Despite public sector Oil Marketing Companies (OMCs) offering a higher price for procuring of ethanol that is to be blended with petrol, most sugar companies are shying away from bidding for the entire 153 crore litres that OMCs have asked for through tenders. Bids have been made to supply only 62 crore litres.
Sugar enterprises pinned the shortfall, representing about 59 per cent of the 105 crore litre requirement under the 5 per cent blending mandate — on the price being offered for ethanol alongside the uncertainty of crushing operations in Uttar Pradesh.
Ethanol is derived from molasses, a by-product obtained during the sugar production process. The Government revised the benchmark price formula for ethanol in June, whereby the average of the Refinery Transfer Price (RTP) for the previous financial year would be taken into account instead of the lowest RTP. It stood at Rs. 44/litre and an industry official requesting anonymity said that it was likely to be pegged around Rs. 47/litre at the depot this year.
Ongoing effort
Sugar companies had been pushing for at least Rs. 50/litre for production to be commercially viable. “If they take Rs. 47/litre at the oil depot and you deduct the transportation costs and taxes imposed, it won’t work out to more than Rs. 40/litre (ex-mill) for ethanol. If sugar companies convert some of the B-heavy molasses then they would require about Rs. 50 ex-mill,” said the official.
Abinash Verma, the Director-General of the Indian Sugar Mills Association, agreed. “The offers will be less unless the Government or the OMCs give better compensation to the industry. Once their offers are scrutinized, there will be negotiations and then we will come to know what exactly the offered price is,” he said.
“The industry in UP is unsure of starting crushing next season so some companies in the state have not proposed supply next season due to this uncertainty,” Verma said. Bajaj Hindusthan, the largest supplier of ethanol last year, has kept out of taking up tendering offers so far.
By-products aplenty
Better returns from the supply of extra-neutral alcohol (ENA) and industrial-use alcohol, less pure products, have also pushed companies towards considering ramping up supply of these products over ethanol. Ex-mill realisations for ENA and industrial-use alcohol were Rs. 43-44/litre and Rs. 42/litre respectively.
“Ethanol is 99.5 per cent pure as compared to industrial alcohol and ENA which are 94.5 per cent pure. For the 5 per cent volume loss, the industry would want a slightly higher price than what they get for ENA and alcohol. If ethanol price was Rs. 50/litre more people would be interested in participating,” said Verma.
Cargo pains
Inter-state transport of ethanol was also an issue that some company representatives felt proved a hindrance. “There are difficulties with inter-state ethanol movement which is controlled by the States and the industry has been asking for ethanol to be a declared or deemed good for free movement across states,” said Gursimran Mann, Executive Director, Simbhaoli Sugar Ltd.
Some players in the cash-starved industry, however, are optimistic about the tenders being fulfilled. “There is adequate notice compared to previous years and the capacity within the industry is adequate. The sugarcane crop also looks good as per ISMA’s estimates. We’re quite bullish on the ethanol program and the government proposing 10 per cent blending is a good move,” said Ajit Shriram, Joint Managing Director, DCM Shriram.
The Government recommended 10 per cent blending last month to further its energy conservation strategy and to aid the sugar industry in paying sugarcane arrears, particularly in UP, which stand at more than Rs. 5,000 crore. The industry has also made recommendations to convert cane juice directly into ethanol in order to reduce surplus sugar in a market where the price of the sweetener is depressed.