OMCs offer new ethanol buying tender

Oblige sugar mills' demand to consider lead time for cane crushing season

In a major relief for domestic sugar mills, oil marketing companies (OMCs) have circulated a new tender to procure 1,335 million litres of ethanol between December 1, 2013 and November 30, 2014.

The new tender would not only replace the global tender floated earlier and avoid import of the green fuel at an uneconomic price but open diverse opportunities for domestic mills’ distillery output.

According to industry sources, the OMCs have preferred to circulate the tender among likely participants instead of publication in national dailies for a wider reach. They seem to have opted to reach out only the target audience, probably because of the abnormal delay in quantity allocations for its previous tender.

With the mandatory five per cent ethanol blending with petrol plan, the  requirement of the green fuel works out to 1,050 mn litres. Following the government’s decision in December 2012, the OMCs floated tenders in end-January 2013 to procure this much of ethanol. However, as cane crushing begins in November, with the processed byproducts becoming available from sometime in December, sugar mills were unable to offer the full quantity. They committed just 550 mn litres, of which OMCs finalised tenders for just 400 mn, leaving the remaining 650 mn litres for import, which saw a global tender.

At the same time, sugar mills were in stress due to a Rs 2.50-3 a kg of loss from the core business. They complained that by the time the global tender was floated, they’d already contracted with buyers for their byproducts. Some had already exported, others had deals with foreign buyers, leaving limited room for domestic players. So, they urged the OMCs to issue a new tender, considering the peak cane crushing season.

“It is good that the demand of sugar mills was accepted, as they would be able to supply more from domestic resources,” said V N Raina, director-general of the All India Distillers’ Association.

However, domestic sugar mills would be able to supply only 900-1,000 mn litres of ethanol in the new crushing season, for which the price of rectified spirit (RS), a pre-form of ethanol, should be lower than the price of the green fuel. Currently, RS, used as potable liquor and industrial alcohol, is quoted at Rs 36 a litre as against the average ethanol price of Rs 35-36 a litre. Hence, the average offer price of OMCs for ethanol should be Rs 40 a litre, said Raina.

In the new tender, the OMCs have considered even a 10 per cent blending possibility in some states, including Uttar Pradesh.

“Having tenders floated three months ahead of the crushing season, sugar mills would be able to plan ethanol production accordingly. It is a big boost for them. The decision will certainly raise sugar mills’ top line (revenue),” said an industry expert.

In response to the global tender, multinational companies offered ethanol supply to OMCs at an abnormally high price. Shree Renuka Sugars offered 150 mn litres at Rs 71-76 a litre. Chennai-based Indian Molasses Company offered 360 mn litres at Rs 84-92 a litre. Biourja Trading Company of the US proposed 72 mn litres at Rs 69.50-75.50 a litre. Hence, the OMCs preferred to file all these offers; it seems none was accepted.

Brazil is the only large supplier of ethanol to the world. But the United States imported much of Brazil’s excess ethanol due to drought in some states in the former, leaving little for supply elsewhere. Since the US offers a higher price for ethanol, India would have to import it at around the same level. But, according to the petroleum ministry’s  decision, the imported price should be at or around the petrol price. Hence, the opportunity for foreign suppliers will be limited, said the expert.

Total Rs output in India is 2,500 mn litres annually. If OMCs offer competitively, supply will not be a problem, he added.