HPCL defers plans to buy 4 AP sugar mills

State-run refiner Hindustan Petroleum Corporation (HPCL) has deferred plans to buy four sugar mills in Andhra Pradesh due to lower liquidity with the company as a result of high oil prices in the first half of this financial year.

The company was evaluating the four mills as it wanted to produce ethanol and blend it with petrol, according to the government’s mandate of mixing 5 per cent of ethanol with petrol. The government plans to increase blending to 10 per cent by next year.

“To augment our ethanol production, we had shortlisted four sugar mills in Andhra Pradesh. However, in the present liquidity scenario, we are now re-considering our decision. These are functioning sugar mills and we fear we could end up paying more for these mills than we did in Bihar,” said an HPCL official who was working on the proposal.

HPCL, which supplies half the fuels the country consumes, bought two sugar mills in Bihar in May this year for Rs 95 crore. So far, the company has paid around Rs 9.5 crore for the mills and is waiting for the Bihar government to allot the mills to them.

“In Andhra Pradesh, we had done some technical evaluation of the sugar mills but we did not find it very attractive. We are looking at re-evaluating the properties sometime in the future when the market improves,” added another official familiar with the development.

The government has made it mandatory to blend 5 per cent ethanol – a by-product of sugar mills – with petrol. However, on account of non-availability of ethanol for blending, HPCL was looking at acquiring some sugar mills.

The government, in December 2007, issued a notification amending the Sugarcane (Control) Order, 1966, that allowed only sugar mills to produce ethanol from sugarcane.

Andhra Pradesh has 42 sugar mills with ethanol producing units in Krishna and West Godavari districts. The country needs around 60 crore litres of ethanol per year for three years to meet the blending norms of ethanol with petrol.

The three oil marketing companies — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — have signed a contract with sugar mills in the country for total procurement of 140 crore litres.

While the oil companies complain of non-availability of ethanol, according to sources at the Indian Sugar Mills Association (ISMA), the domestic oil companies have barely lifted 125 million litres of ethanol in the last eight months out of 550 million litres required.