Sugar mills to earn Rs 5 a litre more on ethanol sale

This is second major decision in favour of sugar mills in last three weeks

In a major relief to sugar mills, the Centre has exempted ethanol produced from molasses from central value added tax (Cenvat). This will raise sugar mills’ realisation by Rs  five a litre to Rs  47-48 a litre. This is the second major decision in favour of sugar mills in the last three weeks, after the government allowed four million tonnes of sugar exports on September 18.

“Ethanol produced from molasses generated from cane crushed in the sugar season 2015-16 i.e. from October 1, 2015 for supply to the public sector oil marketing companies, namely, Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. or Bharat Petroleum Corporation Ltd., for the purpose of blending with petrol,” said a finance ministry notification.

The sugar industry has welcomed the decision. “The sugar industry welcomes the decision of the ministry of finance to extend Cenvat exemption to ethanol produced from molasses for the sugar season 2015-16. This completes the government’s decision announced in April 2015, to waive off central excise duty on ethanol for the 2015-16 sugar season, and pass on the full benefit of approx Rs 5 per litre of ethanol,” said Abinash Verma, director-general, Indian Sugar Mills Association.

Until now, the ethanol blending programme was not successful, as the public sector oil marketing companies (OMCs) were able to achieve only 3.5 per cent of blending of ethanol with petrol as against the government’s target of 5 per cent of mandatory blending announced over two years ago. With increased focus on the green fuel, the government made 10 per cent ethanol blending mandatory.

“The Cenvat exemption will benefit the 130 ethanol producing sugar mills in the country, by way of increase in their revenue realisation on ethanol supplies. The industry hopes this benefit will be continued into next sugar seasons for the benefit of the ethanol supplies in the future,” said Verma.

The move will help sugar mills get an overall benefit of Rs  896 crore considering overall installed capacity of 2,240 million litres and average utilisation of 80 per cent.

Earlier, the response of the sugar mills to the ethanol procurement tenders floated by oil companies was tepid, due to lower realisation. Mills preferred to sell molasses or divert rectified spirit, a pre-form of ethanol, for manufacturers of industrial alcohol or chemicals for better a price.

With OMC's 1560 million litres' ethanol procurement tender is still on, experts hope for a better response this year.