTAL 0.53 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 1.71 Less : Depreciation 1.47 Net Block 0.24 Capital Work in Progress 0.15 INVESTMENTS : CURRENT ASSET , LOANS & ADVANCES Inventories 0.41 Sundry Debtors 0.01 Cash & Bank Balance 0.03 Loans & Advances 4.95 TOTAL 5.40 LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 45.30 Provisions 0.02 TOTAL 45.32 NET CURRENT ASSETS : (39.92) a)Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 40.06 TOTAL 0.53
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit-Lohat 4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006.
a. Secured Loan PARTICULARS Rs. in Crore Cash Credit from Rahika Central cooperative bank, Madhubani 0.51
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Cane Growers Dues Rs Crore Cane Growers 1.10
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled.
c. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit-Lohat d. Labour Dues The labour dues position based on the information submitted by the unit is as under:
f. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS Rs. in Crores Statutory deduction 1.56 Contractors 0.01 Liability for expenses 10.91 Creditor for goods supplied 0.97 Other liabilities 27.11 TOTAL 40.56
Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 2 50 to 60 48 40 to 50 22 30 to 40 2 Unknown 9 Total 83 Liability Profile General Labour Rs. in crores Basic Wages 8.80 PF incl. interest 1.39 Gratuity 0.04 Bonus 0.72 Retention Allowance 1.72 Total 12.67 Exit Scheme for all Employees 1.70 Net Dues including Exit Scheme 14.37 Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit-Lohat The details of inter-unit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit-Lohat 5. Proposed Revival Plan Based on the technical assessment, the Lohat unit has available infrastructure to enable it to be expanded to 2500 TCD along with a 60 KLPD Distillery and 12 MW Co-generation Power Plant. The expansion process would require an implementation period of about 16-18 months. In this connection it may be mentioned that a sugar mill is expected to have a minimum economic size of 2500 TCD. Hence it can be inferred that the unit is viable with above proposed expansion. However, to revive the unit, sugarcane an appropriate command area would required to be notified and necessary support from GOB would be needed.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if portion of the farm land attached to the factory, if any, and colony premises is converted into industrial land for doing the expansion of the unit. This shall provide more land for further expansion of the unit. It is also proposed that the colony land may be allowed for usage for expansion of unit, if required. The colony may be shifted to some other location. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
Considering the revival possibility with expansion to 2500 TPD alongwith 60 KLPD Distillery and a 12 MW Co Generation Plant, an incremental cost of Rs.164 crores would be required, if some of the usable machineries of the existing mill are refurbished and used. For efficient operation of the unit post-revival, and considering such additional amount to be invested, it may be worthwhile to invite private players for running the unit. Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit-Lohat
The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit-Lohat
6. Sacrifice/Waiver/Settlement a. Secured Loans (Rs.0.51 Cr.) It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Cane Growers Dues (Rs.1.10 Cr) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability, if any, under the above head, may be settled by the Government of Bihar.
c) Labour Dues (Rs.14.37 Cr) No investors would normally like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees , investors may have the right of appointment. It may be further mentioned that the new investor would be averse to recruiting the existing labour based on their own screening process.
Hence an amicable settlement on all the labour issues i.e. Payment of arrears, exit scheme, etc has to be arrived between the Labour unions and the BSSCL before transferring the unit to the new investor. It may be mentioned that BSSCL has already estimated an amount of Rs 1.70 cr in the event of exit scheme is offered to Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit-Lohat all its employees. It is desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. Further it may be ensured that after the change of management, the existing employees shall be retained/employed at the sole discretion of the new management.
e. Other Liabilities ( Rs 40.56 crore) All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit-Lohat
7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed. On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions incl. SDF loan, if any. 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit-Lohat 8. Litigation Cases
SBICAPS has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the information provided by the legal advisor, there are no pending suits/cases for recovery of compensation by the erstwhile owner. However the possibility of the same may not be ruled out.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, if the implementation of the revival scheme cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may need to address the legal issues arising if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 Unit-Lohat
9. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
MOTIPUR
TABLE OF CONTENTS 1. BRIEF BACKGROUND.................................................................................................. 2 2. LOCATIONAL MAP : MOTIPUR, DISTRICT- MUZAFFARPUR, BIHAR............ 3 3. TECHNICAL SNAPSHOT............................................................................................. 4 4. FINANCIAL POSITION................................................................................................. 5 4.1 Details of Liabilities......................................................................................................... 6 5. PROPOSED REVIVAL PLAN........................................................................................ 9 6. SACRIFICE/WAIVER/SETTLEMENT...................................................................... 11 7. UTILISATION OF PROCEEDS IN THE SETTLEMENT PROCESS....................... 13 8. LITIGATION CASES .................................................................................................... 14 9. CONCLUSIONS AND RECOMMENDATIONS...................................................... 15 Private &Confidential Viability Report
SBI Capital Markets Ltd. 2 Unit-Motipur
1. Brief Background
The Motipur Sugar Unit is located on the National Highway and at a distance of 1 Km. from Motipur Railway Station and 30 Km distance from District Town of Muzaffarpur of Bihar. The Unit is adjoined by another private sector Sugar Factory i.e. Chakia Sugar Unit which is at a distance of 20 Km approximately. The Motipur Sugar Unit with 1219 TCD capacity, was set up in 1933 as Motipur Sugar Factory; in 1985 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Ordinance 1977 and Bihar Sugar Undertakings (Acquisition) Act 1985. The unit has substantial got substantial area of land (approximately 1363.40 acres), out of which 50 acres of land is being used for Factory Premises, 16 acres for Colony Premises and 1297.40 acres as Farm Land. After the take over of the unit by BSSC, the maximum cane was crushed was 7.10 lac quintal in 1988-89 season [assuming the number of crushing days to be 180 days capacity utilization works out to around 33%]. The unit was operational till 1996-97 but the management of BSSC took the decision of closure of mills due to continuous losses. Private &Confidential Viability Report
MOTIPUR Sugar Unit Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit-Motipur 3. Technical Snapshot SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been attached to this report. A brief snapshot of the technical report is provided below:
Crushing Capacity 1250 TCD Per day Make of Plant consisting of Milling Unit: Crushing capacity 1250 TCD, Boiler Station, Power House, Clarification Section, Boiling House, Effluent treatment Plant Stork Workspoor, Netherlands Value of the Usable Plant & Machineries Rs.5.64 Crore Scrap Value of material including spares Rs.2.11 Crore Land Value (Valuation Report enclosed) Rs.47.62 Crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. in Crore) Land Details Area ( Acres) Land Value Market Value Factory Premises 50.00 40.00 42.50 Colony premises 16.00 4.80 5.12
Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit-Motipur 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Motipur unit as on March 31, 2006 is as follows: Break up of Liabilities PARTICULARS 2005-06 Rs. Crore SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus 0.06 0.06 LOAN FUND Secured Loan 0.53 Unsecured Loan 1.17 1.70 TOTAL : 1.76 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 1.45 Less : Depreciation 1.27 Net Block 0.18 Capital Work in Progress 0.95 INVESTMENTS : CURRENT ASSET , LOANS & ADVANCES Inventories 0.95 Sundry Debtors 0.10 Cash & Bank Balance 0.11 Loans & Advances 11.50 TOTAL : (A) 12.66 Liabilities 50.95 Provisions 1.05 TOTAL : (B) 52.00 NET CURRENT ASSETS : (A-B) (39.34) Profit & Loss Account (Dr bal) 39.97 TOTAL : 1.76
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit-Motipur 4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006. a. Secured Loan PARTICULARS Rs. in Crore Muzaffarpur Central Co-operative Bank Ltd. 0.43 Sugar Development Fund From Central Govt. 0.10 TOTAL : 0.53
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Unsecured Loan Particulars Rs. in Crore Other Loans 0.04 Loan from Govt. of Bihar (Honorable Justice Uday Sinha Committee) 1.13 TOTAL : Rs. 1.17
The unsecured loans were infused at the time of takeover and are currently outstanding. It has been informed that no interest is being charged on the same.
c. Cane Growers Dues Rs. Crore Cane Growers 0.74
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled.
d. Electricity Dues Rs. Crore Electricity Nil
Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit-Motipur As per the Internal Audit Report, there are no dues under the above head.
e. Labour Dues The labour dues position based on the information submitted by the unit is as under:
Data as on Mar 2007 Labour Age Profile Age No. of Labour Above 60 5 50 to 60 35 40 to 50 13 30 to 40 4 Records not available 3 Total 60 Liability Profile (Rs. In crore) General Labour Basic Wages (Factory) 10.71 Basic Wages (Farm) 0.41 Gratuity 2.53 Bonus 1.33 PF (Factory) 2.73 PF (Farm) .10 Overtime 0.08 Retention Allowance 1.75 Total 19.64 Exit Scheme for all Employees 1.20 Total Liabilities including Exit Scheme 20.84 Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit-Motipur
f. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: Particulars Rs. in Crores Creditors for goods supplied 0.44 Statutory deduction 2.44 Other liabilities 0.85 Current a/c with Hqrs. 33.83 Vendor account 3.13 Cane commission (year wise ) 0.08 TOTAL: Rs. 40.77
The details of inter-unit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit-Motipur 5. Proposed Revival Plan Based on the technical assessment, the Motipur unit has available infrastructure to enable it to be expand to 2500 TCD along with a new 12 MW Co-generation Power Plant and a Distillery of 60 KLPD. The expansion process would require an implementation period of about 15-18 months. Hence it can be inferred that the unit is viable with above proposed expansion. However, to revive the unit, sugarcane an appropriate command area would required to be notified and necessary support from GOB would be needed.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if portion of the farm land attached to the factory (app 300 acres out of 1297 acres) and colony premises is converted to industrial land for doing the expansion of the unit. This shall provide more land for further expansion of the unit. It is also proposed that the colony land may be allowed for usage for expansion of unit, if required. The colony may be shifted to some other location. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
Considering the revival possibility with expansion to 2500 TPD with a new 12 MW Co-generation Power Plant and a Distillery of 60 KLPD, an incremental cost of Rs. 164 crores would be required, if some of the usable machineries of the existing mill are refurbished and used. For efficient operation of the unit post- revival, and considering such additional amount to be invested, it may be worthwhile to invite private players for running the unit.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit-Motipur The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit-Motipur
6. Sacrifice/Waiver/Settlement a. Secured Loans (Rs.0.53 Cr.) It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.The dues of Muzaffarpur Central Co-operative Bank Ltd as on date has to be settled/waived and necessary initiative has to be taken by the Sugarcane Industries Department.
b. Un-Secured Loans (Rs.1.17 Cr) The unsecured loans are from Government of Bihar. Under the current stage it would be difficult to get back any recovery of the loan. Considering the state of affairs of the Corporation, it is proposed to be waived off by GoB.
3. Cane Growers Dues (Rs.0.74 Cr) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability, if any, under the above head, may be settled by the Government of Bihar.
d) Labour Dues (Rs.20.84 Cr) No investors would normally like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees, investors may have the right of appointment. It may be further Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit-Motipur mentioned that the new investor would be averse to recruiting the existing labour based on their own screening process.
Hence an amicable settlement on all the labour issues i.e. Payment of arrears, Exit Scheme, etc has to be arrived between the Labour unions and the BSSCL before transferring the unit to the new investor. It may be mentioned that BSSCL has already estimated an amount of Rs.1.20 cr in the event of Exit Scheme is offered to all its employees. It is desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. Further it may be ensured that after the change of management, the existing employees shall be retained/employed at the sole discretion of the new management.
e. Other Liabilities ( Rs 40.77 crore) All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit-Motipur
7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed. On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions incl. SDF loan, if any. 3. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit-Motipur 8. Litigation Cases
SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the information provided by the legal advisor, there are no pending suits/cases for recovery of compensation by the erstwhile owner. However the possibility of the same may not be ruled out.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, if the implementation of the revival scheme cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may need to address the legal issues arising if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 Unit-Motipur
9. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
NEW SIWAN
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: NEW SIWAN, DISTRICT- SIWAN, BIHAR................... 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................. 6 b. Details of Unsecured Loans - Nil.................................................................................. 6 c. Cane Growers Dues ........................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 f. Other Liabilities ............................................................................................................... 7 5. ASSESSMENT OF THE UNIT ................................................................................. 8 6. ALTERNATE STRATEGY........................................................................................ 9 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................10 8. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................12 9. LITIGATION CASES ...............................................................................................13 10. CONCLUSIONS AND RECOMMENDATIONS.................................................14 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- New Siwan
1. Brief Background
The New Siwan Sugar Unit is located 2 km away from nearest Siwan Railway Station of Siwan District and 3 km away from Siwan Town. The Mill is at a distance of 3 km from approach road of National Highway. The Unit is adjoined by Siwan Sugar Unit which is at a distance of 3 km approximately.
The New Siwan Sugar Unit with 935 TCD capacity, was incorporated in 1918 under the ownership of New Savan Sugar & Gur Refining Company. After 61 years of its operation i.e. in 1979 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1977. The BSSC was incorporated as a wholly owned Government Company in December 1974 without having its own Sugar Mills.
The unit has only 28.30 acres of land as Factory Premises and they do not have any other land to be used as Colony, Farm Land or Out Centre Land. It has a huge Sugarcane Area of land of approximately 36173 acres.
After the take over of the unit by BSSC, the maximum cane was crushed in 1981-82 (7.61 lac quintal). The unit was operational till 1990-91 but the management of BSSC took the decision of closure of mills due to poor cash management and continuous losses due to non-disposal of sugar & molasses etc.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 3 Unit- New Siwan
2. Locational Map: New Siwan, District- Siwan, Bihar
New Siwan Sugar Unit Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- New Siwan 3. Technical Snapshot
SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been enclosed. A brief of the technical report is provided below:
Crushing Capacity 935 TCD Make of Plant consisting of - Mill Unit, Boiler Station, Power House, Boiling House Not Known Scrap Value of material including spares Rs 0.64 Crore Land Value (valuation report enclosed) Rs. 37.35 Crore
Land
The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory Premises & Colony premises 28.30 37.35
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- New Siwan 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the New Siwan unit as on March 31, 2006 is as follows:
Break up of Liabilities
Amount (Rs. crores) PARTICULARS 2006 Rs. in Crores SOURCES OF FUND : SHAREHOLDERS FUND : Capital Reserve & Surplus LOAN FUND : Secured Loan 0.08 Unsecured Loan 0.08 TOTAL : RS. 0.08
APPLICATION OF FUND : FIXED ASSETS Gross Block 3.65 Less : Depreciation 3.52 Net Block 0.13 Capital work in progress 0.06
CURRENT ASSETS, LOANS & ADVANCES : Inventory 0.54 Sundry Debtors Cash & Bank Balances 0.05 Loans & Advances 2.41 3.00
LESS : CURRENT LIABILITIES AND PROVISIONS Liabilities 31.66 Net Current Assets (28.66) Suspense Account (0.46) Miscelleneous Expenses (to the extent not written off or adjusted) Profit and Loss Account 29.01 Net Current Assets TOTAL : RS. 0.08 0.08 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- New Siwan 4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006 submitted by BSSC. a. Secured Loan PARTICULARS Rs Crore Sugar Development Fund 0.08 TOTAL : 0.08
The above dues are based on the Internal Audit report as on March 31, 2006 submitted by BSSC It may be mentioned that these claimants may have some charge on the existing assets of the unit for their respective dues.
The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. b. Details of Unsecured Loans - Nil c. Cane Growers Dues Rs Crore Cane Growers 0.04
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement. d. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- New Siwan e. Labour Dues
The above labour details are based on the Internal Audit Report submitted by SID and further information collected from the unit. We have prepared the above details and O/s dues based on the information submitted by them. f. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS 2006 Current A/c HO, Patna 12.26 Statutory Deduction 0.45 Inter Unit Transaction 0.03 Other current liabilities 6.48 TOTAL: 19.22 The details of interunit transaction and current account with headquaters has not been verified. Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 1 50 to 60 37 40 to 50 9 30 to 40 1 Unknown 0 Total 48 Liability Profile General Labour Rs. in crores Basic Wages 3.38 PF incl interest 0.21 Other O/s Allowance 0.29 Gratuity 0.95 Bonus 0.55 Total 5.38 Exit Scheme-considering All Employees 0.75 Net Dues including Exit Scheme settlement 6.13 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- New Siwan 5. Assessment of the Unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit is both technically incompetent and financially unviable. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co- generation unit and distillery. In light of above, the broad reasons for the New Siwan unit being unviable is as under:
1. The factory falls in the town area of Siwan. 2. Transportation of Cane and Sugar to and from the unit may be difficult. 3. The Land is not enough for further expansion.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- New Siwan 6. Alternate Strategy
Considering the above, it is recommended to use the Land for some other Industrial/Commercial Activity such as:
1. Food Processing Zone 2. Commercial Complex 3. Handicraft Park 4. Warehouse/Cold Storage 5. Hospitals, Schools
The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor based on a minimum Reserve price. Liabilities etc. would need to be settled accordingly to generate the investors interest. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- New Siwan 7. Sacrifice/Waiver/Settlement
The unit may not be revived due to difficulties envisaged and noted above. Therefore the same has to be developed for other industrial purpose some of which has been mentioned above. However the liabilities for existing dues has to be satisfied.
a. Secured Loans (Rs. 0.08 Cr.)
It may be mentioned that to transfer the land to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. However the investors would not be willing to take this liability. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Un-Secured Loans (Nil)
As per the information provided to us, there are no unsecured loans as on date.
c. Cane Growers Dues (Nil)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
d. Labour Dues (Rs. 6.13 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- New Siwan
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSC before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants so that the total amount under this scheme shall not exceed the actual amount overdue as calculated above and furnished by BSSC in their internal report for the unit. The payment of compensation structure to labour may be structured in installment basis that would be paid over a minimum period.
e. Other Liabilities (Rs 19.22 Crore)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- New Siwan
8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential Investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the price from the highest bidders, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks, Financial Institutions and SDF, if any (in case not settled by the Government of Bihar), 3. Balance, if any would be transferred to BSSC A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments. However in case the labour liabilities are not being able to settled from the above realization, the balance has to be settled by the Government of Bihar.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, Bank dues, and tax arrears may be waived/settled by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- New Siwan 9. Litigation Cases SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSC for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the possibility of the same way not be ruled out.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may assist in the settlement of cases.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- New Siwan 10. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit does not have a investment attractiveness for sugar unit. Therefore we suggest SID, GoB to consider the rehabilitation scheme as suggested in the proposed Revival Plan.
RYAM
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: RYAM, DISTRICT- DARBHANGA, BIHAR.................. 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................. 6 b. Unsecured Loans ............................................................................................................ 6 c. Cane Growers Dues ........................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 f. Other Liabilities ............................................................................................................... 8 5. ASSESSMENT OF THE UNIT ................................................................................. 9 6. ALTERNATE STRATEGY.......................................................................................10 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................11 8. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................13 9. LITIGATION CASES ...............................................................................................14 10. CONCLUSIONS AND RECOMMENDATIONS.................................................15 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- Ryam
1. Brief Background
The Ryam Sugar Unit is located at about 20 km from the railway station of Tarsarai and 25 km from Darbhanga District Township. The nearest sugar factory is a BSSC unit - Sakri, which is about 20 km from this Unit.
The Ryam Sugar Unit with 808 TCD capacity was incorporated in 1914 under the banner of M/s. Tirhut Co-operative Sugar Co. Ltd. After 64 years of its operation i.e. in 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1977.
The unit has only 8.10 acres of land which is being used for Factory Premises. Colony Premises has 17.92 acres of land. The Unit possesses a Sugarcane Area of land of approximately 28000 acres.
After the take over of the unit by BSSC, the maximum cane was crushed in 1978-79 that was 6.04 Lac quintal. The unit was operational till 1993-94 but the management of BSSC took the decision of closure of mills due to poor cash management and continuous losses.
Ryam Sugar Unit Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- Ryam 3. Technical Snapshot SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been enclosed. A brief snapshot of the technical report is provided below:
Crushing Capacity 808 TCD Make of Plant consisting of - Mill Unit, Boiler Station, Power House, Boiling House and Clarification House Mirless Watson Co. Ltd Scrap Value of material including spares Rs. 4.13 Cr Land Value (valuation report enclosed) Rs. 4.22 Cr
Land
The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory Premises & Colony Premises 26.02 4.22
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- Ryam
4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Ryam unit as on March 31, 2006 is as follows:
Break up of Liabilities Amount (Rs. crores) PARTICULARS 2006 RS. SOURCES OF FUND : SHAREHOLDERS FUND : Capital Reserve & Surplus 0.04 LOAN FUND : Unsecured Loan 1.10 TOTAL : RS. 1.14 APPLICATION OF FUND : FIXED ASSETS Gross Block 0.23 Less : Depreciation Net Block 0.23 Capital work in progress CURRENT ASSETS, LOANS & ADVANCES : Inventory 0.60 Sundry Debtors 0.01 Cash & Bank Balances 0.09 Loans & Advances 0.79 TOTAL: RS. 1.49 LESS : CURRENT LIABILITIES AND PROVISIONS Liabilities 26.44 Net Current Assets (24.95) Miscellaneous Expenses (to the extent not written off or adjusted) Profit and Loss Account 25.86 TOTAL: RS. 1.14
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- Ryam 4.1 Details of Liabilities The detailed break up of liabilities is as follows: a. Secured Loan Rs. Crore Secured Loans Nil
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Unsecured Loans Rs. Crore PARTICULARS Loan From Govt. of Bihar 0.71 Interest Accrued & Due on Govt. Loan 0.39 Total 1.10
As per the internal report prepared by BSSC, the above loan pertains to march 31, 2006. The same were infused at the time of takeover and are currently outstanding. It has been informed that no interest is being charged on the same. c. Cane Growers Dues Rs. Crore Cane Growers Dues Nil
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement. d. Electricity Dues Rs. Crore Electricity Nil As per the Internal Audit Report, there are no dues under the above head. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- Ryam e. Labour Dues
As far as the records are available from their Internal Audit Report for the financial year 2001-2002, an amount of Rs. 5.75 crore is still due to all the employees consisting of 44 Permanent Employees. However, we have been furnished the latest labour dues position which is as under:
The above labour details are based on the Internal Audit Report submitted by SID and further information collected from the unit.
Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 0 50 to 60 39 40 to 50 4 30 to 40 0 Unknown 0 Total 43 General Labour Amount Basic Wages 4.60 PF incl. Interest 1.25 Adhikal 0.03 Bonus 0.08 Upadhan 1.48 Retention Allowance 0.07 Leave Encashment 0.04 Total 7.55 Exit Settlement Scheme 0.85 Total Payable including Exit Scheme 8.40 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- Ryam f. Other Liabilities
The break up of other liabilities appearing in the internal audit report are as follows: Rs. Crore Particulars Amount Liabilities for Expenses 3.95 Statutory Deductions 1.16 Inter unit Account 0.09 Current Account with H.O. 16.88 Bihar Govt. through High Court Patna 2.23 TOTAL: RS. 24.31
As per the internal report prepared by BSSC, the above loans pertain to March 31, 2006. The same were infused at the time of takeover and are currently outstanding. It has been informed that no interest is being charged on the same.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- Ryam 5. Assessment of the Unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit has small area of land and thereby it may be difficult to revive the same. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co-generation unit and distillery. In light of above, the broad reasons for the Ryam unit being unviable is as under:
1. The factory is a very old plant and with a small piece of land that it has, cannot be used for any sort of expansion/ modernization and there for is unviable. 2. The unit is very near to Lohat where there is a possibility of revival and therefore Cane may not be sufficient for this unit.
However in case the investors are not interested in Lohat, Ryam may be made viable.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- Ryam 6. Alternate Strategy In the present context, it is felt that the space should be best utilized for Commercial Activity and not industrial activity viz.
1. Handicraft Park 2. Warehouse/Cold Storage 3. Hospital 4. Dairy
The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor. Liabilities etc. would need to be settled accordingly to generate the investors interest.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- Ryam 7. Sacrifice/Waiver/Settlement
a. Secured Loans (Nil)
As per the Internal Audit Report, there are no dues under this head. However in case of due of similar nature, the same has to be negotiated and settled by the Department prior to the bid process.
b. Unsecured Loans (Rs. 1.10 Cr)
The unsecured loans are from Government of Bihar and it is proposed that GoB may consider waiving it in the larger interest.
c. Cane Growers Dues (Nil)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
d. Labour Dues (Rs. 8.40 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land.
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSC before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants so Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- Ryam that the total amount under this scheme shall not exceed the actual amount overdue as calculated above and furnished by BSSC in their internal report for the unit. The payment of compensation structure to labour may be structured in installment basis that would be paid over a minimum period.
e. Other Liabilities (Rs 24.31 Crore)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- Ryam 8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the reserve price from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions including SDF loan, if any. 3. Any liability payable by an order of Court. 4. Balance, if any would be transferred to BSSC A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, and tax arrears may be waived/settled by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- Ryam 9. Litigation Cases SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSC for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the following case is pending before a court: 1. Money Suit No. 1/2006, (Food Corporation of India Vs. BSSC, Ryam) for refund of excess payment with respect to Sugar.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government shall make good the losses suffered if any.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 15 Unit- Ryam 10. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit may not be revived since the nearby unit Lohat has better potential of revival. However in case Lohat is not being revived, the possibility of revival of this unit may be explored. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
SAKRI
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: SAKRI, DISTRICT- MADHUBANI, BIHAR .................. 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................. 6 b. Details of Unsecured Loans - Nil.................................................................................. 6 c. Cane Growers Dues ........................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 e. Other Liabilities............................................................................................................... 7 5. ASSESSMENT OF THE UNIT ................................................................................. 8 6. ALTERNATE STRATEGY........................................................................................ 9 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................10 8. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................12 9. LITIGATION CASES ...............................................................................................13 10. CONCLUSIONS AND RECOMMENDATIONS.................................................14 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- Sakri
1. Brief Background
The Sakri Sugar Unit is located 500 m away from Sakri Railway Station and 25 Km. away from District Town Madhubani. The Unit is 1.5 km away from National Highway approach road of Darbhanga. The Unit is adjoined by another two BSSC owned closed down Sugar Units i.e. Ryam Sugar Unit (20 km) and Lohat Sugar Unit (15 km).
The Sakri Sugar Unit with 762 TCD capacity, was incorporated in 1933 under the ownership of Darbhanga Maharaj as Darbhanga Sugar Co. Limited, later on after 44 years of its operation i.e. in 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1977. The BSSC was incorporated as a wholly owned Government Company in December 1974 without having its own Sugar Mills. Private &Confidential Rehabilitation Report
Sakri Sugar Unit Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- Sakri 3. Technical Snapshot SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has enclosed. A brief of the technical report is provided below:
Crushing Capacity 762 TCD Make of Plant consisting of - Milling Unit, Boiler Station, Power House, Boiling House, Clarification House, Grading Section and Effluent Treatment Plant Mirless Watson Scrap Value of material including spares Rs 4.26 Crore Land Value (valuation report enclosed) Rs 13.94 Crore
Land
The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory Premises & Colony premises 32.23 13.94
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- Sakri 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Sakri unit as on March 31, 2006 is as follows: Break up of Liabilities Amount (Rs. crores) PARTICULARS 2006 SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus LOAN FUND : Secured Loan 0.21 Unsecured Loan TOTAL : RS. 0.21
APPLICATION OF FUND : FIXED ASSETS : Gross Block 1.71 Less : depreciation 1.49 Net Block 0.21 Capital work in progress
CURRENT ASSETS, LOANS & ADVANCES : Inventories 0.46 Sundry Debtors 0.05 Cash & Bank Balance 0 Loans & Advances 3.23 TOTAL : RS. 3.74 LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 33.39 Provision 0.77 Net Current Assets (30.42)
Miscellaneous Expenditures (To the extent not written off or adjusted) Profit and Loss Account 30.42 TOTAL : RS. 0.21
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- Sakri 4.1 Details of Liabilities The detailed breaks of liabilities are as follows: a. Secured Loan PARTICULARS Rs Crore R.C.C Bank 0.21 TOTAL : 0.21
The above dues are based on the Internal Audit report as on March 31, 2006 submitted by BSSCL It may be mentioned that these claimants may have some charge on the existing assets of the unit for their respective dues.
The SID may further confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. b. Details of Unsecured Loans - Nil c. Cane Growers Dues Rs Crore Cane Growers 0.98
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement. d. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- Sakri e. Labour Dues We have collected the latest age profile and dues position which is as under:
The above labour details are based on the Internal Audit Report submitted by SID and further information collected from the unit. We have prepared the above details and O/s dues based on the information submitted by them. e. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS 2006 Current A/c with H.O (Capital) 20.12 Statutory deduction 2.91 Inter Unit Transaction 0.04 Other current liabilities 8.26 TOTAL 31.33
The details of interunit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 3 50 to 60 51 40 to 50 22 30 to 40 1 Unknown 0 Total 77 Liability Profile General Labour Rs. in crores Basic Wages 5.21 Leave Encashment 1.10 PF incl interest 2.51 Total 8.82 Exit Scheme-considering All Employees 1.02 Net Dues including Exit Scheme settlement 9.84 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- Sakri 5. Assessment of the Unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit is both technically incompetent and financially unviable. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co- generation unit and distillery. In light of above, the broad reasons for the Sakri unit being unviable is as under:
1. The factory falls in the town area of Siwan. 2. Given the milling size, the crushing capacity can be increased to 1500 TCPD, however the crushing unit of this size would need a 90 KLPD distillery for which there is no space in the factory; 3. The Land is not enough for further expansion. 4. The unit is very close to Lohat and Ryam unit which is at a distance of approximately 15-20 km.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- Sakri 6. Alternate Strategy Considering the above, it is recommended to use the Land for some other Industrial/Commercial Activity such as:
1. Food Processing Zone 2. Commercial Complex 3. Handicraft Park 4. Warehouse/Cold Storage
The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor based on a minimum Reserve price. Liabilities etc. would need to be settled accordingly to generate the investors interest. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- Sakri 7. Sacrifice/Waiver/Settlement
The unit may not be revived due to difficulties envisaged and noted above. Therefore the same has to be developed for other industrial purpose some of which has been mentioned above. However the liabilities for existing dues has to be satisfied.
a. Secured Loans (Rs.0.21 Cr.)
It may be mentioned that to transfer the land to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. However the investors would not be willing to take this liability. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Cane Growers Dues (Rs. 0.98 Cr)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
c. Labour Dues (Rs.9.84 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land.
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSCL Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- Sakri before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants so that the total amount under this scheme shall not exceed the actual amount overdue as calculated above and furnished by BSSCL in their internal report for the unit. The payment of compensation structure to labour may be structured in installment basis that would be paid over a minimum period.
d. Other Liabilities (Rs 31.33 Cr)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- Sakri 8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the reserve price from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions including SDF loan, if any. 3. Any liability payable by an order of Court. 4. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, and tax arrears may be waived/settled by the GoB.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- Sakri 9. Litigation Cases
SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
1. As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government shall make good the losses suffered if any.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- Sakri 10. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit does not have a investment attractiveness for sugar unit. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
SAMASTIPUR
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: SAMASTIPUR, DISTRICT- SAMASTIPUR, BIHAR..... 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................. 6 b. Unsecured Loans ............................................................................................................ 6 c. Cane Growers Dues ........................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 f. Other Liabilities ............................................................................................................... 7 5. ASSESSMENT OF THE UNIT ................................................................................. 8 6. ALTERNATE STRATEGY........................................................................................ 9 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................10 8. UTILIZATION OF PROCEEDS IN THE SETTLEMENT PROCESS.................12 9. LITIGATION CASES ...............................................................................................13 10. CONCLUSIONS AND RECOMMENDATIONS.................................................14 Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- Samastipur
1. Brief Background
The Samastipur Sugar Unit is located in Samastipur Town itself which is approximately 200 m from National Highway and 1 km from Samastipur Railway Station. The Unit is adjoined by another private sector Sugar Factory i.e. Hasanpur Sugar Unit.
The Samastipur Sugar Unit with 808 TCD capacity was incorporated in 1920 under the banner of M/s. Sastipur Sugar Central Sugar Limited; later on after 57 years of its operation i.e. in 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1977.
The unit has only 20.90 acres of land which is being used for Factory Premises and Colony Premises which actually falls in the town of Samastipur. The Unit possesses a Sugarcane Area of land of approximately 11814 acres.
After the take over of the unit by BSSC, the maximum cane was crushed in 1982-83 that was 7.63 lakh quintal in 1982-83 season [i.e. around 52% capacity utilisation. The unit was operational till 1996-97 but the management of BSSC took the decision of closure of mills due to poor cash management and continuous losses. Private & Confidential Rehabilitation Report
Samastipur Sugar Unit Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- Samastipur 3. Technical Snapshot SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been enclosed. A brief of the technical report is provided below:
Crushing Capacity and Unit Value 808 TCD Make of Plant consisting of - Mill Unit, Boiler Station, Power House, Boiling House Mirless Watson Co. Ltd, George Fletcher, Babcok & Wilcok Scrap Value of material including spares (Report Provided in Annexure I) Rs 3.80 Crore Land Value (valuation report enclosed) Rs. 22.99 Crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory Premises & Colony Premises 20.90 22.99
Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- Samastipur 4. Financial Position As per the Internal Audit Report made available to us by the Cane Development Department, the Balance Sheet of the Samastipur unit as on March 31, 2006 is as follows: Break up of Liabilities Amount (Rs. crores) PARTICULARS 2006 SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus 0.03 0.03 LOAN FUND Secured Loan 1.01 Unsecured Loan 1.97 2.98 TOTAL : Rs. 3.01
APPLICATION OF FUNDS: FIXED ASSETS: Gross Block 1.78 Less : Depreciation 1.60 Net Block 0.18 Capital Work in Progress 0.04
LESS : CURRENT LIABILITIES & PROVISIONS Liabilities 39.03 Provisions 1.37
TOTAL : (B) 40.4
NET CURRENT ASSETS : (A-B) -34.82
Unreconciled amount 0.404
a)Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 37.21
TOTAL :Rs. 3.01 Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- Samastipur 4.1 Details of Liabilities The detailed break up of liabilities is as follows: a. Secured Loan PARTICULARS Rs Crore Secured Loan 1.01 TOTAL : 1.01 The further break up of secured loans was not available. The above dues are based on the Internal Audit report as on March 31, 2006 submitted by BSSC. It may be mentioned that these claimants may have some charge on the existing assets of the unit for their respective dues.
The Sugarcane Industries Department (SID) may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. b. Unsecured Loans Rs. Crore Unsecured Loans 1.97 The further break up of unsecured loans was not available. As per the internal report prepared by BSSC, the above loan pertains to march 31, 2006. The same were infused at the time of takeover and are currently outstanding. It has been informed that no interest is being charged on the same. c. Cane Growers Dues Rs. Crore Cane Growers Nil It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled/ in the process of settlement. d. Electricity Dues Rs. Crore Electricity Nil As per the Internal Audit Report, there are no dues under the above head. Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- Samastipur e. Labour Dues Based on the Internal Audit Report for the financial year 2001-2002, an amount of Rs. 8.47 crore was due to all the employees. However, we have collected the latest age profile and dues position which is as under:
The above labour details are based on the Internal Audit Report submitted by SID and further information collected from the unit.
We have prepared the above details and O/s dues based on the information submitted by them. f. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS 2006 Other Current Liabilities 28.27 TOTAL 28.27
The detailed break up of the above is not available presently. Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 8 50 to 60 66 40 to 50 10 30 to 40 1 Unknown 4 Total 89 Liability Profile General Labour Rs. in crores Basic Wages 6.83 PF incl interest 1.88 Upadhan 2.00 Retention Allowance 0.77 PF on RA 0.18 Total 11.66 Exit Scheme-considering All Employees 0.90 Net Dues including Exit Scheme settlement 12.56 Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- Samastipur 5. Assessment of the unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit is both technically incompetent and financially unviable. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co- generation unit and distillery. In light of above, the broad reasons for the Samastipur unit being unviable is as under: 1. Given the milling size, the crushing capacity can be increased to 1500 TCPD, however the crushing unit of this size would need a 90 KLPD distillery for which there is no space in the factory; 2. Further, the unit is located in the heart of the town and given the pollutants being emitted by the distillery it would not be advisable to set up a distillery unit in the midst of the township.
Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- Samastipur 6. Alternate Strategy Samastipur is a junction town well linked to other parts of the country through railways. The town is populated and there is dearth of space. In view of the above, in the present context, it is highly felt that the space should be best utilized for Commercial Activity and not industrial activity viz. 1. Handicraft Park 2. Warehouse/Cold Storage 3. Hospital 4. Setting up of world class B / Engineering schools etc. on the lines of IIT Kharagpur/ BITs Pilani/ IIM (Indore) etc. with independent management. The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor. Liabilities etc. would need to be settled accordingly to generate the investors interest. Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- Samastipur 7. Sacrifice/Waiver/Settlement
As indicated above, even if the unit is unviable from the perspective of operating it as sugar unit but it is felt that interest of the investors could be invited for taking up commercial activity. Accordingly, the liabilities as indicated above would need to be settled. The liabilities may be settled as follows:
a. Secured Loans (Rs. 1.01 Cr.)
It may be mentioned that to transfer the land to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. However the investors would not be willing to take this liability. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Unsecured Loan (Rs. 1.97 Cr)
The unsecured loans are from Government of Bihar and it is proposed that GoB may consider waiving it in the larger interest.
c. Cane Growers Dues (Nil)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- Samastipur d. Labour Dues (Rs. 12.56 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land.
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSC before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants so that the total amount under this scheme shall not exceed the actual amount overdue as calculated above and furnished by BSSC in their internal report for the unit. The payment of compensation structure to labour may be structured
e. Other Liabilities (Rs. 28.27 Cr)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future may be settled/negotiated/ waived by the GoB.
Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- Samastipur 8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the reserve price from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under: 1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions including SDF loan, if any. 3. Any liability payable by an order of Court. 4. Balance, if any would be transferred to BSSC A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, and tax arrears may be waived/settled by the GoB.
Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- Samastipur 9. Litigation Cases
SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSC for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the possibility of the same way not be ruled out.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government shall make good the losses suffered if any.
Private & Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- Samastipur 10. Conclusions and Recommendations
The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit does not have a investment attractiveness for sugar unit. Therefore we suggest SID, GoB to consider the rehabilitation scheme as suggested in the proposed Plan.
SIWAN
TABLE OF CONTENTS 1. BRIEF BACKGROUND............................................................................................ 2 2. LOCATIONAL MAP: SIWAN, DISTRICT- SIWAN, BIHAR ............................. 3 3. TECHNICAL SNAPSHOT....................................................................................... 4 4. FINANCIAL POSITION........................................................................................... 5 4.1 Details of Liabilities................................................................................................... 6 a. Secured Loan ................................................................................................................... 6 b. Unsecured Loans ............................................................................................................ 6 c. Cane Growers Dues ........................................................................................................ 6 d. Electricity Dues ............................................................................................................... 6 e. Labour Dues..................................................................................................................... 7 f. Other Liabilities ............................................................................................................... 8 5. ASSESSMENT OF THE UNIT ................................................................................. 9 6. ALTERNATE STRATEGY.......................................................................................10 7. SACRIFICE/WAIVER/SETTLEMENT.................................................................11 8. UTILISATION OF PROCEEDS IN THE SETTLEMENT PROCESS..................13 9. LITIGATION CASES ...............................................................................................14 10. CONCLUSIONS AND RECOMMENDATIONS.................................................15 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 2 Unit- Siwan
1. Brief Background
The Siwan Sugar Unit is located on the National Highway and 3 km from Sugauli Railway Station keeping 3 km distance from District Town of Siwan of Bihar. The Unit is adjoined by another closed down Sugar Unit i.e. New Siwan Sugar Unit which is at a distance of 3 km approximately.
The Siwan Sugar Unit with 800 TCD capacity, was incorporated in 1932 under the banner of M/s. S.K.G. Sugar Limited; later on after 53 years of its operation i.e. in 1985 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts 1985. The BSSC was incorporated as a wholly owned Government Company in December 1974 without having its own Sugar Mills.
The unit has land area of approximately 32.58 acres, out of which 21.48 acres of land is being used for Factory Premises, 8.90 acres for Colony Premises. Moreover, 2.20 acres of land covering Pond, Temple & Pancing is there as Out Center Land. The unit is also having a Sugarcane Area of land of 32000 acres.
After the take over of the unit by BSSC, the maximum cane was crushed in 1977-78 that was 9.58 lac quintal in 1977-78 season. The unit was operational till 1992-93 but the management of BSSC took the decision of closure of mills due to poor cash management and continuous losses. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 3 Unit- Siwan
2. Locational Map: Siwan, District- Siwan, Bihar
Siwan Sugar Unit Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 4 Unit- Siwan 3. Technical Snapshot
SBI Capital Markets Ltd. appointed K. S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been enclosed. A brief of the technical report is provided below:
Crushing Capacity 800 TCD Make of Plant consisting of - Mill Unit, Boiler Station, Power House, Boiling House Mirless Watson Co. Ltd.- ScotLand Scrap Value of material including spares Rs 2.60 Cr Land Value (valuation report enclosed) Rs. 37.19 Cr
Land
The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at market rates prevailing in the district.
Land Details Area ( Acres) Value (Rs. Crore) Factory Premises & Colony premises 30.38 37.19
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 5 Unit- Siwan 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of Siwan unit as on March 31, 2006 is as follows: Break up of Liabilities Amount (Rs. crores) PARTICULARS Amount
2005-06
SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus LOANS - FUND: Secured Loan Un - secured Loan 0.20 TOTAL : Rs. 0.20 APPLICATION OF FUND: FIXED ASSETS: Gross Block 0.63 Less : Depreciation 0.51 Net Block 0.12 Capital Work -In Progress INVESTMENTS: CURRENT ASSETS, LOANS & ADVANCES Inventories 0.35 Sundry Debtors Cash & Bank Balance 0.01 Loans & Advances 2.15 TOTAL : RS. 2.50 LESS: CURRENT LIABILITIES & PROVISIONS Liabilities 20.20 Provisions 0.35 NET CURRENT ASSETS (18.05) a) Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss account 18.13
TOTAL : Rs. 0.20
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 6 Unit- Siwan 4.1 Details of Liabilities
The above dues are based on the Internal Audit report as on March 31, 2006 submitted by BSSCL. a. Secured Loan
Secured Loan Nil
b. Unsecured Loans
PARTICULARS Rs Crore Government of Bihar 0.20 TOTAL : 0.20
c. Cane Growers Dues Rs Crore Cane Growers 0.05
d. Electricity Dues Rs. Crore Electricity 0.11
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 7 Unit- Siwan e. Labour Dues
Based on the Internal Audit Report for the financial year 2001-2002, an amount of Rs. 8.47 crore was due to all the employees. However, we have collected the latest age profile and dues position which is as under:
The above labour details are based on the Internal Audit Report submitted by CDD and further information collected from the unit. We have prepared the above details and O/s dues based on the information submitted by them.
Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 2 50 to 60 28 40 to 50 9 30 to 40 0 Unknown 0 Total 39 Liability Profile General Labour Rs. in crores Basic Wages 4.87 PF 2.26 Bonus 0.61 Upadhan 1.59 Misc 0.05 Retention Allowance 0.06 Total 9.98 Exit Scheme-considering All Employees 0.27 Net Dues including Exit Scheme settlement 10.25 Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 8 Unit- Siwan f. Other Liabilities
The break up of other liabilities appearing in the internal audit report are as follows:
PARTICULARS in Rs. Cr Credit for goods supplers 0.34 Liabilities for expenses 0.31 Statutory Deduction 1.27 Other Liabilities 3.71 Current Account with H.O. 12.85 Cane Commission 0.02 Gratuity 1.43 Bonus 0.47 TOTAL 20.40
The details of interunit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 9 Unit- Siwan
5. Assessment of the Unit An attempt was made to understand the technical competence of the unit to be financially viable in the current market scenario as also going forward. It is felt that the unit is both technically incompetent and financially unviable. In this connection, it may be mentioned that given the prevailing sugar industry parameters, sugar units are surviving mainly because of integrated Co- generation unit and distillery. In light of above, the broad reasons for the Siwan unit being unviable are as under:
1. Thus the revival of the sugar unit is not possible due to the following reasons: 2. The factory falls in the town area of Siwan. 3. The Land is not enough for further expansion. 4. The unit is very close to New Siwan unit which is at a distance of approximately 3 km. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 10 Unit- Siwan
6. Alternate Strategy Considering the above, it is recommended to use the Land for some other Industrial/Commercial Activity such as: 1. Food Processing Zone 2. Commercial Complex 3. Handicraft Park 4. Warehouse/Cold Storage 5. Educational Institute 6. Hospital The above is only indicative and it is felt that it should be best left to the investors to take up any of the commercial activity not restricted to as indicated above.
For creation of economic activity and generation of new investment opportunities, the premises of the above unit may be used but not restricted to the above purpose. For the same, it is understood that the land may be leased to private investors on a long term basis. The valuation of a unit is broadly done on going concern basis or fair value of the assets. The above unit is not running and therefore the basis would be based on the fair value of the assets. Again the new investors may not be willing to undertake any of the existing liabilities of the unit. Based on the above, the liabilities may be suitably waived/settled/adjusted/negotiated by Government of Bihar and the unit may be transferred to the potential investor free from all encumbrances and the investor should pay for the assets being acquired.
Therefore, the Land would need to be handed over on long term lease basis and the existing machineries would need to be sold through a bidding process to the prospective investor based on a minimum Reserve price. Liabilities etc. would need to be settled accordingly to generate the investors interest. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 11 Unit- Siwan
7. Sacrifice/Waiver/Settlement
a. Secured Loans (Nil)
b. Unsecured Loans (Rs. 0.20 Cr)
The unsecured loans are from Government of Bihar. Under the current stage it would be difficult to get back any recovery of the loan. Considering the amount of loan, it is proposed to be waived off by GoB.
c. Cane Growers Dues (Rs. 0.05 Cr)
As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that is would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability if any under the above head may be settled by the Government of Bihar.
d. Labour Dues (Rs. 10.25 Cr)
As indicated above, even if the unit is unviable from Sugar perspective, it would be necessary to settle the dues in order to explore the other options for making the effective utilization of the industrial land.
Therefore, an amicable settlement on all the labour issues i.e. Payment of arrears, VRS, etc has to be arrived between the Labour unions and the BSSCL before transferring the Land to the new investor. It is desirable that an Exit Policy scheme has to be framed preferably by engaging the HR consultants. The payment of compensation structure to labour may be structured in installment basis. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 12 Unit- Siwan e. Other Liabilities (Rs 20.40 Crore)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. The other liabilities also include current account with Head office of Rs. 21.92 crores which has been infused as capital. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 13 Unit- Siwan
8. Utilization of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the reserve price from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions including SDF loan, if any. 3. Any liability payable by an order of Court. 4. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 14 Unit- Siwan
9. Litigation Cases
SBI Caps has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the information provided by the legal advisor, there is no pending suits/cases for recovery of compensation by the erstwhile owner. However the following cases are pending before various courts:
Before the Honble High Court, Patna 1. C.W.J.C. No. 5784 of 2006 (Makmul Hoda Vs. The State of Bihar & ors.) (Matters relates to Retirement Benefits and for payment of other dues)
Before the Civil Court & Other Court 1. Title Suit No. 6 of 2000 (General Manager, Bihar State Sugar Corporation Ltd. Vs. Dr. Haroon and others) 2. Certificate Case No. 2 of 1994 (Bihar Electricity Board, Chapra Vs. General Manager, Bihar State Sugar Corp. Ltd., Siwan) 3. M.S. No. 12 of 1993 (Central Excise Vs. General Manager, Bihar State Sugar Corp. Ltd, Siwan)
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government shall make good the losses suffered if any.
Private &Confidential Rehabilitation Report
SBI Capital Markets Ltd. 15 Unit- Siwan 10. Conclusions and Recommendations The objective of GoB is to revive/rehabilitate the unit. However based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit does not have a investment attractiveness for sugar unit. Therefore we suggest SID, GoB to consider the rehabilitation scheme as suggested in the proposed Plan.
SUGAULI
TABLE OF CONTENTS
1. BRIEF BACKGROUND.................................................................................................. 2 2. LOCATIONAL MAP : SUGAULI, DISTRICT- EAST CHAMPARAN, BIHAR..... 3 3. TECHNICAL SNAPSHOT............................................................................................. 4 4. FINANCIAL POSITION................................................................................................. 5 4.1 Details of Liabilities......................................................................................................... 6 5. PROPOSED REVIVAL PLAN........................................................................................ 8 6. SACRIFICE/WAIVER/SETTLEMENT...................................................................... 10 7. UTILISATION OF PROCEEDS IN THE SETTLEMENT PROCESS....................... 12 8. LITIGATION CASES .................................................................................................... 13 9. CONCLUSIONS AND RECOMMENDATIONS...................................................... 14 Private &Confidential Viability Report
SBI Capital Markets Ltd. 2 Unit- Sugauli
1. Brief Background
The Sugauli Sugar Unit is located at 1 Km. from National Highway and 5 Kms. from Sugauli Railway Station and around 25 Km from District Town of East Champaran District of Bihar. There are two private sugar units viz. Majhaulia Sugar Unit (15 Km) and Motihari Sugar Unit (25 Km) located close to the Sugauli unit. The Sugauli Sugar Unit with 900 TCD capacity, was incorporated in 1933 in the name of M/s. Sugauli Sugar Works Limited. It was taken over in 1985 by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1985. The BSSC was incorporated as a wholly owned Government Company in December 1974. The unit has substantial land approximately 430.77 acres. Out of which 73.13 acres of land is being used for Factory Premises, 16.24 acres for Colony Premises and 319.64 acres of land for its Agricultural use. After take over of the unit by BSSC, the maximum cane of 9.19 lakh quintal was crushed in the year 1991-92 (Assuming the no. of crushing days as 180 days, capacity utilization during that year was 59%). The unit was operational till 1996- 97 but the management of BSSC took the decision of closure of the mill due to continuous losses. Private &Confidential Viability Report
SBI Capital Markets Ltd. 3 Unit- Sugauli
2. Locational Map : Sugauli, District- East Champaran, Bihar
Sugauli Sugar Unit Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit- Sugauli 3. Technical Snapshot SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been provided in this report. A brief snapshot of the technical report is provided below: Crushing Capacity 900 TCD Make of Plant consisting of-Mill Unit, Boiler Station, Power House, Clarification Section, Boiling House, Effluent treatment Plant Milling Unit: M/s Krupp Megdeberg, Germany Realisable value of the Mill House, Boiling house equipments and other spares Rs 1.22 Crore Land Value (valuation report enclosed) Rs. 44.18 Crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. in Crore) Land Details Area ( Acres) Govt. Value Market Value Factory and colony Premises 89.37 41.82 44.18
Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit- Sugauli 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of Sugauli unit as on March 31, 2006 is as follows: Break up of Liabilities Amount (Rs. crores) PARTICULARS Amount
2005-06
SOURCES OF FUND: SHAREHOLDERS FUND: Capital 0.01 Reserve & Surplus LOANS - FUND: Secured Loan 0.75 Un - secured Loan TOTAL : Rs. 0.75 APPLICATION OF FUND: FIXED ASSETS: Gross Block 1.51 Less : Depreciation 1.37 Net Block 0.14 Capital Work -In Progress 0.03 INVESTMENTS: CURRENT ASSETS, LOANS & ADVANCES Inventories 0.55 Sundry Debtors 0.17 Cash & Bank Balance 0.06 Loans & Advances 3.08 TOTAL : RS. 3.86 LESS: CURRENT LIABILITIES & PROVISIONS Liabilities 33.22 Provisions 0.81 NET CURRENT ASSETS (30.17) a) Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss account 30.75
TOTAL : Rs. 0.75
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit- Sugauli 4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006. a. Secured Loan
PARTICULARS Rs Crore Bihar State Cooperative Bank Ltd 0.73 Sugar Development Fund 0.02 TOTAL : 0.75
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Cane Growers Dues Rs Crore Cane Growers 1.03
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled.
c. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit- Sugauli d. Labour Dues The labour dues position based on the information submitted by the unit is as under:
e. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: PARTICULARS 2006 Statutory deduction 1.97 Liability for expenses 6.58 Creditor for goods supplied 0.10 Current A/c with H.O (Capital) 21.93 Other Liabilities 0.02 TOTAL 30.60 The details of interunit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006. Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 2 50 to 60 37 40 to 50 35 30 to 40 4 Unknown 15 Total 93 Liability Profile General Labour Rs. in crores Basic Wages 4.02 PF incl interest 1.51 Other O/s Allowance 1.35 Gratuity 0.42 Bonus 0.72 Total 7.31 Exit Scheme- Amount considering All Employees 1.82 Net Dues including Exit Scheme 9.13 Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit- Sugauli 5. Proposed Revival Plan
The Unit located in East Champaran district with a land area of 89 acres and farm land area of around 319 acres. The unit can be expended to 1500 TPD with a distillery based on juice along with a cogen of 7 MW. For this a boiler, TG set and a distillery shall have to be installed. Complete plant shall be converted to an electric driven plant and mills shall have to be relocated and driven by individual drives and provided with rake type inter carriers, Donnelley chutes etc. Remaining equipment except some can be disposed off. The distillery capacity shall be 90 KLPD. The expansion process would require an implementation period of about 15-18 months. Hence it can be inferred that the unit is viable with above proposed expansion. The incremental cost has been estimated at around Rs. 140 crores.
Suitable cane growing area may be allocated to take care of the units requirement.
The farm land of 200 acres may also be given alongwith the transfer of unit. The colony land may be allowed to be converted into factory land for immediate or future expansions. The adjacent farm land, if any, may be allowed to be used as factory land.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if portion of the farm land attached to the factory, if any, and colony premises is converted into industrial land for doing the expansion of the unit. This shall provide more land for further Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit- Sugauli expansion of the unit. It is also proposed that the factory colony may be allowed for usage for expansion of unit. The colony may be shifted to some other location, preferably the nearest farm land subject to necessary approvals. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit- Sugauli
6. Sacrifice/Waiver/Settlement a. Secured Loans (Rs.0.75 Cr.) It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Cane Growers Dues (Rs.1.03 Cr) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability, if any, under the above head, may be settled by the Government of Bihar.
c) Labour Dues (Rs.9.13 Cr) As per the discussions and feedback received from various investors, they would not like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees, investors may have the right of appointment. It may further be mentioned that the new investor would be averse to recruiting the existing labour based on their own screening process.
Hence an amicable settlement on all the labour issues i.e. Payment of past arrears, Exit Scheme, Settlement, etc has to be arrived between the Labour unions and the BSSC before transferring the unit to the new investor. It may be mentioned that BSSC has already estimated an amount of Rs 1.70 crore in the event of Settlement scheme (Exit Scheme) is offered to all its employees. It is Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit- Sugauli desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. Further it may be ensured that after the change of management, the existing employees shall be retained/employed at the sole discretion of the new management.
d. Other Liabilities (Rs.30.60 Crore)
All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. The other liabilities also include current account with Head office of Rs. 21.92 crores which has been infused as capital. Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit- Sugauli
7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions including SDF loan, if any. 3. Any liability payable by an order of Court. 4. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, and tax arrears may be waived/settled by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit- Sugauli
8. Litigation Cases
SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the findings of the Legal Advisor and as mentioned in the report, there are no litigation cases against the above Mill as on date.
The Legal Advisor has also verified the title deeds pertaining to the Land as opined that the BSSC has marketable Title over the property.
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may undertake to make good the losses suffered if any. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit- Sugauli 9. Conclusions and Recommendations The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.
The Warisaliganj Sugar Unit is located 2 Km away from Warisaliganj Railway Station of Nawada District, 20 Km away from District Town and 20 Km distance from National Highway approach road on Nawada-Barbigha Road. No other Sugar Unit is located near this Unit.
The Warisaliganj Sugar Unit with 700 TCD capacity, was incorporated in 1933 under the ownership of Warisaliganj Co-operative Sugar Mills i.e. in the year 1977 it was taken over by Bihar State Sugar Corporation (BSSC) under Bihar Sugar Undertakings (Acquisition) Acts. 1977. The BSSC was incorporated as a wholly owned Government Company in December 1974.
The unit has a substantial land of 37.90 acres, out of which 32.85 acres of land is being used for Factory Premises and 5.05 acres of land as Colony Premises.
After the take over of the unit by BSSC, the maximum cane of 7.43 lakh quintal was crushed in the year 1981-82 (Assuming the no. of crushing days as 180 days, capacity utilization during that year was 59%). The unit was operational till 1992- 93 but the management of BSSC took the decision of closure of the mill due to continuous losses. Private &Confidential Viability Report
Warsaliganj Sugar Unit Private &Confidential Viability Report
SBI Capital Markets Ltd. 4 Unit- Warsaliganj 3. Technical Snapshot SBI Capital Markets Ltd. appointed K.S. Projects & Process Engineers Private Limited (KSPL) for detailed technical assessment of the unit. KSPL have an experience of more than two and half decades in sugar industry consultancy. The detailed Technical Report submitted by KSPL has been provided in this report. A brief snapshot of the technical report is provided below: Crushing Capacity 661 TCD Per day Make of Plant consisting of Milling Unit: Crushing capacity 661 TCD, Boiler Station, Power House, Clarification Section Boiling House, Centrifugal and Grading Section M/s. Duncon Stewert & Co. Glassgow Scrap Value of material including Spares Rs.2.39 crore Land Value (valuation report enclosed) Rs. 14.15 crore
Land The Land valuation has been done by M/s Bhartia & Associates, Chartered Engineer, Patna. He is a Government registered valuer and also empanelled as valuer with various Banks and Institutions including State Bank of India. The Land value has been considered at government rates prevailing in the district. (Rs. in lacs) Land Details Area ( Acres) Govt. Value Market Value Factory and colony Premises 37.90 12.56 14.15
Private &Confidential Viability Report
SBI Capital Markets Ltd. 5 Unit- Warsaliganj 4. Financial Position As per the Internal Audit Report made available to us by the Sugarcane Industries Department, the Balance Sheet of the Warisaliganj unit as on March 31, 2006 is as follows:
Break up of Liabilities PARTICULARS 2006 Total Rs. In Crores Rs. In Crores SOURCES OF FUND: SHAREHOLDERS FUND: Capital Reserve & Surplus 9.00 9.00 LOAN FUND Secured Loan 0.23 Unsecured Loan 0.84 1.07 TOTAL : Rs. 10.07 APPLICATION OF FUNDS: FIXED ASSETS: Gross Block Less : Depreciation Net Block 9.01 Capital Work in Progress INVESTMENTS : CURRENT ASSET , LOANS & ADVANCES Inventories 0.42 Sundry Debtors 0.10 Cash & Bank Balance 0.10 Loans & Advances 0.73 TOTAL : RS. 1.35 LESS : CURRENT LIABILITIES & PROVISIONS Current Liabilities 0.64 Outstanding Liabilities 3.53 Other Liabilities 11.00 Provisions 1.47 TOTAL : RS. 16.64 NET CURRENT ASSETS : (15.29) a)Miscellaneous Expenditure to the extent not written off or adjusted Profit & Loss Account 16.35 TOTAL :Rs. 10.07
Private &Confidential Viability Report
SBI Capital Markets Ltd. 6 Unit- Warsaliganj 4.1 Details of Liabilities The above dues are based on the Internal Audit report as on March 31, 2006. a. Secured Loan PARTICULARS Rs Crore N.C.C Bank CC Account 0.23
It may be mentioned that these lenders may have some charge on the existing assets of the unit for their respective dues. b. Unsecured Loan Particulars Rs Crore Loan from Govt. of Bihar 0.65 Interest Accrued & Due on Loan Govt. of Bihar 0.19 TOTAL : Rs. 0.84
The loan was infused at the time of takeover and are currently outstanding. It has been informed that no interest is being charged on the same. c. Cane Growers Dues Rs Crore Cane Growers 0.06
It has been informed by SID that as on May 2007 there is no such O/s dues to the cane growers and all the dues under the above head has been settled.
d. Electricity Dues Rs. Crore Electricity Nil
As per the Internal Audit Report, there are no dues under the above head. Private &Confidential Viability Report
SBI Capital Markets Ltd. 7 Unit- Warsaliganj e. Labour Dues The labour dues position based on the information submitted by the unit is as under: Data as on Mar 2007 Labour Age Profile Age No of Labour Above 60 1 50 to 60 28 40 to 50 2 Total 31
f. Other Liabilities The break up of other liabilities appearing in the internal audit report are as follows: (Rs. In Crores) Particulars Amount Other liabilities 0.02 TOTAL: Rs. 0.02
The details of interunit transaction and current account with headquaters has not been verified. The SID may further require to confirm that there is no other liability other than shown in the Internal Audit Report as on March 31, 2006.
Liability Profile (Rs. In crore) General Labour Basic Wages 2.76 PF 0.74 Bonus 0.23 Upadhan 0.92 Arrear 0.04 Total 4.69 Cost of Exit Scheme for All Employees 0.42 Gross Total 5.11 Private &Confidential Viability Report
SBI Capital Markets Ltd. 8 Unit- Warsaliganj 5. Proposed Revival Plan Based on the technical assessment, the Warisaligunj unit is a very old plant having low pressure boilers and except the milling tandem, most of the equipment will have to be replaced. The unit can be expended to 1500 TPD with a distillery based on juice along with a cogen of 7 MW. For this a boiler, TG set and a distillery shall have to be installed. Complete plant shall be converted to an electric driven plant and mills shall have to be relocated and driven by individual drives and provided with rake type inter carriers, Donnelley chutes etc. Remaining equipment except some can be disposed off. The distillery capacity shall be 90 KLPD. The expansion process would require an implementation period of about 15-18 months. Hence it can be inferred that the unit is viable with above proposed expansion.
The unit enjoys an excellent locational & infrastructure advantage, adequate cane growing area. It also has the required land for expansion.
The viability of the unit may further be enhanced if portion of the farm land attached to the factory, if any, and colony premises is converted into industrial land for doing the expansion of the unit. This shall provide more land for further expansion of the unit. It is also proposed that the factory colony may be allowed for usage for expansion of unit. The colony may be shifted to some other location, preferably the nearest farm land subject to necessary approvals. However in case of further expansion the allotment of sugarcane command area would also need to be suitably increased.
Considering the revival possibility with expansion to 1500 TPD with a distillery based on juice, an incremental cost of Rs. 140 crores would be required, if some of the usable machineries of the existing mill are refurbished and used. For efficient operation of the unit post-revival, and considering such additional Private &Confidential Viability Report
SBI Capital Markets Ltd. 9 Unit- Warsaliganj amount to be invested, it may be worthwhile to invite private players for running the unit.
The Land along with other assets of the unit may be offered on a Long Term Lease, (say 60 years) extendable by further 30 years to the prospective investor for setting up of Sugar Unit, Co-generation unit and Distillery. The investor should operate the unit for the above specified purpose.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 10 Unit- Warsaliganj
6. Sacrifice/Waiver/Settlement
a. Secured Loans (Rs.0.23 Crore) It may be mentioned that the unit would need to be transferred to the potential investors free from encumbrances and free of charge on the assets, NOC from the existing lenders has to be obtained. Considering the same, the above liabilities have to be negotiated and settled by the Department prior to the bid process.
b. Unsecured Loans (Rs 0.84 Crore) The unsecured loans are from Government of Bihar. Under the current stage it would be difficult to get back any recovery of the loan. Considering the state of affairs of the Corporation, it is proposed to be waived off by GoB.
c. Cane Growers Dues (Rs.0.06 Crore) As per the information provided by the Department, as on May 2007, all the liabilities pertaining to the cane growers has been settled. However no independent assessment of the existing dues has been made. It may be mentioned that it would not be practical to recover the dues, if any, from the new investor. Considering the same, it is suggested that liability, if any, under the above head, may be settled by the Government of Bihar.
c) Labour Dues (Rs.5.11 Crore) No investors would normally like to takeover the unit along with any obligation (including the labour liability) and with regard to appointment of existing employees, investors may have the right of appointment. It may be further mentioned that the new investor would be averse to recruiting the existing labour based on their own screening process. Private &Confidential Viability Report
SBI Capital Markets Ltd. 11 Unit- Warsaliganj
Hence an amicable settlement on all the labour issues i.e. Payment of arrears, Exit Scheme, etc has to be arrived between the Labour unions and the BSSCL before transferring the unit to the new investor. It may be mentioned that BSSCL has already estimated an amount of Rs 0.42 crore in the event of Exit Scheme is offered to all its employees. It is desirable that an Exit Policy scheme may be framed preferably by engaging the HR consultants.
The payment of compensation structure to labour may be structured in installment basis that may need to be paid over a period of time. Further it may be ensured that after the change of management, the existing employees shall be retained/employed at the sole discretion of the new management.
e. Other Liabilities ( Rs 0.02 crore) All other liabilities (including contingent liabilities), but not limited to Sales Tax, Income Tax, Service Tax, Excise Duty, Custom duty, any penalty imposed and liabilities towards any Government body/ Statutory Liability, etc that may be claimed/accrued in future has to be settled/negotiated/ waived by the GoB. Private &Confidential Viability Report
SBI Capital Markets Ltd. 12 Unit- Warsaliganj
7. Utilisation of Proceeds in the Settlement Process Once the Biding process starts and the potential investor is selected based on the Bid Criteria, the Transfer Agreements have to be drafted and executed.
On realization of the bid proceeds from the investors, the same may be appropriated into a nominated account for the unit. The priority of payment from the account shall be as under:
1. Payment of dues to the Labour along with Exit Scheme 2. Payment of Dues to Banks and Financial Institutions including SDF loan, if any. 3. Any liability payable by an order of Court. 4. Balance, if any would be transferred to BSSCL A/c. for meeting liabilities of other units.
It is assumed that the GoB would settle/ waive all the other statutory liabilities and therefore the same has not been considered in the priority payments.
Based on the above value, the liabilities of the labour under the Exit Scheme may be settled. Any other liability including Government dues, Cane Growers Dues, and tax arrears may be waived/settled by the GoB.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 13 Unit- Warsaliganj 8. Litigation Cases SBICAP has appointed M/s Alok Agarwal as the Legal consultant to verify the current litigation/petitions against BSSCL for the unit.
As per the findings of the Legal Advisor and as mentioned in the report, the following cases have been found; Hon.ble High Court ,Patna 1. M.J.C. No. 699 of 2002 (Mahendra Prasad Singh Vs the Bihar State Sugar Corporation Limited) (Arising out of C.W.J.C. No. 8754 of 2001) - Contempt matter. 2. M.J.C. No. 1204 of 2004 (Mahendra Prasad Singh Vs. the Bihar State Sugar Corp. Ltd.)-Contempt matter. 3. C.W.J.C. No. 14565 of 2005 (Shri Gokul Choudhary & anr.Vs. the Bihar State Sugar Corp.Ltd.) -Service Matter against Termination of Service. 4. C.W.J.C. No. 13827 of 2006 (Balmiki Singh & anr. Vs. the Bihar State Sugar Corp. Ltd.) -Service Matter for Regularization of Service. Cases pending in the other courts: 5. Complaint Case No. 113 of 2006 (Bimla Singh w/o Late Balram Singh Vs. the Bihar State sugar Corp.Ltd.) pending before Consumer Forum at Madhubani. 6. T.S. No. 188 of 2004 (Bhagwat Mahto Vs. the Bihar State Sugar Corp. Ltd) 7. Certificate Case No. 12/96-97 pending before the Certificate Officer, Nawada for realization of certificate dues of Rs. 16,92,811/- by Certificate Holder, Bihar State Electricity Board. Note: None of the cases are in the way in the present process of bidding.
The Legal Advisor has also verified the title deeds pertaining to the Land as opined that the BSSC has marketable Title over the property. Private &Confidential Viability Report
SBI Capital Markets Ltd. 14 Unit- Warsaliganj
The Government of Bihar may assure that the units shall be transferred to the potential buyers Free from All Encumbrances. In case of any possible litigation for the erstwhile owner / Previous Employees (for whom the settlement has been made as per the above scheme) and due to reasons of the above litigation, and if the implementation of the construction cannot be progressed during the construction phase or stoppage of work during the operation phase, the Government may undertake to make good the losses suffered if any.
Private &Confidential Viability Report
SBI Capital Markets Ltd. 15 Unit- Warsaliganj 9. Conclusions and Recommendations The objective of GoB is to revive/rehabilitate the unit. Based on our assessment/examination of the information provided by SID, GoB on the unit and further taking into account the technical, legal, financial aspect we have arrived to a conclusion that the unit has a potential for revival. Therefore we suggest SID, GoB to consider the revival scheme as suggested in the proposed Revival Plan.