OMCs may miss ethanol blending target again

Sugar mills offered between Rs 60-65 a litre for ethanol supply for rejected bids

With the unexpected delay in the allocation of ethanol supply orders to sugar mills, oil marketing companies (OMCs) are set to miss the mandatory five per cent blending target this year, too.

In January, the Cabinet ordered OMCs to achieve at least five per cent ethanol blending by June this year. But because of the insufficient quantity offered by sugar mills and the delay in allocation of supply orders of the first bid, OMCs failed to meet the deadline.

In response to the first bid of 550 million litres, OMCs distributed allocation letters of 400 million litres, while offers for the remaining 150 million litres were rejected.

A senior industry official said for the rejected bids, sugar mills offered Rs 60-65 a litre for ethanol supply. At these levels, OMCs would have earned about Rs 5-7 a litre, as sugar mills agreed to supply ethanol at petrol pumps for direct blending.

This time, too, OMCs have not yet initiated inspections, despite the fact that technical bids were opened mid-August. For sugar mills to plan crushing and ethanol production properly, they should have received the ethanol allocation orders by now. An industry official said OMCs’ delay in ethanol supply orders was unjustified.

OMCs had floated a second tender, which opened on July 22, for the supply of ethanol during the December 2013-November 2014 period, against the 2013-14 sugar season. Total requirement indicated in the tender document is 1.330 billion litres covering 10 per cent blending in few states.

“Any further delay in opening the price bids and placing orders on the ethanol manufacturers, who are going to start their next new crushing season after one month, may result in diversion of the ethanol for exports in the form of extra neutral alcohol (ENA) or molasses itself. This delay will again adversely impact the supplies of ethanol next season,” said the official.

With increase in cane price and costs of production, the price of ethanol offered this time is expected to be higher, compared with the last season. But considering the substantial increases in petrol prices in the last six-eight months, the OMCs should not mind a marginal increase in ethanol price, as they will still save some money, including huge foreign exchange savings for the country in comparison to petrol prices, he added.

Not only does the bio-ethanol blending programme reduce India’s dependence on fossil fuel imports and allows the nation move slowly but surely towards energy sufficiency, it also has other very important advantages of being the best oxygenate which helps the petrol burn better when blended with it, thereby reducing environmental pollution that fossil fuel are infamous for. With its anti-knocking property, it helps improve the life of engines.

The retail price of ethanol blended petrol in Uttar Pradesh stands today at Rs 79.23 a litre. As per calculation, the landed price of ethanol (back calculated from the price of ethanol blended petrol at the petrol pump) at the depots of OMCs works out to Rs 60.82 per litre.

This is about 15 per litre higher to the highest last accepted rate for procurement of ethanol against the January 2013, tender and Rs 17 per litre higher to the average last accepted rate in the said tender.

In other words, the OMCs can very comfortably afford to accept ethanol price at depot at R. 60 per litre in the new tender. Considering all taxes, duties, dealers’ commission and value-added tax, the ex-mill price for ethanol at Rs 52 per litre will be commercially neutral for the OMCs.