Little progress made in ethanol blending

In 3rd round, sugar mills offer less than a third of purchase tender floated by OMCs; lifting of contracted amount also meagre due to price trends

The third round of inviting Expressions of Interest (EoIs) for ethanol procurement evoked a meagre response. Sugar mills offered less than a third of the quantity that oil marketing companies (OMCs) wanted to buy. Last week, the OMCs floated an EoI for purchase of 367 million litres of ‘Indian origin’ ethanol from distillery units. Sugar mills offered 110 mn litres, of which OMCs accepted 78 mn; offers for 32 mn were rejected.

“Sugar mills have already entered into long-term supply contracts with potable alcohol manufacturers for Rs 42-46 a litre, against the Rs 42 a litre base price of ethanol. Also, state levies and uncertainty in finalisation of offers by OMCs have created uncertainty in ethanol supply,” said V N Raina, Director General, All India Distillers’ Association.

Data compiled by the Indian Sugar Mills Association (Isma) showed overall lifting at a mere 39 mn litres of the 753 mn accepted by OMCs so far. This means OMCs have lifted a mere two per cent of the 1,560 mn litres required by November 2015.  

“OMCs have finalised bids for 753 mn litres, 50 per cent of the quantity required to achieve the five per cent blending (with petrol) target by November 2015. The industry has surplus sugar which can be converted into ethanol, for which OMCs will have to pay the right price. Either the government should exempt the central excise duty of around 12.5 per cent levied on ethanol or raise the supply price at least by Rs 5 a litre to make conversion of surplus sugar into ethanol viable,” said Abinash Verma, secretary-general of Isma. A couple of years earlier, the government made five per cent petrol-ethanol blending mandatory, to reduce foreign currency outgo and control the widening current account deficit. The target hasn't been achieved, due to reduced supply from sugar mills and OMCs’ slow lifting.

“This time, however, slow lifting has a reason. Ethanol prices have declined steeply in global markets. While potable alcohol manufacturers offer a high price, industrial users i.e. chemical manufacturers, have preferred to import over domestic buying. So far, the chemical industry has imported 50 mn litres of industrial alcohol of its estimated total annual demand of 700 mn litres. This means alcohol demand from the chemical industry has been very slow,” said Deepak Desai, chief consultant, ethanolindia.net, a consulting and advisory firm.

According to industry sources, the base price of Rs 42 a litre (against the ex-depot price of Rs 48-49.5 a litre) and falling crude oil prices have led OMCs to go slow on ethanol procurement. Also, prices of rectified spirit and extra-neutral alcohol have fallen almost 70 per cent to Rs 28-29 a litre and Rs 31 a litre, respectively, in recent months.