Chennai, April 15 (IANS): Sugar mills in Tamil Nadu are suffering due to the state government's skewed cane pricing policy as also due to unremunerative tariff for co-generated power, restrictions on production of ethanol and imposition of VAT, the Indian Sugar Mills Association (ISMA) said Wednesday.

He urged the state government to follow Maharashtra and Karnataka, which have rationalised their sugarcane pricing by adopting a revenue sharing model.

Speaking to reporters here on Wednesday, ISMA director general Abinash Verma said: "Tamil Nadu follows an unreasonably high cane pricing formula. It has imposed five percent value added tax (VAT) on sugar and 14.5 percent VAT on rectified spirit and extra neutral alcohol (ENA)."

According to him, the average cost of sugarcane production per ton is around Rs.1,900.

"The sugar mills in Tamil Nadu have agreed to pay Rs.2,450 per ton whereas the state government has fixed the cane price at Rs.2,650 per ton. The average sugar recovery is nine percent which is also low," Verma said.

He said the central government fixed fair and remunerative price (FRP) is only Rs.2,200 per ton of sugarcane.

"The high cane price is making sugar mills in Tamil Nadu uncompetitive," he said.

Apart from the VAT on sugar, rectified spirit and ENA, Verma said, Tamil Nadu pays lowest rate for power supplied to the state power utility by the sugar mills.

The power tariff has not been revised upwards for the past several years.

Verma said as compared to Rs.6.07 to Rs.6.27 per unit in Maharashtra, the rate in Tamil Nadu is just at Rs.3.67 to Rs.4.15 per unit which needs to be revised upwards.

Queried whether the industry is open for full decontrol, Verma replied in positive.

"While our prices of our products are determined by the market forces, the input costs are determined by the government. We should have the freedom to decide on the cane quantity to be sourced or the price at which it is sourced," he said.

At the national level the arrears to farmers by sugar mills for the sugarcane purchased has crossed Rs.19,000 crore as on March 31, 2015.

The carry forward of sugar stocks for 2014-15 will be around 90 lakh tonnes. In other words, a sum of Rs.27,000 crore of working capital is locked up in stocks.

According to him, the central government could buy Rs.25-30 lakh tonnes of sugar at the average cost of production which would give the sugar mills cash flow of around Rs.7,000 crore.