An Investment in Sugar Cane Could Make India Energy Independent

By Jawahar Malhotra

HOUSTON, TX: Nestled almost in the center of the Deccan Plateau, in the center of the state of Maharashtra and almost due east of the state capital Mumbai is the district of Parbhani, an area of immense sugarcane cultivation fed by a network of canals emanating from the Godavari river. It is home to 1.3 million people who owe much of their livelihood to agriculture, growing mainly grain crops in the off season, but almost exclusively sugarcane during the heavy growing season from October through May.

This area and hundreds of acres around it in Maharashtra – as well as the fertile plains of the state of Uttar Pradesh – are the sugarcane centers of India, producing the majority of the main cash crop from which sugar, molasses and hard brown sugar are produced and exported from the country. The area gets plenty of water from rainfall and the river, and has the right moderate temperature that is suited to growing sugarcane.

“This area is home to 230 sugar mills, mostly government coops”, explained Tehseen Ahmed Khan, “and since 2009, about 40 have gone into private ownership”. The mills are cooperatives run for the local kisans (farmers) but many mills fell into hard times due to mismanagement and were sold off.

Khan is the Chairman and Managing Director of one of the mills that was auctioned off by the bank in 2009, when he headed a team of investors that bought the Tridhara Sugar mill located in Parbhani for $26 million. Khan used to be a forest official in government service but after seeing the opportunity, took early retirement to buy the mill which was being underutilized. “Almost 20,000 families depend on the mill. During the growing season, we have 4,000 laborers, but our permanent staff is 250”, said Khan as he met with members of the community recently on May 4 in Houston.

Khan was in town on a private visit with his wife Fauzia Khan who is the Minister of State for Maharashtra and a member of the Legislative Council for 12 years, as they both came to see Fauzia’s sister, Dr. Rukshan Azhar’s recently born grandson. Azhar is a Child Psychologist in private practice and her husband Dr. Syed Azhar is a professor at UTMB, Galveston. Syed had quickly arranged the gathering for a small group of locals on Sunday, May 4 at Crystale Ballroom on S. Gessner so that Tehseen could explain the financials of the mill and attract potential investors for future expansion plans. Since he bought the mill, Khan has modernized it with a $1.6 million investment in crushing machinery. Azhar himself has a large investment in the mill and said that he was very happy with the way it has performed in the past three years.

Tridhara Sugar is about 2.5 hours away from Aurangabad, a city of about 11.5 million which is known for the Bibi ka Maqbara, an imitation of the Taj Mahal that was built around 1661 as the burial place for Emperor Aurangzeb’s wife. “For six or seven months this plant is the hub-bub of activity and is like a huge bustling village”, Tehseen Khan described with a smile, noting that there was even a school for the laborer’s kids.

According to Khan, one acre produces 60 to 100 tons of sugarcane which sells for Rs. 2,000 per ton. He himself owns 200 acres of land in the area. The average field is about 5 to 100 acres, so most farmers are fairly well off with sugarcane as their main crop and growing grains in the remaining four months. At present the plant makes 3,000 metric tons of sugar cane juice a day, but Khan hopes to increase that to 5,000 metric tons a day by 2015.

After processing the sugarcane juice, the byproduct is 5% molasses, which is the basis of ethanol, currently a 5% gasoline additive in India, and required to increase to 10% soon. The leftover is 30,000 liters of bagasse, the fibrous matter that remains after sugarcane stalks are crushed for their juice. This is used as a fuel and for ethanol distilling and sells for Rs. 1,500 per ton. Generally, for every 10 tons of sugarcane, nearly 3 tons of wet bagasse is left over.

Khan has received permission from the government to produce 27 megawatts of electricity from the left over bagasse and sell it on the power grid. Fauzia Khan used a slide presentation to explain statistics showing the GDP growth in India and how the government had deregulated the sugar industry and corrected the huge cycles in production and consumption, creating a strong market. Now 31% is purchased by large industries and 30% by small businesses. The government has $940 million in subsidies for domestic consumption and incentive subsidies for exports.

Fauzia and Tehseen pitched the idea of getting private investors – either through equity or debentures – for 60% of the $5.6 million they need to invest for increasing the capacity of the ethanol distilling plant and for generating electricity from bagasse. For those making a minimum of $20,000 investment, they would offer preferred shares with a minimum 12% dividend or debentures at 12% interest.

The offer would be open only through the 3rd quarter of 2014, but they are still structuring the official documents for the offering. Their cousin, Shahla Ali who is a lawyer and works as a compliance officer at a hedge fund in New York, came down for the family get together and was asked by the Khans to explain the investment offering. “She is helping put the documents together”, said Azhar later by phone, “and we will hold a meeting with some of the interested parties soon”.