Ethanol hike: Decontrol of molasses by UP holds key for optimum benefit

Uttar Pradesh, the country's top sugarcane and sugar producer, is unlikely to optimally capitalise on ethanol price hike unless the Yogi Adityanath government decontrolled the sale of molasses. 

Recently, the Centre had announced hike in the ex-mill price of ethanol derived out of 'C' heavy (final) molasses by almost Rs 3/litre to Rs 43.70/litre for the next contract period starting December 2018. Besides, for the first time, the Centre had decided to encourage production of ethanol, for blending with petrol, directly from sugarcane juice and ‘B’ heavy molasses by fixing a higher price of almost Rs 4/litre above the price of ethanol made from ‘C’ heavy molasses.

According to estimates, with 5 per cent mandatory blending requiring 1.6 billion litres of ethanol, ethanol manufacturers could fetch an additional realisation of around Rs 4.8 billion in the next crushing season.

However, despite market glut and record sugar production translating in record molasses production and unsold inventory, molasses is a highly regulated commodity in UP.

In the current season 2017-18, the total production of molasses stood at over 5.32 million tonnes (MT). However, only 2.97 MT of the stock was lifted, leaving unsold stock of almost 2.55 MT with mills (total stock includes the opening stock from the previous sugar season).

Unsold molasses stock also comprises about 0.43 MT of reserved stock, which had not been lifted by the state country made liquor manufacturers till May 2018, official data showed. UP Sugar Mills Association (UPSMA) claimed it was due to ‘excessive reservation’ much more than their actual requirement, yet the government had not relaxed the norms.

In the backdrop of the central government announcement to incentivise ethanol production for mixing in fuel to partly bail out the beleaguered sugar sector from liquidity crunch and mounting farmers’ outstanding, the UP-based sugar companies would be able to benefit from the prospective price hike only when they could sell their stock without control.

UPSMA has already petitioned the Yogi Adityanath government to decontrol the molasses and encourage its outflow to other states since mills are also facing the predicament of overflow with their storage capacities brimming. It has urged the state to promote the production and usage of ethanol to keep molasses stock under check.

The Association lamented while there was ‘sufficient’ demand for molasses in other states and also international market, these options could not be fully availed of in time due to restrictions imposed on export outside UP in terms of special permission from state government which is both ‘uncertain and time-consuming’.

Meanwhile, the Adityanath government is looking at the new dynamics in the sugar sector following the central government decision on molasses prices. “We would review the emerging situation soon and take a call accordingly in the interests all the stakeholders in the state sugar sector,” a senior official told Business Standard.

Industry maintained in the current sugar market matrices, it would be help sugar mills to improve their liquidity by fast liquidation of its stocks by removing reservation and restriction on export of molasses to other states/overseas markets coupled with abolishing the system of reservation for liquor manufacturers.