Lured by the higher price paid by potable alcohol manufacturers, sugar mills are preparing to give a 'thumbs down' to the ethanol procurement tender likely to be floated by oil marketing companies (OMCs) on Friday.
Early this month, OMCs led by Bharat Petroleum Corporation Ltd (BPCL) had issued an expression of interest to procure 2.66 billion litres of ethanol for its 10 per cent mandatory blending with petrol in the next sugar year (October 2015-September 2016). In the past too, such tenders were issued periodically which evoked weak response on every occasion amid arguments of the delay in floating tenders and unattractive prices.
Last year, the government fixed the ex-delivery ethanol price between Rs 48.50 and Rs 49.50 a litre, depending on proximity from distilleries. Sugar mills were happy when this price was fixed, as the actual realisation for sugar mills worked out to Rs 41-42 a litre, substantially higher than the Rs 35-36 a litre earlier. However, the realisation issue erupted again due to unexpected competition from potable alcohol manufacturers.
"Sugar mills have been incurring losses for the past two-three years due to high cane prices and low sugar realisation. So, it makes economic sense for them to fetch more money from wherever they see room for it. No mill is interested in sugar production for the time being. They are interested in ethanol production with adequate realisation. But, because potable alcohol manufacturers pay Rs 1-2 higher, sugar mills are inclined to meet their requirements first," said V N Raina, director-general, All India Distillers' Association.
Potable alcohol manufacturers currently pay Rs 37-38 a litre for rectified spirit, a pre-form of ethanol with 95 per cent purity. When RS is dehydrated to make ethanol with 99.9 per cent purity, distilleries loss five per cent of volume. Apart from that, dehydration involves plants and machinery in addition to transportation cost.
Considering all this selling of rectified spirit to potable alcohol manufacturers becomes cost effective.
Over and above, it also offers saving of energy and employment costs among others. Even Rs 1 per litre of saving will fetch an additional profit of Rs 224 crore (total installed capacity of ethanol production stands at 2.24 billion litres).