OMCs' ethanol procurement tender gets weak response

Distilleries have offered 470 million litres of ethanol to oil marketing companies (OMCs), in response to a tender floated by the latter to procure 970 mn litres for the current cane crushing season, which ends in September.

The OMCs had floated the tender on December 30, seeking participation from ethanol manufacturers by January 12.

“The bid was opened mid-season; the crushing season begins in October. Distilleries have already made their arrangement with alternative consumers, including potable and industrial alcohol manufacturers, leaving less for ethanol manufacturing. Therefore, the quantity offered was low,” said a senior official with a leading ethanol manufacturer.

The tender followed a decision by the Cabinet Committee on Economic Affairs on December 10 to fix the ethanol price for this purpose at Rs 48.50–50 a litre, depending on an oil depot’s distance from a distillery. This was higher than the Rs 44-48 a litre for the July 2014 tender. OMCs had procured ethanol at Rs 39-45 a litre between December 2013 and November 2014.

Since the five per cent mandatory ethanol blending programme was introduced, the OMCs have achieved less than two per cent of the target. They require 1,330 mn litres of ethanol to blend with petrol annually.

“It is a very good quantity for a tender floated in the middle of the season. Added to the 350 mn litres finalised against the previous tender, the quantity is the highest in any single season,” said Narendra Murkumbi, managing director, Shree Renuka Sugars, one of India’s largest ethanol producers.

Falling crude oil prices had raised questions over the viability of ethanol procurement at Rs 44-48 a litre, forcing OMCs to scrap an October tender for procurement of 1,200 million litres. Crude in the international market is down 58 per cent since July last year.

“This is more evidence that distilleries do not have adequate ethanol. The question is not about price but availability. The (blending) programme is flawed and cannot succeed, regardless of whatever price the government offers. Every time its price is increased, the government falls short of the desired quantity. With crude at around $45 a barrel, is it fair to have a programme where a consumer or a taxpayer subsidises the sugar industry and to what extent?” asked Rakesh Bharatiya, president, Indian Chemical Council and chief executive officer of India Glycol.