Mandatory 'ethanol blending' can save $1.13 bn of foreign exchange: ISMA

Industry has urged govt to just implement ethanol blending programme mandated by CCEA early this year

When the government is working overtime on reducing import bills to control the burgeoning current account deficit (CAD) and protect rupee’s free fall, the Indian sugar industry has explored a long pending method to reduce foreign currency outgo at least by $1.3 billion, a handsome amount from the “so called” neglected industry like sugar.

The industry has urged the government to just implement the ethanol blending programme as mandated by the Cabinet Committee on Economic Affairs (CCEA) early this year. The CCEA mandated oil marketing companies (OMCs) to blend at least 5% of ethanol with petrol mandatorily within three months i.e. by March-end.

With an estimated five% blending, OMCs require at least 105 crore litres per annum. Since, the OMCs have already floated tenders and finalised bids for 40 crore litres out of total offers by the industry of 55 crore litres, distillery units (sugar mills’ ethanol producing plants) are still awaiting placement of supply orders by OMCs.

The prolong delay in allotment of orders not only translates into higher foreign currency outgo, but also pushes sugar mills’ distillation plans into uncertainty despite proper guidelines framed by the government and OMCs; and most importantly, mills adhere to meet the guidelines.

Consider this : at an exchange rate of Rs 59.49 against the dollar (as on August 1 while the Indian rupee depreciated to 61.39 against the greenback on Tuesday), the state run oil refineries would require to pay Rs 46.11 per litre of imported petrol (on crude oil refined in India).

In case of 40 crore litres of ethanol blending with petrol, the government can save similar quantity of petrol resulting into savings of Rs 1844.4 crore. Since the government has already finalised tenders, with the allotment of supply letters, ethanol blending can commence immediately.

As per annul requirement of 105 crore litre of ethanol (between October 2013 – November 2014) for blending with petrol during the financial year 2013-14, the government can save Rs 4841.5 crore, a calculation by Indian Sugar Mills Association (ISMA) showed.

Since, the blending started, albeit slow, in August, the full implementation of ethanol mixing can save with the foreign outgo of Rs 6686 crore between August 2013 – November 2014. Considering, the conversion rate of Rs 59.49 as on August 1, the saving works out to $1.3 billion, ISMA said.

According to reports, the Prime Minister Dr Man Mohan Singh has asked the Petroleum Ministry to reduce oil import bill by $25 billion. Considering the oil import as the largest contributor (around 34%) of India’s overall import bill, saving from ethanol blending will be important, said an analyst.

During the period August, 2013 to November, 2014, Indian distilleries are set to produce 145 crore litres of ethanol which if utilised fully, can save $ 1124 million or $ 1.13 billion of foreign exchange.

Economics on work

Particulars	Amount (Rs crore)
Price (Rs/litre) paid by OMC @ Rs 59.49/$	46.11 per litre
Savings at 40 crore litres of ethanol blending upto October 2013	1844.4
Saving at 105 crore litres of ethanol between November 2013 – October 14	1841.5
Total savings between August 2013 - November, 2014	6686.0
Savings in foreign exchange @ Rs 59.49/$	$1124 million = $1.13 billion

Source: ISMA