Byproducts increasingly saving sugar mills; no longer side issues

Mills opt to process byproducts 'round the clock' now from 'seasonal' earlier

They’re still called sugar mills but their managements say they are getting more and more interested in the byproducts of sugar production.

For, it’s beginning to make economic sense. Sugar’s price, subject to various controls, has been below the cost of production for close to two years. At the same time, the byproducts — power co-generated from bagasse and ethanol from rectified spirit — lacked price guidelines. Hence, mills were unable to make a proper plan at the start of the crushing season.

No longer. Against an estimated Rs 2.50 a kg loss from sugar production, mills are aggressively signing contracts with state electricity girds for power supply at Rs 5-7 a unit. And, against the earlier Rs 27 a litre, oil marketing companies (OMCs) are offering Rs 34-36 a litre for ethanol, to meet their needs under the government’s now-mandatory petrol blending programme.

As the OMCs want 1,335 million litres of ethanol for the coming season, and with grids always looking for more power, these allied services are now going to be produced for offer round the clock, not seasonally as earlier, says G S C Rao, executive director, Simbhaoli Sugars.

Bajaj Hindusthan, another sector leaser, has seen its revenue from co-generation and distillation rise 171 per cent and 93 per cent, respectively, in its latest yearly turnover figure.

An Icra report said prices of bagasse and molasses continue to remain remunerative, driven by healthy demand from consuming sectors such as power, paper and potable alcohol. Higher realisations for fuel ethanol this year will mean yet more returns from byproducts, it added. Further, forward integration into distilleries and power generation continues to yield healthy returns, driven mainly by a supportive regulatory framework and healthy offtake and pricing for alcohol and power.

“Byproducts are set to prove a savior for sugar mills, on increasing realisation from their end-products,” said Abinash Verma, director-general, Indian Sugar Mills Association.

Unlike the uncertain sugar prices, ethanol and power rates are being fixed, helping companies to plan their strategy far better, noted Rao of Simbhaoli.