Another ethanol bonanza awaits sugar mills as govt tweaks rules

Shiv Kumar
Tribune News Service
Mumbai, May 18

Sugar mills in different parts of the country are all set to reap windfall gains with state owned oil marketing companies (OMCs) expected to sign fixed priced contracts with them for the purchase of ethanol.

According to sources here, several leaders with interests in Maharashtra's sugar co-operative sector who joined the BJP before the Lok Sabha elections have got assurances that state-owned OMCs would buy ethanol from the distilleries at fixed price for periods ranging from 10 to 15 years. At present, OMCs buy ethanol from distilleries at prices linked to that of global crude prices.

In a representation to Niti Aayog, the Maharashtra State Cooperative Sugar Factories Federation (MSCSFF) pointed out that volatility in the prices of ethanol would make it unviable for sugar mills to invest in facilities for its production. The co-operatives are also demanding an escalation clause in the payments made by OMCs in case of rising prices of sugarcane.

Sources say, the OMCs which are still in the red are resisting the terms set by the sugar co-operatives.

Earlier this year, the Narendra Modi government tweaked a number of rules making it easier for sugar mills to invest in the production of ethanol.

Co-generation plants attached to sugar mills which till now were allowed to produce ethanol only from molasses are now being allowed to manufacture the bio-fuel directly from sugarcane juice.

The government has also made it mandatory for oil marketing companies (OMCs) which have to compulsorily blend ethanol with motor fuels to pay more for ethanol manufactured directly from sugarcane juice. While ethanol from molasses is currently priced at Rs 52.43 per litre, that manufactured directly from sugarcane juice would fetch the mill Rs 59 per litre.

Petrol and diesel sold in India will have to be blended with at least 10 per cent ethanol from 2022, which is slated to go up to 20 per cent by 2030, according to the government's target for OMCs.

"There will be a requirement of at least 300 crore litres of ethanol by 2022," says an office-bearer of the MSCSFF.

Ethanol supply to OMCs is around half at present, according to sources. To incentivize increase in production of the bio-fuel, the government also came up with an interest rates subvention scheme for sugar mills to the tune of Rs 3300 crore last month.

However, Maharashtra's sugar mills said they are saddled with huge out standings to farmers and would not be able to make investments in ethanol production in the absence of fixed price contracts with OMCs.