The government may soon make it attractive for glut-hit sugar mills to convert sugar into ethanol to help them get rid of excess stocks. The food ministry has asked the petroleum ministry to ask oil marketing companies to buy ethanol made directly from sugar, and has also asked it to fix a separate price for this category of ethanol, three government officials close to the development said.

Currently, oil marketing companies buy ethanol from sugar mills at three different prices. They buy ethanol derived from high-yielding B-heavy molasses at 52.43 rupees per ltr, that derived from C-heavy molasses at 43.46 rupees per ltr, and ethanol manufactured from 100% cane juice at 59.13 rupees a ltr.

A separate price for ethanol made from sugar would help mills convert old stocks into ethanol and reduce the glut in the domestic market. The conversion, however, would be permitted only for a short time to ensure only part of the excess stock is consumed.

The viability of making ethanol from finished good 'sugar' too would have to be looked at, as mills have already incurred the cost of producing sugar, and would need to spend more to convert it to ethanol, the official said.

To convert sugar into ethanol, sugar would have to be dissolved in water to form a syrup. The syrup would then have to be fermented and distilled, an official at V.M. Biotech said.

In July, sugar mills in Maharashtra had sought permission from the Centre to convert excess sugar stocks to ethanol, as the state is likely to have a large carryover stock of around 5 mln tn at the end of September, more than the double of annual consumption.

The problem of excess sugar is not just in Maharashtra. The country's overall carryover stock for the next season is seen at a record high of 14.5 mln tn. The carryover, coupled with production estimated at 28.2 mln tn, is likely to push overall sugar supply next season to 42.7 mln tn, about 64% higher than annual demand.

"If ethanol will be made directly from sugar then excess sugar can be diverted and it will help improve liquidity of mills and clear cane dues," one of the officials said.

The government has been encouraging sugar mills to turn to ethanol instead of sugar to ensure their financial health improves, and they are able to make timely payments to cane farmers.

The government last year sharply increased the price at which oil marketing companies buy ethanol from sugar mills, and also announced soft loans to help the mills add distillery capacity.

The government's bio-fuel policy aims at achieving 10% ethanol blending with petrol by 2022, and 20% by 2030. 

This year, India is likely to achieve 7% of ethanol blending with petrol.

India's annual ethanol production capacity is expected to grow to 6-7 bln ltr in the next two-three years, from 3.55 bln ltr at present. This will allow India to achieve over 15% ethanol blending with petrol over the next few years.