New Delhi: Oil marketing companies (OMCs) have increased the procurement price for ethanol made from C-heavy molasses by ₹6.87 per litre for the 2023-24 supply season that started in November, marking the highest rise in over five years.

The hike, announced by the oil ministry on Friday, sets the new price at ₹56.28 per litre, an increase from the previous season’s ₹49.41 per litre. The move is aimed at enhancing ethanol production for blending with petrol. Ethanol makes up for an estimated 12% of petrol sold in India, and the government aims to raise blending to 20% by 2025.

India is among the world’s largest importers of crude oil.

The move comes days after the government asked sugar mills to stop producing ethanol from sugarcane juice or syrup for the 2023-24 season, due to concerns about domestic sugar output.

“To maximize ethanol production from the C-molasses route and improve the overall availability of ethanol for the Ethanol Blended Petrol Programme, public sector oil marketing companies announce an incentive of ₹6.87 per litre for ethanol from C heavy molasses. C molasses is a by-product of sugar factories and its utilisation for ethanol production is an effective way to promote a green economy,” the ministry of petroleum and natural gas said in a post on X, formerly Twitter.

C-heavy molasses is the last by-product of the sugar refining process, and has very little sugar content, unlike B-type and sugarcane juice.

In the 2022-23 season, ethanol supply to OMCs stood at about 4.94 billion litres, with a quarter, or 1.26 billion litres, estimated to have come from sugarcane juice or syrup as feedstocks, and 2.33 billion litres, or 47%, from B-heavy molasses, while the rest came from grain-based sources.

Ethanol made from C-heavy molasses accounted for 0.06 billion litres.

The price hike also aims to boost ethanol production from C-heavy molasses, which minimizes sugar diversion. Total ethanol supply promised for the 2023-24 ethanol supply year is 5.62 billion litres, with significant contributions expected from both sugarcane-based molasses and grains. The estimated sugar production, post-ethanol diversion, is around 29 million tonnes for the 2023-24 season.

In the 2022-23 season, India is estimated to have produced nearly 33 million tonnes of sugar, after diversion for ethanol.

“Price increase for ethanol from C-heavy molasses is inadequate to pull in substantial quantities for ethanol programme. Alcohol from C-heavy molasses has many takers. Potable liquor price being inelastic will outbid ethanol as end-use is at the price of ₹56.28 a litres,” said G. K. Sood, an industry expert.

Indian Sugar & Bio-energy Manufacturers Association president M Prabhakar Rao while welcoming the move said further prices increases are needed to help the industry navigate better the current uncertain times and ensure timely payments to cane farmers.