Ethanol units close shop as demand dips

Most standalone ethanol units in Maharashtra and Gujarat have closed down because of oil companies' disinterest in purchasing ethanol from them. A number of other such units are awaiting their turn. But ethanol units associated with sugar firms are surviving under tremendous margin pressure.

"We are facing pressure on both fronts "� low sugar prices and little offtake of ethanol stocks. So, companies such as us with little hope on the sugar front are surviving somehow. Standalone units are gradually being shut," said Anis Khan, managing director of Dollex Industries. Dollex Industries owns a sugar unit in Nanded district of Maharashtra and an ethanol facility in Karnataka.

Ethanol producers have failed to find market as domestic oil companies are little interested in lifting stocks and there has been an unprecedented delay in floating new tenders.

Sources said that sugar co-operatives which had expanded ethanol capacity in recent past have shelved their plan for ethanol production as they see it as a loss-making proposition.

Units which invested around Rs 20 crore on distilleries were lying idle due to the lack of orders from oil companies.

Nearly half-a-dozen sugar co-operatives in Gujarat, including those of Kamrej Sugar Factory of Surat and Ganesh Sugar of Bharuch, have shut down ethanol production units during this season.

Rectified spirit exported from Maharashtra attracts an excise duty of Rs 2-3 per litre, which is also hitting profit of those companies that have a raw material source from Maharashtra.

Today, rectified spirit is quoted at Rs 21-22 per litre while portable alcohol is sold at Rs 26 per litre. The rectified spirit is further distilled to manufacture ethanol. "Finding the rate of Rs 21.50 per litre of ethanol set by government a difficult proposition coupled with delays in lifting of existing stocks since the last 2-3 years have lead to small units finding it very difficult to survive," Anis Khan said.

Dollex has invested over Rs 3 crore to upgrade the unit to make it operational and expects to crush about 300,000 tonne of cane during the current season. Only mandatory blending of ethanol upto 10 per cent would change the fate of these companies which the government is in the process of implementing, said Khan.

Ethanol is made from molasses, which is a key by-product of sugarcane processing. The government has been pushing to introduce 5 per cent mandatory ethanol blending with petrol to cut down on oil imports and switch to greener fuels. However, only nine states have so far agreed to implement it. According to an estimate by the sugar industry, at 5 per cent blending, the country would require 682 million litre ethanol in 2006-07 (October-September) sugar season, and the demand could rise to 1.3 billion litre with 10 per cent blending. According to industry estimates, India has about 120 ethanol producing distilleries, which can manufacture 1.2 billion litre ethanol every year.