Oil firms float country's biggest ethanol purchase tender

Aim to buy 3.13 bn litres, valued at Rs 12,800 crore

Oil marketing companies — IndianOil, Bharat Petroleum and Hindustan Petroleum — have floated the country’s biggest ethanol procurement tender to buy 3.13 billion litres.

The value of ethanol desired by companies for blending with petrol is estimated at over Rs 12,800 crore, considering an average price of Rs 41 a litre. Oil companies will also have to pay a Goods and Services Tax (GST) of 18 per cent on ethanol that will go into blending.

Most of these supplies will come from the sugar industry, the key beneficiary of the ethanol blending programme introduced by the government a few years ago. Initially, the blending happened at five per cent and was then scaled up to 10 per cent, wherever possible. Sugar companies are set to expand supplies as the past record shows the industry has not been able to meet the entire requirements.

Source: Industry

Balrampur Chini, the country’s second-biggest sugar maker, had committed to supply 80 million litres of ethanol in the last tender (supply period beginning December 2016 and ending November 2017). “All our distilleries are equipped to run for a higher number of days this year and we will produce more ethanol. We are hopeful of selling 100 million litres in the new tender, which could translate into revenues of over Rs 400 crore for the company,” said Pramod Patwari, chief financial officer at Balrampur Chini.

The industry is upbeat about the tender quantity even though the past track record of supplies has been poor (see chart). The sugar industry supplied 810 million litres in the last tender when the required quantity was 2.81 billion litres. “The offer price in the last tender was lowered by Rs 2 to Rs 39 per litre and the excise relief of Rs 5 a litre was withdrawn. Moreover, sugar production had declined sharply in Maharashtra and the southern states, leading to less availability of molasses, the key raw material for ethanol,” Patwari said. Prices could be slightly better this year, at about Rs 41 a litre.

“This is a very large tender. We expect the industry to ramp up supplies and this should happen with a 25 per cent increase in sugar production expected for the current sugar year (October-September). Our participation is going to be substantially higher than last year when we sold 30 million litres. We will use maximum molasses at our mills to produce ethanol,” said Tarun Sawhney, Vice-chairman and Managing Director at Triveni Engineering and Industries.

Ethanol provides an additional revenue stream for the sugar companies, besides sugar and bagasse-based power. “A slightly higher price for ethanol will offer distilleries better returns and encourage more investment in distilleries,” Sawhney said.