UP increases molasses quota for distilleries; sugar mills disappointed

Uttar Pradesh government has hiked the molasses reserved quota from 12.5% to 16% for the state manufacturers of country made liquor.

The decision was taken to maintain adequate supply of molasses for distilleries to produce country made liquor in the backdrop of shortfall in molasses production from the estimated about 5.5 million tonnes (MT) to about 4.7 MT this year, UP sugarcane commissioner Sanjay Bhoosreddy told Business Standard.

However, the private sugar millers have expressed concern over this hike in the reserved quota claiming it would not only impact their cash flow but also squeeze free availability of molasses towards ethanol making for mixing in petrol to that extent.

Against the prevailing molasses market price of Rs 480-500 per quintal (100 kg), the state distilleries lift their reserved quota at a highly subsidised rate of Rs 70 per quintal, thus paying only 15% of the market rate.

In fact, UP sugar mills have long been demanding the state government to abolish the system of reserving molasses for distilleries, so that they bought the same from the open market. They observe since liquor is also a commercial commodity and produced by business entities, they were not entitled to such reserved quota.

“The unexpected hike in the molasses reserved quota would definitely hit our financials apart from depressing the availability for ethanol production, especially in the backdrop of the UP sugarcane outstanding of about Rs 6,200 crore for the 2018-19 crushing season,” a sugar industry representative said on anonymity.

UP, which is eyeing robust excise revenue of more than Rs 31,000 crore for the current 2019-20 financial year does not want to affect the supply chain of country liquor, which could thus impact revenue collection. This has been sought to be addressed through 28% hike in the reserved quota to 16% under the current 2018-19 UP molasses policy.

Molasses is a sugarcane byproduct generated during sugar production. Molasses recovery is pegged at about 4.75% of cane crushed. Molasses is processed to make ethyl alcohol and methyl alcohol. While, ethyl alcohol is not for human consumption methyl alcohol is used for making liquor by distilleries, besides having other medicinal uses too.

Besides, sugar mills also allege that even the reserved quota was not lifted readily by distilleries, thus adding to their inventory costs and resulting in shortage of storage spaces. According to the latest available figures, against net molasses reserved quota of 0.49 MT in UP, the state distilleries had only lifted 0.28 MT till end July 2019.