Petrol-ethanol blending programme faces supply hurdle

The programme faces an acute shortage due to a deficient sugarcane output

The petrol-ethanol blending programme faces an acute shortage due to a deficient sugarcane output and withdrawal of the excise duty exemption by the government.

To achieve the target 10 per cent blend, oil companies issued their first tender on October 22, 2016, for 2.8 billion litres of ethanol to be supplied between December 2016 and November 2017. In response, sugar mills offered and contracted for 780 million litres.

“Sugarcane output was 20-25 per cent lower than last year, resulting in a proportionate decline in ethanol production. Lower crushing of cane doubled the price of molasses, the raw material for ethanol. Sugar mills prefer to sell molasses rather than ethanol after incurring a conversion cost of 15-16 per cent. The government also withdrew the excise duty exemption of Rs 4-5 a litre on ethanol,” said an industry executive.

Bharat Petroleum Corporation, on behalf of Hindustan Petroleum Corporation and Indian Oil Corporation and itself, issued a supplementary tender for procurement of 1.27 billion litres of ethanol. Industry sources said no sugar mill had shown interest to the second tender. The BPCL executive in charge of ethanol procurement could not be contacted.

“The supplementary tender was not needed. Had sugar mills been in a position to supply ethanol, they would have participated in the first tender,” said the industry executive.

Last year, sugar mills had contracted for 1.3 billion litres of ethanol, of which the actual lifting was 1.11 billion litres. Oil companies had sought 2.26 billion litres of ethanol from sugar mills.

The the fuel doping programme started in November 2012 requires a 5 per cent ethanol blend and this was notified by the Centre under the Motor Spirits Act on January 2, 2013. The plan was to achieve a 10 per cent blend after one year. The target was never achieved.

 

“Manufacturing ethanol is not lucrative now. The scenario will change next year when the price of molasses declines on a good sugarcane crop,” said Deepak Desai, consultant, ethanolindia.com, a consulting firm.

Molasses are being sold at Rs 8,000-9,000 a tonne. The raw material for ethanol is priced at Rs 34 a litre. Incurring a conversion cost of Rs 5.50 a litre, the production cost of ethanol is Rs 39.50 a litre. Since, the transportation cost is also borne by the supplier, ethanol supply to oil companies is unviable at its current price.

“With the sugarcane crop looking good this year, the industry might get back to normal in the next season,” said Abinash Verma, director-general, Indian Sugar Mills Association (ISMA).