With oil marketing companies planning to blend ethanol with petrol from June 1, Balrampur Chini is planning to up its distillation capacity a third.

The Kolkata-headquartered sugar producer is planning to set up a 100 kilolitre (kl) distillation capacity in Uttar Pradesh adding to the existing capacity of 300 kl.

The OMCs have recently floated a global tender to procure ethanol to the extent of 1.05 million kl, which can go up to 1.4 million kl.

“Since the blending has to begin effective June 1 we expect awarding of the tenders by April 1. If we get visibility on this ethanol programme we may very quickly set up a distillery next year. The capex for the 100 kl distillery would be `80-90 crore. We would get some interest subvention from the UP government. We will also set up some co-generation power facility taking our total capex to Rs130-140 crore,” managing director Vivek Saraogi said on a conference call with analysts.
In fact, it’s not only Balrampur Chini but other sugar mills across the country would also be raising their ethanol facilities 35-40% to cash in on the emerging opportunity, he said.

This is just the beginning as, according to Saraogi, the OMCs will be needing close to 1 billion litres of ethanol a year to meet the requirement of mixing at least 5% ethanol with the fuel.

The sourcing and blending of ethanol would be more than the mandated 5% in sugar producing states like Uttar Pradesh (where all of Balrampur’s mills are located), Maharashtra or in Tamil Nadu as more blending would shield the OMCs to some extent from spiralling crude oil prices.

“This 5% is the national average that has to be achieved and OMCs may even go for higher level of blending in states where sugar and ethanol is produced,” Saraogi said.

The Maharashtra government is believed to have approved blending 10% ethanol in petrol to be sold across petrol pumps in the state.

Saraogi said the viable ethanol prices for sugar mills would be Rs38-40 a litre.
As molasses production far exceeds distilling capacity, Balrampur is now being forced to sell 20% of what is not consumed captively to the country liquor makers as per UP state government regulations.

As for its core business of making sugar, the outlook continues to be depressing.
“The UP government has recently announced SAP (state advised price) at Rs280 a quintal, significantly higher than previous year. In combination with current realisation, sustaining economically viable operations would be challenging,” Saraogi said.

Prices are also under stress.
“Internationally, sugar prices have remained subdued for the past one month due to better than expected output in the US and others. As a result, domestic prices have come under pressure in January and are currently quoting Rs32.5 a kg as against average realisation of Rs34.7 kg last year.”