Ethanol blending: OMCs to place orders soon

The OMCs' tender, opened in July, was to procure 1,335 million litres of ethanol during Dec 1, 2013-Nov 30, 2014

The second ethanol procurement tender by the three state-owned oil marketing companies (OMCs) has got an overwhelming response, with a large number of sugar mills having responded to the bid, which closed recently.

According to informed sources, the OMCs got applications from 80 mills in the second bid, against 68 in the first one which closed in the first quarter of the current financial year. “Currently, technical evaluation of bids is on. But a preliminary study showed the mills offered the full quantity as desired by the OMCs,” said an official.

The mills are substantially interested in the OMCs’ mandatory requirement of five per cent ethanol blending with petrol, as they’re suffering losses from their core activity of sugar manufacturing, subject to various controls.

The OMCs’ tender, opened in July, was to procure 1,335 million litres of ethanol between December 1, 2013, and November 30, 2014. This replaced the earlier global tender, for 1,050 million litres, which got poor response, with mills offering to supply only 550 million litres. The price offered was considered uneconomical and mills had alternatives, too.

Since that tender was opened towards the second half of the crushing season of 2012-13, most sugar mills had already contracted for supply of molasses and rectified spirit to domestic and foreign companies. The price offered was higher in the second tender.

“Ethanol, being a byproduct, has no value in itself. If it goes with petrol, it will be a great relief for sugar mills, incurring losses for the past three years. Assured realisation is coupled with the commitment of lifting of full quantity,” said V N Raina, director-general of the All India Distillers' Association.

Sugar mills in Uttar Pradesh had lost around Rs 3,500 crore in the 2012-13 crushing season due to higher cost of production (Rs 36 a kg) and lower realisation (Rs 33-34 a kg). Petroleum Minister M Veerappa Moily recently said OMCs would procure ethanol from domestic sources to achieve the mandatory blending requirement in areas where sufficient ethanol was available. In other parts, blending might be increased progressively, depending upon the availability of ethanol to reach the mandatory level.

The Indian Sugar Mills Association says at the current rupee-dollar exchange rate, if there is 400 mn litres of ethanol blending with petrol, there would be a saving in foreign currency of Rs 1,844 crore. If the entire annual requirement of 1,050 mn litres of ethanol (between December 2013 and November 2014) for blending is sourced, the government can save Rs 4,841 crore. In the period from August this year to November 2014, it has said, Indian distilleries are set to produce 1,450 mn litres of ethanol.