Sugar industry to gain from govt's ethanol blending plan

Realisation may surge by up to 22 per cent blending may kick off from next month

The government’s decision to implement mandatory blending of ethanol with petrol at market price has turned out to be a boon for the sugar industry as realisation may surge by up to 22 per cent to Rs 33 per litre from next month. The current supplies made are being at a provisional price of Rs 27.

The Cabinet Committee on Economic Affairs (CCEA) yesterday approved the proposal for oil marketing companies to directly fix the price of bio-ethanol with the producers. Mandatory blending of ethanol with petrol could now be implemented from as early as next month.

“A market-driven price is welcome for ethanol as it will bring stability to the blending programme and benefit the industry and farmers. In the absence of a domestic benchmark price for ethanol, the landed import price of Rs 33-34 per litre can be considered as the new price,” said Vinay Kumar, managing director, National Federation of Cooperative Sugar Factories.

The blending programme is presently being implemented in 13 states with blending level of about two per cent against a mandatory target of five per cent. The government has also allowed import of ethanol to overcome shortfalls faced by both oil companies and the chemical industry. The chemical industry, led by companies like Jubilant and India Glycols, use ethanol as a raw material.

Kishor Shah, director (finance) at Balrampur Chini Mills said the decision is a win-win for the oil companies and the sugar industry. “While market forces of demand and supply will keep determining prices from time to time, the industry will be able to commit maximum quantities at a good price.” He added that given the current market situation, a price of around ~31 per litre is reasonable for ethanol.

Between 2008-09 and 2010-11, oil companies had saved over Rs 300 crore through blending. Five per cent blending of ethanol with petrol began in 2007, but came to a halt in 2009 owing to low supply following fall in sugarcane output. It was reintroduced in November 2010 and the sugar industry has been selling it at Rs 27 per litre since then. Ethanol is considered a green fuel and its blending with petrol will help reduce India’s heavy dependence on crude oil imports.

CCEA in August 2010 had approved the ad hoc price of ~27 per litre for ethanol for procurement by oil companies. This price was subject to adjustment on the basis of recommendations by an expert committee for pricing of ethanol. Later, an expert committee headed by Planning Commission member Saumitra Chaudhury considered the issue of pricing of ethanol. In its report, submitted in March 2011, the expert committee recommended a formula which was derived broadly from the price of motor spirit. Subsequently, a report by the Economic Advisory Council to the Prime Minister, recommended the fixation of price of ethanol through the market mechanism.