Sugar mills threaten to halt ethanol production

Dismayed by oil marketing companies’ unwillingness to raise the ethanol procurement price, sugar mills have threatened to stop manufacturing the green fuel and divert molasses, a by-product obtained while crushing sugarcane, to liquor manufacturers.

Sugar mills produce around 260 litres of ethanol from each tonne of molasses, depending upon the technology employed while crushing. But a substantial part of the molasses is supplied to alcohol manufacturers, who procure the raw material at a high price of around Rs 6,000 a tonne.

FUELLING DEBATE

Sugar mills have threatened to stop manufacturing of green fuel and divert molasses to liquor manufacturers

Even the mandatory five per cent ethanol blending with petrol, as committed by the government to protect the environment, three years ago, would become a fuss this year on supply shortage

At an estimated 10 per cent recovery average, India is likely to crush about 220 million tonnes of cane this sugar year to produce 22 million tonnes of sugar and 228.8 million tonnes of molasses

According to an industry official, “The situation at present is such that even a mandatory 5 per cent blending of ethanol with petrol, as committed by the government to protect the environment three years ago, would be difficult to meet as a result of a short supply of sugarcane. With an expected fall in the cane output, the 20 per cent ethanol blending, which the government is planning to make mandatory, is unlikely to be practical,” said Deepak Desai, the chief consultant of ethanolindia.net.

Oil marketing companies have turned down sugar mills’ demand to raise the procurement price of ethanol to Rs 30 a litre to cover a part of the production cost, which comes to over Rs 32 a litre. Oil companies have argued that mills are bound by the agreement to continue ethanol supply at the mutually-agreed price of Rs 21.50 a litre till the end of the three-year contract period of October 2009.

“Circumstances were different three years ago, when the selling price of Rs 21.50 a litre was agreed upon. Prices of molasses were hovering between Rs 600 and Rs 700 a tonne. Supply was surplus on a bumper cane output. Now, with the supply crunch this year and with the scenario expected to be worse in the next season, prices should be revised according to the change in market circumstances,” said V N Raina, the director general of the All India Distillers’ Association (AIDA).

However, a senior Bharat Petroleum Corporation (BPCL) executive said, “Sugar mills must observe the change in circumstances without crying foul over the price rise. The next round of price negotiation would start only after October 2009, when the existing contract expires.”

He alleged that sugar mills were ready to supply the green fuel even below Rs 21.50 a litre, which the sugar mill ececutives denied. BPCL had ordered 140,000 kilo litres of the green fuel to meet its demand till October 2009.

“Like crude oil, ethanol prices should also be determined by market forces and not by any government or regulatory obligations. In the open market, the current realisation is at least Rs 2-3 higher than the contract price,” said B J Maheshwari, the company secretary of Dwarikesh Sugar Industries.

The country needs around 60 crore litres of ethanol a year for three years to meet the 5 per cent blending norm. If this is increased to 10 per cent, the country would need 120 crore litres of ethanol.