Ethanol at Rs 27 a litre cheers sugar mills

Ethanol producers are cheering the government’s decision to raise the price of ethanol to Rs 27 a litre, as the decision may fetch long-term profits. Sugar companies, the main producers of ethanol, a by-product, have been selling it at Rs 21.50a litre.

Food and Agriculture Minister Sharad Pawar earlier this week mentioned about a consensus between oil marketing companies (OMCs) and sugar mills on a selling price of Rs 27 for the product.

“We were demanding at least Rs 28 a litre for ethanol, while the government wanted it at Rs 26. But, the government has agreed for a price of Rs 27, which is good for the industry,” said V N Raina, director general, All India Distillers’ Association.

According to Prakash Naiknavare, managing director of Maharashtra State Federation of Co-operative Sugar Factories (Sugar Federation) that represents about 170 sugar mills in Maharashtra, producers stand to lose over Rs 4 a litre by selling ethanol at the consented price of Rs 27 per litre.

Given the current price of molasses at around Rs 4,500-5,000 per tonne and rectified spirit at Rs 26-28 per litre, the agreed price of ethanol was a loss-making proposition, he said. Considering other expenses, including conversion cost and losses which sugar producers incur, the manufacturing cost of ethanol works out to be Rs 31 a litre.

But, the industry is looking at long-term gains. Therefore, the Sugar Federation has urged the government to allow three-year contracts between ethanol producers and OMCs (the real consumers). In the second and third year, with increased availability of sugarcane and resultant rise in molasses and rectified spirits, the price of these by-products along with the cost of production would come down. Thus, producers could make profits in the second and third year, Naiknavare said.

He further wanted the petroleum ministry to scrap the bidding system for ethanol procurement and call for direct purchases from producers, he said. Currently, OMCs call for bids to procure ethanol. Against the requirement of 680 million litres this year, OMCs received bids for only 40 per cent of the need.

Meanwhile, Maharashtra has utilised less than 50 per cent of the 580 million litre of ethanol production capacity due to price disparity. Naiknavare said the current price hike would surely encourage producers to utilise their idle capacity to increase supply in the second and third year for getting better realisation.

He also demanded that OMCs failing to meet the 5 per cent mandatory ethanol blending target should be penalised.

In 2006, the government made 5 per cent ethanol blending with petrol mandatory which could be optionally ramped up to 10 per cent from October 2007. The 10 per cent blending was made compulsory from October 2008. But the Biofuel Policy 2017 which states to increase blending to 20 per cent could not achieve even the mandatory blending of 5 per cent because of supply constraints.