NEW DELHI – The government's ambitious plan to increase ethanol blending in petrol to 10% by 2022 is likely to face rough weather. In 2018-19 (Nov-Dec), the government achieved a mere 4.9% blending, which may drop to just 4.0% this year as low supply of cane has hit crushing, industry officials said.
Cane production this season is likely to fall over 14% on year to 356 mln tn as drought in early 2019 dried up cane in Maharashtra and Karnataka.
Cane Production This Season Is Likely To Fall Over 14% On Year To 356 Mln Tn as Drought In Early 2019 Dried Up Cane In Maharashtra And Karnataka.
"...because of a big fall in production in Maharashtra and Karnataka, we may achieve only 4% blending this year," Indian Sugar Mills Association Director General Abinash Verma said.
In 2019-20 (Oct-Sep), mills in the second largest producer Maharashtra are likely to produce 6.2 mln tn sugar against 10.7 mln tn in 2018-19, and Karnataka, the third largest producer, may make 3.3 mln tn of the sweetener, compared with 4.4 mln tn last year, according to the second advance estimates by ISMA.
Each tonne of cane crushed produces 115 kg of sugar if the recovery rate is 11.5%, and 4.5% of molasses, of which 60% is ethanol.
Lower supplies are getting reflected in the purchase tenders floated by oil marketing companies.
In the two tenders floated by oil marketing companies for the ongoing season, sugar mills have offered to supply 1.94 bln ltr of ethanol against the requirement of 5.11 bln ltr, industry estimates showed.
In 2018-19, though mills had signed contracts to supply 2.45 bln ltr ethnaol, they could only supply 1.88 bln ltr to oil marketing companies against the tendered quantity of 3.29 bln ltr as they diverted production to more-attractive extra neutral ethanol.
Last year, ethanol derived from 100% cane juice was sold at 59.19 rupees per ltr, while extra neutral alcohol was sold at 60-62 rupees.
Mills diverted molasses to extra neutral alcohol even though the government had sweetened the deal for sugar mills. The government had sharply increased prices at which oil marketing firms buy ethanol from the mills and also fixed higher rates for B-heavy molasses that has higher sugar content.
"At the time of supply, the mills found that rates of rectified spirit and extra neutral alcohol are better than the quoted rate of ethanol so it doesn't make sense for them to go for ethanol, it is better to sell off extra neutral alcohol," said Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories.
Extra neutral alcohol contains over 95% of alcohol and 5% water, while ethanol is 100% alcohol, which helps mills save 2.38 rupees a ltr on selling extra neutral alcohol.
"ENA (extra neutral alcohol) is a major competitor to the fuel-ethanol programme because it gives a higher price as the end-product is priced higher," said a senior official with a Mumbai-based leading mill.
Last year, many mills also failed to supply ethanol to oil marketing companies because distilleries scheduled to start operations last season could not do so, ISMA's Verma said.
Banks are reluctant to give loans to sugar mills to set up distilleries due to their unhealthy balance sheets. Though the government gave approval to 362 applicants and approved loans of 185 bln rupees, loans have been disbursed to only 37 sugar mills, worth 12 bln rupees, and 27 bln rupees has been sanctioned to 57 mills so far, a senior government official said.
In an attempt to expedite the process of addition and expansion of distillery capacities, the industry has asked banks to look at the green fuel as a separate entity to disburse loans and not link it with sugar.
Hoping to avert supply defaults this year, oil marketing companies have decided to levy penalties on mills that fail to honour contracts. They have also barred distilleries that are yet to come on stream from bidding for the ethanol tenders.
"Last year new distilleries which were supposed to come up took orders but failed to supply ethanol. But this time (2019-20), only running plants which have licences to operate have been allowed to offer bids to supply ethanol... supply will be concrete this year as per the contracts signed unless some contingencies occur," said an official at Balrampur Chini.
This time around, oil companies too may not be keen to purchase ethanol from mills, as crude oil prices have crashed to around $26 a barrel, down 59% from $64 a barrel a year ago.
These factors could derail the government's blending programme at least for this season. Next season, with cane production as well as ethanol output seen posting a recovery, mills would have no option but to participate in the ethanol tenders, and also deliver the promised quantities. The government, hoping for a reduction in its crude oil import bill, once the ethanol blending programme makes some headway, will have to wait for at least another year to see results. US$1 = 75.10 rupees