In response to oil marketing companies’ recent tenders, sugar mills have quoted an average price of Rs 25 a litre for ethanol as against the previous negotiated price of Rs 21.50 about three years ago.

Considering a spurt in molasses prices from Rs 3,000 a tonne to Rs 5,500 a tonne now, the production cost of ethanol comes to around Rs 26-27 a litre. Thus, ethanol supply at Rs 21.50 will be unviable.

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This means, ethanol producers using sweet sorghum, foodgrains, maize and other means of raw materials are debarred from participating in these tenders. According to industry sources, there are about 30 such manufacturers in Maharashtra alone with a combined ethanol production capacity 30,000-35,000 litres a day, who would not be able to participate in this tender.

Although the combined capacity of these units was not huge, their participation used to make a difference, said Deepak Desai, chief consultant of ethanolindia.net, a popular website for information on ethanol. An official with one of the leading ethanol producers, however, said, “After all, it’s a volume game. Since, ethanol is a by-product of sugar, mills will continue to lead in supply of the products.” Producers from other raw materials could switch to extra neutral alcohol (ENA) production which is preferred by consumers for direct consumption, he said and added that ethanol price below Rs 25 a litre was not affordable.

Since a potable liquor, equivalent to 94.68 per cent of ethanol, is currently sold at Rs 37-38 a litre as compared to the ethanol price of Rs 21.50 a litre, it makes economic sense to manufacture former and not the latter which requires 5 per cent investment for purification.

The new bio-fuel policy 2017 mandates oil marketing companies to blend 10 per cent of ethanol with fuel as on today which by 2017 is proposed to increase upto 20 per cent thereby, reducing dependence on crude oil imports and therefore, annual oil bills.

But, looking at last year’s poor performance by sugarcane farmers the country’s sugarcane production declined significantly to 289.23 million tonnes as against 348.19 million tonnes in 2007-08. India’s sugar production declined to 14.71 million tonnes in 2008-09 from 26.3 million tonnes in the previous year.

According to industry sources, Maharasthra alone has 70 crore litre of distillation capacity. But, if sugarcane production remains at this level, only 60 per cent of capacity would be utilised which means the availability of ethanol will be lower from major sugar mills. Approximately 72-73 litre of ethanol is obtained from 1 tonne of cane crushed.

Importantly, average recovery rate in Uttar Pradesh worked out at 10 per cent as against 11.5 per cent in Maharashtra and Tamil Nadu. This means the industry paid between Rs 150-155 a tonne of cane procured from farmers in Uttar Pradesh which raised cost of alcohol production in the state. In response to last tender, however, major industry players had negotiated at Rs 23.50 a litre, confirmed another official actively engaged in price negotiation. Efforts to reach oil marketing companies went futile.

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