Ethanol blending goes for a toss due to poor response from sugar mills

Second ethanol tender gets poor response as sugar mills find the price offered unviable

The Centre’s programme to blend five per cent of petrol with ethanol with petrol is facing trouble, thanks to the poor response from sugar mills. Oil marketing companies (OMCs) had floated tenders twice, inviting mills to supply ethanol.

In the wake of poor response for the first, OMCs had floated another for 250 million litres. But this also got a poor response. The open tender had invited mills to supply any quantity at Rs 44 a litre. But, due to the duties and transportation costs, the income a mill would get would be no more than Rs 37 a litre, the price in the first tender.

“While the exact response was not disclosed by OMCs, it was certain mills were not keen,” said a source.

In the first tender, OMCs had made a demand of 1,050 million litres in 2013-14. But, owing to a weak crushing season, mills offered to supply 550 million. However, OMCs placed orders for 400 million.

Of these, OMCs lifted 220 million. Mills are doubtful if the rest would be lifted in six weeks, as the supply order lapses next month.

“It was just a matter of a few rupees. Hence, it makes no business sense to continue supplying,” said Rakesh Bhartia, managing director, India Glycols.

By conservative estimates, of the 2,400 million litres of alcohol produced a year, 1,000 million are used for making potable alcohol. While chemical and allied sectors consume 700 million, an equal quantity is left for blending.

To bridge the supply gap, OMCs, in the second tender in July, sought to procure 1,335 million between December 2013 and November 2014. Mills offered to supply 620 million, 46 per cent of the required quantity.

“For industrial alcohol, the production cost works out to Rs 33-34 a litre. If further converted to ethanol, the cost goes to Rs 36 a litre. Selling ethanol at Rs 36-37 a litre, therefore, does not make any economic sense,” said Deepak Desai, chief consultant, ethanolindia.net, a consultancy firm.

For mills, the timeliness of molasses supply also makes much sense, he added.

Last year, India exported 0.58 million tonnes due to the delay in tender and unviable ethanol prices offered by OMCs.