The present paper attempts to highlight peculiar methodology and findings of an evaluation of a sugar project. The Performance Evaluation Cell of the Department of the Auditor-General carried out the evaluation.
Government of Pakistan established a sugar mill in the public sector in 1975 at a capital cost of Rs. 115 million. By 1980, the mill had incurred accumulated losses of Rs. 49 million, eroding the equity of Rs. 41. million contributed by the Government at the time of setting up of the project. By 1985, the losses had accumulated to over Rs. 128 million exceeding the capital cost of the project.
Objectives of the performance evaluation were as follows:-
The evaluation passed through the following major steps:-
1. Feasibility Report & the Approved Plan
From the old records available at site it transpired that a friendly country had offered, through a protocol signed in 1970, to equip a sugar mill in the country as a grant-in-aid. With this commitment of the friendly country, a search for suitable site for location of the mill began. The most obvious choice of site for a project of this nature should be an area rich in cultivation of sugar cane so that the project gets adequate quantity of sugar cane to keep it running. Political considerations, however, supervened. It was ordered by highest political authority to install the mill in his District which was traditionally rice and wheat growing but had almost negligible area under cane cultivation. The Agriculture Department was asked to prepare project feasibility report with the predisposed decision of setting up the mill in that particular District. The Agriculture Department complied and justified the project. In proposing feasibility and setting up of the project in that specified District it stated that:-
"The area is traditionally rice and wheat growing. Due to rice growing, the water table of the area has increased 4-6 ft. In order to control this massive damage it is high time that the crop pattern of the area should be gradually changed. With the setting up of a sugar mill in the area, growers will switch-over to sugar cane cultivation and, by the time the mill is ready for operation, sufficient cane will be available to meet the requirement of the mill".
There was no technical examination of the feasibility.
No one even questioned the basis on which justification was fabricated to "appease" the political authority. A plan was hastily prepared and approved. The project commenced thereafter.
2. Analysis of Financial Data & Productivity
The project suffered an accumulated loss of Rs. 128 million within first 10 years. It exceeded the capital cost of the project (Rs. 115 m). Debt burden was over Rs. 140 million. Loans advanced to growers for supply of seeds, fertilizers, tractors, pesticides etc. aggregated to Rs. 20 million. Over Rs. 5. million of these loans were very old rendering their realisation doubtful.
Adverse financial position of the project was largely due to below capacity utilisation, as sufficient sugar-cane was not available in the economic zone. As a result the project procured sugar cane from far off places. It led to high transportation cost which was about eight times of the estimated cost. It also took many days for the cane to be transported from far off areas. The extra time lapse between harvesting and crushing affected sucrose content of the cane. It affected the percentage of recovery of sugar from cane adversely. Procurement of sugar cane from distant areas also led to interruption of regular supply causing frequent stoppages in production.
The employee strength exceeded the projected strength by about 14%. Production of sugar remained below the projections made in feasibility report, because of below capacity utilization of the plant. This naturally led to low productivity per employee.
3. Problems in Operations of the Mill
The mill required about 252,000 tons of sugar cane per annum to operate on full capacity. Average yield of cane per acre was taken in the feasibility report at 14-16 metric tons. The mill therefore needed about 20,000 acres of land under cane cultivation to operate on full capacity. Actual area under cane cultivation in the district at the time of setting up of mill was only, 2,600 acres, which would account for only 13% of the mill's requirement. A major initiative was therefore needed to induce growers to bring large additional areas under cane cultivation. Till 1983 i.e. after eight years, the area under cane cultivation in that district had however increased to only 9500 acres, accounting for barely half of the plant's requirement.
A zone consisting of three districts was reserved exclusively for the mill to meet its sugar cane requirement. The area under cane cultivation in this zone averaged 12,600 acres annually during 1979 - 83 accounting for about 65% only of the plant's requirement. This average fell to 8200 acres i.e. only 40% of plant's requirement during 1983 - 85. It further fell to an average of only 2700 acres during 1985 and 1986 accounting for only 13% of mill's requirement. It was interesting to observe that area under cane cultivation in the district at the time of setting up of the mill was 13% of its requirement. In 1986, land under cane cultivation in the entire reserved zone (spread over three districts) was also 13% of mill's requirement. So the mill after ten years was virtually back to square one.
The assumption of the feasibility report that "growers will switch over to sugar cane cultivation (with the setting up of the mill) and by the time the mill was ready for operation, sufficient cane would be available to meet the requirement of the mill" had proved erroneous.
The mill could not meet the projected target of cane procurement of 252,000 tons in any year except 1981- 82, and that also because the duration of the crushing season was increased from the normal 168 days to 221 days. Cane procurement from reserved zone comprising three districts had never exceeded half of the plant's requirements. Full capacity utilisation was therefore never achieved, relegating the mill to the ranks of "sick units"'.
4. The Management View Point
The mill management had a narrow focus on the whole problem. In its view the malady of the project was of inadequacy of land under cane cultivation. It focussed particularly on a stretch of about 26,000 acres of land in the vicinity of the mill which was under rice cultivation. It considered rice cultivation as the main culprit. To solve the problem the growers should not be allowed to cultivate rice. Such a point of view obviously discounts the economic realities.
5. Interviews With Growers
From visits to cane fields and interviews with growers on the spot, it appeared in practice that major bottleneck faced by the mill in meeting its sugar cane requirements was not the non-availability of cane as such, but inefficient arrangements for its lifting by the management. It was also evident from the following data:-
The figures seemed to convey a reasonably firm impression that there were serious inefficiencies in lifting sugar cane from the field. The effect of this was:-
6. Interviewing District Administration
The Evaluation team interviewed the Deputy Commissioner of the District in which some key local growers were also present. The conclusion was that the problem of cane development was not entirely an offshoot of alleged "illegal" paddy cultivation in the 26,000 acres of land mentioned by management. Interviews with individual growers also led to the view that the malady of the mill lay in its internal "mismanagement". Views were advanced that limitations on growing of sugar cane arose from:-
7. Crisis of Credibility
There was a general consensus in the aforesaid meeting that sugar cane was a crop of choice of land owners because:-
There appeared, however, to be a crisis of credibility as between the mill and the growers which dissuaded the latter from committing their lands to sugar cane to the extent they would otherwise wish.
8. Future Prospects
The evaluation team apprehended that inadequate procurement of sugar cane in the reserved areas was likely to persist for a number of years. Consequently, the unit would continue to depend on free areas to make up the shortages with consequential below capacity operations as well as diseconomies of cost.
Commercial viability of the project depended upon its ability to meet its capacity requirement of sugar cane from within the reserved areas. The pace at which sugar cane growing and its procurement by the mill had increased over years gave little reason to assume any dramatic positive changes in the mill's fortunes over immediately ensuing years, given the managerial capacity of the mill to work towards cane development amongst local growers.
9. Recommendations
The Evaluation Team suggested that it would be more beneficial for the mill to rehabilitate its image with growers as an alternative to official pressure for "Banning" paddy cultivation. Such a ban would indeed not even be desirable, given the local political environments. The Report suggested that the mill needed to reorganize internally towards the following ends:-
The report also discreetly suggested changes in managerial set up.
10. Post Evaluation Improvement
As a result of changes in management of the mill emanating from the Evaluation Report, some improvement was made. When the Report came up for discussion in Public Accounts Committee, the new management stated that "some good work was done to pursue the growers to cultivate more sugar cane". The Ministry also stated that "some positive improvement had been noticed. Rapport had been established with growers and the mill would be able to turn the corner in the next financial year". The Public Accounts Committee appreciated the Evaluation Report as well as the good work of the new management undertaken in the light of the suggestions and recommendations made in Evaluation Report.