It was back in 2018 that the Union government first announced an ambitious programme to encourage sugar mills to expand their ethanol production capacities, which, along with a differential price regime for procurement by oilmarketing companies (OMCs), was aimed to ushering in a new era of ethanol production in the country.
The aim is to ensure that around 10 per cent of petroleum consumed in the country is blended with ethanol by 2022 and thereafter the target could be scaled up to 20 per cent by 2030.
The target is ambitious because till then (2018), ethanol blending with petrol hardly crossed 5 per cent and in some years was less than 3 per cent.
First the government announced a differential and attractive price for ethanol produced from C heavy molasses, B heavy molasses, sugar juice, direct sugar, and also sources other than sugarcane, such as broken rice and maize.
This was followed by an ambitious incentive of interest subvention of around ₹ 4,500 crore.
As part of the scheme announced in June 2018, the Centre had approved soft loans for sugar mills to set up distilleries, upgrade the existing ones, and expand capacity, and encourage them to divert sugarcane to ethanol making.
The government has extended twice interest subvention for a projected loan amount disbursement of over ₹ 20,000 crore.
However, despite this, the expansion programme has been slow to take off, and to date, of the 368 sugar mills that had applied for interest subvention (these included standalone distilleries), loans have been sanctioned for just around 68 projects and final disbursement has been made to 30 of them, totalling just around ₹ 1,630 crore.
Why this slow movement?
If top industry sources are to be believed when the Central government first announced the incentive scheme, many sugar mills rushed to apply for expansion without looking at all aspects of it.
Later, around 116 of the 368 that applied for interest subvention went to banks for loans while the rest did not clear even the first stage.
Several clearances such as environmental ones were taking time.
Usually a single environmental clearance for an ethanol firm takes 1820 months.
Moreover, banks are insisting on considering their entire balance sheet, which includes their previous losses.
“In the case of several applications, banks either didn´t process the applications further or rejected them,” Abinash Verma, director general of the Indian Sugar Mills Association (ISMA), told Business Standard.
Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories, said the problem was more in the case of cooperative sugar mills because cooperative banks themselves were reluctant to lend to them.
The way forward
Sugar mills, along with OMCs and banks, have devised a method of financing.
Under this, banks, OMCs, and sugar mills have decided to enter into a tripartite agreement to form an escrow account.
The payment the OMCs make for ethanol supplied by the sugar companies will be deposited in this escrow account, which will be first accessed by the banks to settle their loans.
Whatever remains will be passed on to sugar mills as their payment for supplying ethanol to the OMCs.
Naiknavare said: “After the tripartite agreement formula, finalised a few weeks ago, a longstanding deadlock has been broken and banks will now look to fund sugar companies for their ethanol capacity expansion programme.” News agency PTI in a recent report said the petroleum and food ministries were of the view that ethanol production could not be dependent on one feedstock, that is, sugarcane, for achieving the target of 20 per cent ethanol blending with petrol by 2030 and there was need to look at other agri feedstock such as rice, maize, sorghum and barley.