Procedure for Sanction / Disbursement

Grant of loans to sugar factories for various purposes under the Sugar Development Fund Act, 1982 and Sugar Development Fund Rules, 1983 as amended from time to time.

Sugar Development Fund Act, 1982 and Sugar Cess Act, 1982.

Sugar Development Fund Act provides for financing of activities for development of sugar industry and for matters connected therewith or incidental thereto. The Sugar Cess Act provides for imposition of a cess on sugar for the purposes of the Sugar Development Fund Act, 1982.

As on date the sugar cess Act provides that an excise duty not exceeding Rupees twenty-five per quintal of sugar shall be levied and collected as cess for the purposes of the Sugar Development Fund Act. At present the cess levied is at a rate of Rs.24 per quintal of sugar produced by any sugar factory in India.

Sugar Development Fund

The Sugar Development Fund Act, 1982 provides for formation of a fund to be called Sugar Development Fund. The source of the Fund is the proceeds of the duty of excise levied and collected under the Sugar Cess Act, 1982, net of cost of collection and the moneys received by the Central Government for the purposes of this Act including any income from investment of such amounts.

The Act provides for the purposes for which the Fund shall be applied.

Loans under the Sugar Development Fund

Among other purposes for which the Fund can be applied, the following types of loans can be given to the sugar factories from the Fund:

Loans for facilitating the rehabilitation and modernization of any sugar factory or any unit thereof. Expansion of crushing capacity upto 10,000 TCD is considered part of modernization.
Loans for undertaking of any scheme for development of sugarcane in the area in which any sugar factory is situated.
Loans to any sugar factory or any unit thereof for bagasse based cogeneration power projects with a view to improving their viability.
Loans to any sugar factory or any unit thereof for production of anhydrous alcohol or ethanol with a view to improving their viability.

Detailed procedure for the grant of the above loans, amount of loan, rates of interest and security required have been prescribed in the Sugar Development Fund Rules, 1983. Guidelines have also been laid down by the Standing Committee constituted under the Act and other decisions taken during the course of administration of the Fund.

Committees under the Act and Rules

Standing Committee : The SDF Act provides for constitution of a Committee consisting of officers of the Government, for the purpose of securing speedy consideration and disposal of application for loans received from the sugar factories and for considering any problem arising in the course of the administration of the Act. The rules also provide for nomination of not more than two officers of the Government having special knowledge of any aspect of sugar industry as additional members of the Committee as experts. Present composition of the Standing Committee may be seen at Annexure-I.
Sub-Committee(s) : The SDF rules provide for appointment of one or more sub-committees by the Standing Committee for facilitating efficient and speedy discharge of its functions. A sub-committee to consider the loan applications for purposes other than cane development and a screening committee for considering loan applications for Cane Development have been appointed. Present composition of the sub-committee and the screening committee may be seen at Annexures II and III.

Procedure for making applications and consideration of these applications for various types of loans other than loan for Cane Development

Making of application : All applications for grant of loan shall be made to the Committee in the prescribed forms as given in the schedule of forms appended herewith. The application shall furnish such information and shall be accompanied by such documents as are referred to in the forms and the checklists given after each form (Annexure-IV to VI).
Registration of Applications : All complete applications will be registered in the SDF Division for consideration in order of their date of receipt provided the applications are accompanied with documents related to financial appraisal and financial tie up for the project. Separate priority will be maintained for sugar factories in the private and cooperative sectors for each type of loan. Since SDF loans are given to meet the shortfall in the promoter’s contributions, the "means of finance” shown in the financial appraisal should clearly indicate this shortfall and the amount of SDF loan sought for.
Consideration of applications by the sub-committee :After scrutiny of the applications with regard to submission of the requisite information and documents, the loan applications are placed for consideration of the sub-committee in order of the priority. The sugar factories are expected to also furnish the necessary information in the format given at Annexures VII to IX to facilitate proper appreciation of their projects. Further information if any, called after scrutiny should be furnished immediately on demand failing which it may not be possible to place their application before the sub committee on their turn.
The Sugar Factories are usually invited for presentation of their case before the sub-committee or for answering queries of the technical and financial experts raised by the sub-committee members. The sugar factories are expected to be represented in the meeting by their Managing Directors accompanied by financial and technical heads.
Consideration of applications by the Standing Committee :The recommendations of the Sub-Committee are placed before the Standing Committee for further consideration and recommendation to the Government. Observations made by the sub-committee, additional information and/or documents requisitioned by the sub-committee are expected to be furnished by the sugar factories before the applications are submitted for consideration of the Standing Committee. Information required to be furnished by the sugar factories for consideration of the Standing Committee is given in the formats at Annexure VII to IX.
The Standing Committee usually meets at least once in each quarter of a year.
Approval of the Government and issue of Administrative Approval :The recommendations of the Standing Committee are processed for approval of the Government after which cases where loans have been sanctioned, administrative approvals giving the amount of loan sanctioned and stipulating such conditions as may be required by Rules or specific directions of the Standing Committee or the Government are issued.

The major conditions as are stipulated in the administrative approval usually include signing of tripartite agreement (TPA), nature of security to be created by the sugar factory for the loan, submission of pollution control certificate from the State PCB and submission of Power Purchase Agreement in case of Cogeneration Projects. The administrative approval may further contain conditions regarding utilization and repayment of SDF loan, inspection by the monitoring agencies, time frame for submitting requests for disbursement, moratorium and schedule of repayment and rate of interest and penal interest etc.
Disbursement of Loans :
- The loans are disbursed in one or more installments after the sugar factory has complied with the conditions stipulated in the administrative approval and makes a request through the nodal agency of SDF viz., IFCI in case of private/public sector factories and NCDC in the case of cooperative sector mills. The stipulated conditions inter alia include signing an agreement with the Government stating conditions attached to loan, period and manner of repayment, interest, utilisation etc.; creation of charge/furnishing of Bank Guarantee
- The loan may be disbursed to the sugar factory or the financial institution in one or more installments directly to the sugar factory or through the Financial institution by Electronic Transfer or through Cheque.
- The request for disbursement, complete in all respects, must be received by the Government within one year of the issue of Administrative Approval through the Nodal Agency. Subsequent installment, if the disbursement is made in more than one installment, will be released if the request is received within 6 months of the first installment and a utilisation certificate in respect of the first installment is furnished. In case of delays beyond the control of the Sugar Factory, extension of the prescribed time limits must be applied with full justification before the expiry of the said time limit.
- All disbursements are subject to availability of funds under the respective scheme at the given time.
Monitoring of SDF loans : IFCI in respect of the private sector sugar factories and NCDC in respect of the Cooperative sector sugar factories have been appointed nodal agencies of the Government for the purpose of disbursement of SDF loans, follow up servicing, monitoring of utilization, recovery of loans and interest, inspections etc. The sugar factory these are expected to route their requests for disbursement of sanctioned loans through them and also render all expected co-operation in respect of inspections of the projects and furnishing requisite information called from time to time.

Monitoring of Cane Development Loans is primarily the responsibility of the State Government. However, in order to watch the progress of Cane Development projects/schemes undertaken with SDF assistance, the IFFCO Foundation, NFCSF, ISMA and VSI have been appointed monitoring agencies to whom individual cases are assigned from time to time under intimation to the sugar factories. The sugar factories are expected to render all cooperation to the monitoring agency to perform the task.

Specific conditions governing loans for modernization/rehabilitation (Rule 16)

The project should be approved by a scheduled bank/financial institution for assistance for modernization/rehabilitation.
Only one more loan for modernisation rehabilitation during the period in which the previous loan for the above purpose is outstanding can be given.
The loan amount will not exceed the amount required by the bank/financial institution to be contributed by the sugar undertaking as promoter’s contribution. The sugar factory will be required to contribute a minimum of 10% of the loan applied for from its own resources as promoter’s contribution. SDF loan is given upto a maximum of 40% of eligible project cost.
The sugar factory which is a defaulter in respect of any dues on account of Sugar Development Fund and Levy Sugar Price Equalization Fund is not eligible to apply for SDF loan.
The repayment of loan together with interest shall commence after the expiry of one year from the date of repayment of institutional loan and interest thereon in full or on the expiry of a period of eight years from the date of disbursement of loan whichever is earlier. The loan and interest shall be recovered in annual installments not exceeding five in number.

Specific conditions governing loans for production of anhydrous alcohol or ethanol from alcohol or from molasses (Rule 22)

The sugar factory shall be eligible for loan (a) if the project has been approved for financial assistance by a financial institution or a scheduled bank for production of anhydrous alcohol or ethanol from alcohol, and at least 12.5% of the project cost is being met by the sugar factory from its own resources as part of promoter’s contribution, required by financial institution or scheduled bank.
If the sugar factory is implementing a project appraised by a financial institution or a scheduled bank or an agency approved by the Central Government, for production of anhydrous alcohol or ethanol from alcohol, the sugar factory shall undertake to meet at least 25% of the project cost from its own resources.
A sugar factory having an installed capacity of 2500 TCD is implementing a project appraised by a financial institution or a scheduled bank for production of anhydrous alcohol or ethanol from molasses and has been approved for financial assistance by the said finical institution or scheduled bank. It shall meet at least 10% of the project cost from its own resources. The loan amount shall not exceed 40% of the eligible project cost.
No loan for the above purpose can be given during the period in which the previous loan for the same is outstanding.
The sugar factory should not be a defaulter in respect of any dues on account of Sugar Development Fund and Levy Sugar Price Equalization Fund failing which the sugar factory shall not be eligible to apply for the loan.
The sugar factory shall not be eligible to apply for a loan for the following purposes:
- Second hand project, equipment and machinery
- Refinancing
- Financing of cost over run
- Project commissioned prior to the date of application to the Financial Institution or the Scheduled Bank for financial assistance under their relevant scheme or projects commissioned before making an application to the Committee in cases where the sugar factory is implementing the projects on its own.
- A project below the minimum economic size, which the Central Government may determine from time to time.
- The loan amount with interest shall be recovered in half yearly installments not exceeding eight in number. The repayment of the loan with interest shall commence after the expiry of one year from the date of disbursement.

Specific conditions governing loans for Bagasse based Cogeneration of Power Projects (Rule 23)

The sugar factory should have an installed capacity of 2500 TCD
The project should have been approved for financial assistance by a Financial Institution or a Scheduled Bank.
The project should envisage marketable surplus of co-generated power.
Greenfield projects for cogeneration of power can also be financed from SDF to the extent of exportable surplus. However, the funds will be released only after the sugar factory starts production of sugar.
At least 10% of the project cost will be met by the sugar factory from its own internal generation of funds as part of promoter’s contribution.
No loan for the above purpose can be given during the period in which the previous loan for the same is outstanding.
The sugar factory should not be a defaulter in respect of any dues on account of Sugar Development Fund and Levy Sugar Price Equalization Fund failing which the sugar factory shall not be eligible to apply for the loan.
The sugar factory shall not be eligible to apply for a loan for the following purposes:
- Second hand project, equipment and machinery
- Refinancing
- Financing of cost over run
- Project commissioned prior to the date of application to the Financial Institution or the Scheduled Bank.
The repayment of the loan will commence after expiry of three years from the date of disbursement and shall be repaid in half yearly installments not exceeding ten in number. The interest on the said loan shall be paid annually for the first three years from the date of disbursement after which it will be paid half yearly along with the installment of repayment of principal.

Procedure for making and consideration of application for loan for Cane Development ( Rule 17)

Application for loan is required to be submitted to the State Government in which the sugar factory is located and the State Government may, after scrutiny of the application forward the same along with its comments and recommendations to the Member Secretary of the Standing Committee under the Sugar Development Fund. The application shall furnish such information and shall be accompanied by such documents as are referred to in the form and the check list (Annexure-X).
Loan for development of sugarcane in its area is permissible to a sugar factory for setting up of heat treatment plants, rearing of seed nurseries, pest control measures, incentive to cultivators to switch over to improved varieties of sugarcane, irrigation schemes and such other scheme or project as may be approved by the Central Government. Detailed guidelines may be seen at Annexure- X. The existing limit of loan amount is 90% of a maximum cost of Rs.3.00 crore for the schemes on the whole.
After scrutiny of the applications, and on receipt of additional information (Annexure-XII) the applications are placed before the Screening Committee of the Standing Committee on Sugar Development Fund. The sugar factories are usually invited for presentation of their proposal before the Screening Committee or for answering queries of the technical and financial experts on the Committee. The sugar factories are expected to be represented by their Managing Directors accompanied by financial and cane development heads. The recommendation of the Screening Committee are placed before the Standing Committee of the Sugar Development Fund.
Only one more loan for cane development can be granted during the period in which the previous loan for the above purpose along with interest is outstanding.
The loan is admissible if no other financial assistance is available for the purpose from any other agency or if the amount of such assistance, in the opinion of the Central Government is inadequate and needs to be supplemented.
The sugar factory is required to contribute a minimum of 10% of the cost of the schemes from its own resources as margin money.
The sugar factory should not be a defaulter in respect of any dues on account of Sugar Development Fund and Levy Sugar Price Equalization Fund failing which the sugar factory shall not be eligible to apply for the loan.
The loan shall be disbursed only through the State Government in which the sugar factory is located.
The sugar factory is required to enter into a tripartite agreement (TPA) with the Central and State Government on such terms and conditions as the Central Government may decide in consultation with the State Government. Such conditions may include monitoring of utilization of the loan by the State Government, progress of the scheme, repayment of loan and interest etc.
The repayment of the loan shall commence on the expiry of moratorium of 3 years from the disbursement of the loan and shall be repaid in equal annual installments not exceeding four in number. Interest on the loan shall be paid annually after the expiry of one year.

Procedure for making and consideration of loan applications by potentially viable sick sugar undertakings

A potentially viable sick sugar undertaking is eligible for SDF loan for modernization or rehabilitation of plant & machinery and which has negative net worth for sugarcane development provided the scheme or project is sanctioned by BIFR for private and public sector sugar undertaking or recommended by the Committee for Rehabilitation for cooperative sugar factories.
The loan should have been recommended in the rehabilitation scheme by BIFR or the Committee for Rehabilitation.
The project should have been approved for financial assistance by a financial institution or a scheduled bank.
Loan for modernisation/rehabilitation shall not be admissible if more than one loan for the same similarly, loan for cane development is outstanding.
The loan is available only once.
The Committee shall satisfy that adequate relief or concession from the Central Government, State Government, Banks, Financial Institutions or donations from employees and other agencies, if any, have been provided in the rehabilitation scheme and such reliefs or concessions or donations have been accepted by the concerned agencies.
The loan amount shall not exceed the amount required by the financial institution or the scheduled bank to be contributed by the sugar factory as promoter’s contribution. In the cane of modernisation/rehabilitation loan, it shall not exceed 60% of the project cost. The sugar factory shall contribute a minimum of 20% of the project cost from its own resources.
In case of the projects for sugarcane development, the loan amount shall not exceed 90% of the eligible project cost. The sugar factory or the concerned state government will contribute a minimum of 10% of project cost.
Loan shall not be granted for the purpose of repayment of any loan in any form or interest thereon whether availed from the Fund or from any other agency, financial institution or state government.
The sugar factory should have fully repaid all the sums, which have become due in respect dues on account of Sugar Development Fund and Levy Sugar Price Equalization Fund.
The repayment of loan and interest against modernisation/rehabilitation project shall commence after the expiry of such period as may be decided by the Central Government subject to a maximum of 5 years from the date of disbursement and shall be payable in half yearly installments not exceeding ten in number. In case of sugarcane development, repayment of loan with interest will commence on the expiry of the moratorium period of one year from the date of disbursement and shall be repaid in equal half yearly installments not exceeding eight in number. Interest shall be paid half yearly after the expiry of one year from the date of disbursement.

Rate of interest and penal interest (Rule 25)

The SDF loans carry a simple interest of 2% below the "Bank Rate” prevalent at the time of disbursement of the loan. As on 31.1.2009, the rate of interest chargeable on SDF loan is 4%.

In case of default of payment of any installment or interest, an additional interest at the rate of 2.5% per annum on the amount of default is payable by the sugar factory.

Rate of interest on all SDF loans disbursed and all loans outstanding on 21st October 2004 has been reduced from the prior rates 2% below the "Bank Rate”, which works out to 4% per annum.

Security (Rule 25)

The sugar factories are required to furnish security for the SDF loans to the satisfaction of the Government in one of the following manners:

Bank Guarantee from the Scheduled Bank
A mortgage on all immovable and movable properties of the sugar factory on pari passu first charge failing which on the basis of an exclusive second charge.

Notes : For cane development loans, a co-operative sugar factory can furnish security in the form of a State Government Guarantee.

In order to decide the nature of security that a sugar factory can submit, the fixed unit charge ratio (FACR) as prevailing at the time of sanction of SDF loan would be considered. The sugar factories are required to furnish a bank guarantee in case the FACR is below 1.33. First charge pari passu on a (Bank Guaranty) can be given if the FACR is 1.33 or above but less than 1.50. Second charge exclusive on the assets is permissible only in case the FACR is 1.50 or more. The sugar factory has to furnish reasons why it is unable to give first charge pari passu on its assets as SDF loan security where after approval of the Government would be given before security as second charge exclusive can be created.

You can Also Refer

Annexure(347KB)