The oil ministry has floated a Cabinet note on increasing the price oil marketing companies offer to sugar mills that make ethanol from 100% cane juice, B- and C-heavy molasses for 2020-21 (Dec-Nov), three government sources said today.

"...mills will divert molasses only if they get remunerative prices of ethanol to cover the actual realisation from sale of sugar. The matter is expected to be taken up by the Cabinet by mid-October," one official told Cogencis.

The government is mulling raising the price of ethanol derived from B-heavy molasses by 3.34 rupees per ltr, C-heavy molasses by 1.94 rupees, and 100% cane juice by 3.17 rupees.

For 2019-20, the government fixed the price of ethanol derived from high-yielding B-heavy molasses at 54.27 rupees per ltr, and 59.48 rupees for ethanol made directly from 100% cane juice and sugar syrup. The price of ethanol derived from C-heavy molasses is 43.75 rupees per ltr at present.

The cost of production of ethanol comprises two elements - cost of raw materials such as sugarcane and molasses, and cost of conversion that includes utilities, pollution control measures, interest and depreciation. However, the cost of production may vary depending on the technology adopted, particularly effluent treatment and scale of operation.

A hike in ethanol prices is being considered to reduce the glut in the domestic sugar market, and because the fair and remunerative price of sugarcane has been raised for this season. The Centre has hiked the fair and remunerative price of cane by 10 rupees per 100 kg to 285 rupees for 2020-21 (Oct-Sep).

The Indian Sugar Mills Association has estimated carryover stocks to this season at 11.5 mln tn. Production of sugar in 2020-21 is seen at 30.5 mln tn, 12.1% higher than 27.2 mln tn estimated for the previous season, both higher than the annual domestic consumption of 25.0-25.5 mln tn.

Oversupply of sugar has led to depressed prices, crippling the ability of mills to pay outstanding dues to cane farmers and ethanol seems to be the only way out. Many mills have realised that diversion of 100% cane juice and B-heavy molasses for production of ethanol gives better returns and is not technologically challenging, which is also likely to spur diversion of excess cane to the biofuel.

Diversion of more sugarcane and molasses towards production of the biofuel over sugar would also help India achieve its ethanol-petrol blending target.

"Increased ethanol blending in petrol has many benefits, including reduction in import dependency, support to agricultural sector, more environmental friendly fuel, lesser pollution and additional income to farmers," the government had earlier said.

According to the National Biofuels Policy, 2018, the government aims to achieve ethanol-petrol blending rate of 10% by 2022 and 20% by 2030.