Ethanol blending still partly stuck

Government-owned Bharat Petroleum Corporation (BPC) has floated an Expression of Interest (EoI) for procurement of 2,650 million litres of ethanol from Indian distilleries for the 12-month period ending November 2016. The quantity is enough to meet the 10 per cent mandatory blending in petrol of ethanol.

The EoI was floated on behalf of the three government-owned oil marketing companies, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and BPC. IOC requires 1,250 mn litres; BPC and HPC each need a little more than 700 mn litres.

There are two drawbacks to this EoI. First, both cane-based and agri-based ethanol production capacity is insufficient to meet the requirement. By the industry estimate, total installed ethanol production capacity is 2,240 mn litres, 16 per cent lower than the procurement quantity needed to achieve 10 per cent blending. Second, OMCs seeks supply only from indigenous manufacturers.

"Therefore, the 10 per cent mandatory blending programme is again set to go for a toss," said an industry source on condition of anonymity.

For five per cent mandatory blending, the OMCs earlier announced their ethanol requirement at 1,05o mn litres, which then shot up to 1,280 mn litres due to the sharp rise in petrol consumption in the past two years, due to the steep fall in crude oil prices.

Consequently, BPC issued a similar tender last year for procurement of 1,560 mn litres of ethanol for mandatory five per cent blending, meant for the 18-month period ending November 2015. Against that, however, sugar mills offered only 1,230 mn litres, of which OMCs signed supply contracts for 830 mn litres. As of July 31, the OMCs had lifted 390 mn litres, not even 50 per cent of the quantity contracted.

Industry sources believe that in the remaining four months till November, the OMCs will not be able to lift the entire quantity.

"We expect OMCs to lift a maximum of 210 mn litres more, which means 600 mn for 18 months. Thus, we would not be able to achieve even 3.5 per cent blending," said a senior industry official.

The price fixation was done in December 2014. By then, most sugar mills had contracted for most of the quantity in the form of rectified spirit or potable alcohol. So, little quantity was left for ethanol production. Hence, the offered quantity was lower. For the current year, distilleries require an additional 1,000 mn litres of additional capacity to meet OMCs' requirement, given the average industry capacity utilisation of 80 per cent.

"Even if we achieve 100 per cent capacity utilisation of existing units, we require at least Rs 100 crore of fresh investment, which the industry is not in a position to do," said the official.
HOPE OVER MATHS

• OMCs now float EoI for 2,650 million ethanol procurement for 10% blending with petrol
• Overall distillation capacity is lower by 16% than quantity tendered for
• Will achieve 3.5% blending this year against 5% mandated by govt
• Need Rs 100 crore fresh investment to meet updated full requirement