Maharashtra sugar mills stay away from ethanol supply to OMCs

Sugar mills in Maharashtra, India’s largest sugar-producing state, have stayed away from active participation in supplying ethanol to oil marketing companies (OMCs) due to non-viability. Mills in other major producer states such as Uttar Pradesh, Tamil Nadu and Karnataka have aggressively participated in supply of the green fuel to OMCs.

In India, ethanol, a byproduct of sugar manufacturing, is obtained by processing molasses in its original form as rectified spirit (RS), with around 95 per cent purity. On further processing, ethanol is obtained for direct blending with petrol. As manufacturing ethanol directly from sugarcane or any other agri produce is uneconomical, the largest sugar-producing state should ideally be in a position to supply the most ethanol.

However, sugar co-op mills in Maharashtra feel supplying ethanol to OMCs is economical. “After the bidding process is over and cooperative sugar mills actively participate in the process with open price quotes, OMCs call them three-four times to negotiate prices. There is hardly any room for negotiation in the price offered in the tender. Still, OMCs want negotiations,” said Sanjeev Babar, managing director, Maharashtra State Federation of Co-operative Sugar Factories.

Against two tenders by OMCs for 2,736 million litres, sugar mills across the country offered to supply a total of 1,168 million litres, of which OMCs finalised 646 million, 23.6 per cent of their total requirement for direct blending of ethanol with petrol. According to sources, OMCs issued orders for 526 million litres, of which 382 million were against the first tender, floated on January 2, 2013. They lifted merely 272 million.

Babar says sugar mills pay farmers every day, in tune with their cane supplies. Selling molasses, extra-neutral alcohol, rectified spirit or industrial alcohol (all pre-refined forms of ethanol) in the spot market yields immediate cash either through bank deposits or the real-time gross settlement system; OMCs offer payments after 60 days. By then, sugar mills pay interest on the ethanol sold to OMCs, added Babar.

That apart, OMCs want the supply at fuel depots. At some, octroi and local body tax levies make ethanol costlier, further reducing suppliers’ realisation. Also, OMCs take months to finalise tenders and issue ethanol supply orders to sugar mills.

The price is another issue. “For industrial alcohol, the cost of production works out to Rs 33-34 a litre which, if converted into ethanol, rises to Rs 36 a litre. Selling at Rs 36-37 a litre, therefore, does not make any economic sense for sugar mills. For sugar mills, the timeliness of molasses supply also makes much sense,” said Deepak Desai, chief consultant, Ethanolindia, an ethanol consultancy firm.