After 3 years, India to achieve 5% ethanol-petrol blend target

Demand for industrial use is met through cheap import from Brazil and USA

After three years of formally mandating five per cent of petrol blended with ethanol, the country is set to achieve this target for the first time during the current sugarcane crushing season, i.e by the end of September.

To achieve this target, the three government-owned oil marketing companies (OMCs) require 1,335 million litres of ethanol every cane crushing season (October–Sept). Since the government does not allow grain-based ethanol to be produced, the OMCs are fully dependent for its procurement from sugar mills. For the latter, the green fuel is a byproduct.

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“The PM's personal commitment to renewables and the petroleum ministry's focus on solving price and implementation hurdles have made a huge difference on the ground. Ethanol, in fact, became a key part of the solution for the crisis in the sugarcane sector," said Narendra Murkumbi, managing director, Shree Renuka Sugars, the largest producer of ethanol.

Till last year, a lower price offer and slow pick-up of the contracted quantity by OMCs deterred supply viability from sugar mills. “OMCs have finalised contracts to procure ethanol to the tune of 1,340 million litres for the current year, exactly the five per cent blending requirement. There is now an assured buyer at a confirmed price. So, lots of sugar mills prefer to supply ethanol to OMCs rather than to industrial or potable alcohol users,” said Abinash Verma, director-general, Indian Sugar Mills Association.

The five per cent mandatory blending was approved in November 2012 by the Cabinet Committee on Economic Affairs. It was notified by the Centre, under the Motor Spirits Act, on January 2, 2013. The Act said OMCs had to record five per cent ethanol content in petrol by end-June 2013. However, with the weak supply orders on an unremunerative price offer, they've managed a maximum of 3.5 per cent so far.

While sugar mills blamed a lower price for inadequate supply offers, OMCs said the falling crude oil price was responsible for their low price quotes, as blending of ethanol could be a loss- making proposition for them at these levels. As against a maximum price fixed for ethanol supply at Rs 43 a litre for contracts finalised till December 2014, the government in January 2015 raised this to Rs 48.5–49.5 a litre, depending on proximity of the delivery station from distillery units.

The OMCs had actually floated tenders for a total of 2,660 mn litres, equivalent to 10 per cent of the blending target. That doesn't seem achievable in the near future.

The demand for rectified spirit (a pre-form of ethanol) has shifted from domestic sugar mills to markets abroad, including America and Brazil, as its landed cost on Indian ports works out to nearly 25 per cent cheaper than home supply. As against the price quote of Rs 40-42 a litre from domestic sugar mills, imported alcohol for industrial consumption now costs Rs 30 a litre.

“As a consequence, around 700 mn litres of demand for industrial application has moved to overseas markets. The Indian chemical industry has imported 200-210 mn litres so far this crushing season,” said Rakesh Bhartia, chief executive, India Glycols.

For the 10 per cent blending target, sugar mills will need to invest a lot more, in expansion of distillation and storage facilities.

According to Deepak Desai, principal consultant, ethanolindia.com, new investment has started for this. Through B-heavy molasses, supply of ethanol can be increased to 5,300 mn litres gradually in the next few years, from the existing 2,800-3,000 mn now. Which would meet the demand from all three segments --- potable alcohol, fuel ethanol and industrial alcohol.