Ethanol promotion move fails to enthuse sugar mills

The central government's move last week to allow sugar mills to convert sugarcane directly into ethanol is hardly going to work for the beleaguered industry, according to experts.

They said that given the current model of sugarcane prices, especially in Uttar Pradesh where locally announced state advised price (SAP) dictates the sentiment over centrally decided statutory minimum price (SMP), it would be an ill-advised move.

Last sugar season, the Uttar Pradesh government raised cane SAP prices to Rs 125 a quintal from the Centre's SMP at Rs 80.25 a quintal. For the current season, the government has already hinted that it would not cut cane price, adding to the woes of a badly-hit industry. The intention behind introducing SAP was to prioritise sugar production and let ethanol remain as a by-product, they added.

The major challenge facing the industry is the cost of production and lifting of ethanol from the sugar plant. At present, the cost of production in UP is Rs 26 a litre as against the government's purchasing price at Rs 21.50 a litre.

"If you are converting cane into ethanol directly, you are losing Rs 5.50 a litre, which is unbearable. Hence, either the government should bring down the cane procurement price or raise the ethanol selling price," said B J Maheshwari, company secretary of Dwarikesh Sugar Industries.

Experts cite transportation as the major problem confronted by the mill owners. About 1,000 tonnes of cane fetches 70,000 litres of ethanol which on conversion may bring 20.4 per cent profit at the current cane price of Rs 125 a quintal and Rs 21.50 a litre of ethanol minus other expenses and depreciations in the industry. But, transportation and other costs make the direct conversion expensive.

Sanjay Tapriya, director (finance), Simbhaoli Sugar Mills, said, "For any real benefit, the government should bring down the SAP to SMP level or should permit to pay the cane price to farmers the Maharashtra way, where part payment is allowed."

The government should also revise Sugar Control Order with a modification in SMP, which will surely benefit the industry in the long run, he added.

Last week, the Centre permitted sugar mills to convert cane directly into ethanol, which is being produced from molasses. The government has hinted that it would make the blending of 10 per cent ethanol in fuels mandatory from October 2007.

An official from the largest sugar producer said that co-generation and distillery is unlikely to compensate for the core business of sugar production.

Funds would be required to convert the existing sugar co-generation plants into 100 per cent ethanol plants with a juice pipeline or transportation facilities. The successful implementation of government policies would help alleviate their problems, experts said.

According to sources at the Indian Sugar Mills Association (ISMA), the domestic oil companies have barely lifted 125 million litres of ethanol in the last eight months out of 550 million litres of required quantity.

However, petrol, where 5 per cent blending is made mandatory, constitutes only 20 per cent of the overall energy basket. For blending in the remaining 80 per cent, research is still to get a breakthrough.

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BITTER PILL

Last week, the Centre permitted sugar mills to convert cane directly into ethanol, which is being produced from molasses

The major challenge facing the sugar industry is the cost of production and lifting/transportation of ethanol from the sugar plant

If cane is directly converted into ethanol, then the company loses Rs 5.50 a litre

Co-generation and distillery, which contribute only about 15 per cent in major sugar producing companies, is unlikely to compensate for the core business of sugar production