Maharashtra lags behindother states in ethanol supply to OMCs

Octroi, LBT, price negotiations, delay in payment are issues that hinder sugar mills

Despite being the largest sugar producer, Maharashtra lags behind other major producing states inethanol supply to oil marketing companies (OMCs) due to critical payment modeand "irritating" documentation issues with co-operative sugar factories.

Being a by-product of sugar manufacturing process, ethanol is obtained in India by processing of molassesin its original form as rectified spirit (RS) with around 95 per cent of purity. By a further minute processing, ethanol (also termed as green fuel) is obtainedfor direct blending with petrol.

Manufacturing ethanol directly from sugarcane orany other agri producers proves uneconomical. Hence, the largest sugarproducing states should ideally be in a position to supply the highest quantity of ethanol. But, sugar co-operative mills in Maharashtra do not find supply ofethanol to OMCs economical due to unfavourable policies.

"After bidding processis over and co-operative sugar mills' active participation in the process with open price quote, OMCs call them three - four times to negotiate prices. In response to OMCs tender, co-operative sugar mills offer ethanol supply quantity at aprice declared by them.

There is hardly any room for negotiation in the price offered in the tender. Still OMCs want negotiations," said Sanjiv Babar,managing director, Maharashtra State Federation of Co-operative Sugar Factories. Against the two tenders by the OMCs for the required quantity of 2736 million litres, sugar mills across the country offered to supply 1168 million litres of which OMCs finalizedquantity of 646 million litres.

Thus, the quantity finalized works out to 23.6 per cent of total requirement by OMCs for direct blending of ethanol with petrol. According to industry sources, OMCs issued orders 526 million tonnes of which 382 million tonnes against the first tenders floated on January 2, 2013. Unfortunately, OMCs have lifted a minute quantity of 272 million litres. Babar argues that sugarmills pay farmers every day in tune with their cane supplies.

While selling molasses, extra neutral alcohol (ENA), rectified spirit or industrial alcohol (allpre-refined forms of ethanol) in spot market yield immediate cash eitherthrough bank deposit or real time gross settlement system (RTGS), OMCs offerpayment after 60 days. By then, sugar mills pay interest on the amount ofethanol they sold to OMCs, added Babar.

That apart, OMCs have mandated to supply ethanol at petrol depot. At some depots, octroi and local body tax (LBT) levies make ethanol costlier reducing, thereby, suppliers'realisaiton further. Also, OMCs take months to finalise tenders and issue ethanol supply orders to sugar mills.

Ethanol price is another issue, sugar mills willhave to deal with separately.  "For industrial alcohol, cost of production works out to Rs 33-34 a litre which if further converted into ethanol, the cost of production goes to Rs 36 a litre. Selling at Rs 36-37 a litre, therefore, does not make anyeconomic sense for sugar mills. For sugar mills, the timeliness of molasses supply also makes much sense," said Deepak Desai, Deepak Desai - chief consultant, ethanolindia.net, an ethanol consultancy firm.

Meanwhile, share price of sugar companies jumped upto 15% on Thursday due to forecast of a turnaround in the industry.