It is unfortunate that public sector oil marketing companies (OMC) are yet to finalise their tenders for ethanol purchases even one-and-a-half months after submission of price bids against these by sugar mills. It was bad enough that the Government couldn’t make up its mind about mandating blending of petrol with 5 per cent of ethanol well in time for the start of the sugar season 2012-13 from October. Having decided in the third week of November, it compounded the initial folly by notifying it only in January. In the event, one looked to the OMCs to show some urgency in completing the procurement process thereafter. But despite the bids against tenders coming in by January-end, no orders have been placed and not a single litre of ethanol procured, even as crushing for the season is coming to a close.

The economic arguments in favour of ethanol blending are pretty compelling. The OMCs currently are paying just under Rs 46 for every litre of petrol at the refinery gate. As against this, mills have been realising only Rs 27 a litre on ethanol. Even taking the Rs 35-36 rate that most mills are said to have quoted in the recent tenders, the savings to the OMCs – from substituting 5 per cent of their annual domestic petrol sales of 2,000 crore-odd litres – would work out to roughly Rs 1,000 crore. That may be small for the OMCs, but not for mills, who stand to gain additionally from higher demand and better overall realisations for their alcohol or molasses. Right now, they are largely at the mercy of potable alcohol manufacturers, who often wait for the molasses tanks to overflow during the peak crushing season, leaving mills no choice but to offload at whatever is the going rate.

But it is not just the interests of the potable liquor lobby or the indifference of OMCs that are to blame for ethanol-blending not really taking off. No less responsible are the State Governments that derive considerable revenues from excise on liquor, which, then, has served as the pretext for erecting controls over movement and sale of molasses/alcohol. The ultimate victims of this have been the mills and cane growers, who haven’t been able to harness the true potential of a crop beyond just making sugar. If mills are given the freedom to flexibly deploy the juice extracted from their cane – whether to crystallise most of it into sugar or ferment into alcohol – there will be enough of both, as they will produce more of whichever is fetching a better price. This, along with a robust ethanol-blending programme, will also go a long way in ending the extreme cyclical swings in sugar production. Over-reliance on revenues from sugar is the main reason why cane arrears pile up during years of over-production. These, in turn, lead to lower plantings and spiralling prices the following year. Diversification of revenue sources is the best guarantor of stability from even a consumer viewpoint.