Id: 4 Name: Media Release Mumbai Venue: Date: 14 Oct 2011 Event Pdf: MUMBAI – 14th October, 2011 The Indian Sugar Mills Association (ISMA) is the apex organization of the private and public sector sugar mills in the country. The sugar industry is the largest agro-processing sector in India. Sugarcane is bought by the sugar mills directly from farmers without any middlemen. The sugar season or sugar year is from October to September. In the last sugar season 2010-11, over Rs 50,000 crore was paid to farmers as cane price. This year, it is expected to rise to increase further. However, the sector unfortunately continues to suffer the burden of excessive controls and regulations far in excess of those imposed on any other sector in agriculture or industry in India. Sugar industry is probably the only industry in the country which utilizes all its by-products commercially by value addition thereby contributing towards the renewable power generation and green bio-fuel namely, Ethanol. Mandatory 5% Ethanol Blending with Petrol Programme in India Introduction 1.Ethanol is the most important biofuel in India, which is produced by fermentation of a by-product of sugar, viz. molasses. Ethanol is then blended with petrol for use in vehicles, as per Government of India’s mandate of 5% ethanol blending with petrol. 2.Studies carried out by IIT, Delhi and public sector oil companies in India, have shown that 5% ethanol blended petrol gives better fuel mileage than pure petrol. This is because ethanol has substantial amount of oxygen, which helps better burning of balance petrol. This in turn reduces environmental pollution due to un-burnt fossil fuel. Therefore, the consumers gain by way of: a.better mileage per litre at 5% ethanol blended petrol b.lower environmental pollution and c. longer engine life. 3. Besides the above benefits to consumers, the Oil Marketing Companies (OMCs) are also financially benefitted from this programme. As per the statement of Minister of State for Petroleum & Natural Gas in Rajya Sabha on 23rd August, 2011, savings to OMCs due to ethanol blending was Rs. 155 crore in 2010-11 alone and over Rs. 300 crore from 2008-09 to 2010-11. 4. Brazil and USA widely use ethanol for blending with petrol and diesel. Flexi-fuel cars, which can run on any percentage of ethanol upto even 100%, are in wide use in these countries. Other countries like France, USA, Japan, China etc. are also using ethanol at various blend levels, even after importing their requirement. Decisions of the Government 5. Government of India decided for a mandatory 5% ethanol blending with petrol (EBP) programme in India in October, 2007. With a vibrant and fast growing sugar industry in India and being the second largest sugarcane producer in the world, Government accepted that there is huge potential of production and availability of the fuel ethanol. The Government agreed that a mandatory 5% ethanol blending with petrol (EBP) programme would directly benefit the cane farmers, wherein, better and stable returns on molasses would directly translate into better payments to farmers. 6. There were some initial doubts raised by Ministry of Petroleum and Ministry of Chemicals on the pricing and availability of ethanol for the programme. After lot of deliberations at various levels in the Government, which included inter-Ministerial meetings, meetings of Group of Ministers and Cabinet Committee of Economic Affairs (CCEA), which must have each met a few times, during the years from 2008 to 2010, the Government reiterated its earlier decision of the 5% mandatory EBP programme. During these deliberations within the Government, doubts on availability of alcohol raised by the Ministry of Chemicals to meet their requirements, were discussed and resolved, including the decision for formula-based procurement price for ethanol. 7. In August, 2010, the Government in its meeting of CCEA, fixed a uniform provisional procurement price of Rs. 27/- per litre of ethanol and decided that entire quantity of indigenous ethanol made available would be absorbed in the EBP programme. It was specifically also decided by the Government that whenever the Ministry of Chemicals feels that there would be shortage of alcohol from domestic sources, the Government would reduce customs duty for import of molasses and alcohol by the chemical sector. 8. The Oil Marketing Companies (OMCs) have put a specific condition that ethanol for blending purpose should be produced only from domestic molasses. It therefore requires that molasses or alcohol cannot be imported for the EBP programme and that the ethanol will have to be produced only from molasses and not sugarcane juice or foodgrains. 9. At present ethanol is being supplied at a provisional procurement price of Rs. 27/- per litre, as approved by CCEA more than one year back in August 2010. As per the decision of CCEA in August, 2010, an Expert Committee was constituted under the Chairmanship of Dr. Saumitra Chaudhuri, Member, Planning Commission, to recommend formula for final pricing of ethanol. The expert panel recommended in March 2011 for a formula linking price of ethanol to price of petrol. The formula would ensure that the ethanol procurement price will always be lower than the petrol price, clearly always giving financial benefits to the OMCs. The recommendations are still under consideration of the Government under the National Policy on Bio-fuels. Ethanol supplies 10. India has an indigenous installed capacity to produce over 350 crore litres of rectified spirit/alcohol and over 200 crore litres of fuel ethanol, which is sufficient to meet the domestic demand including for the mandatory 5% ethanol blending programme. 11. Contracts for supply of 56.88 crore litres were entered into between the OMCs and the sugar mills / ethanol manufacturers for 2010-11 sugar season, against which 62% was supplied by September, 2011. Being first year of the mandatory 5% blending programme, there were some teething problems in implementation of the EBP programme. The main reasons for lower supplies are: a. Non-finalisation of pricing formula for ethanol led to uncertainties in the minds of distilleries b. contracts were signed in Nov. 2010 (instead of September 2010) and supplies could begin only from Dec 2010 c. non-issuance of permit by U. P. Government for 4 months for movement of ethanol outside the State, and d. other procedural delays in various State Governments. 12. During 2010-11, about 10.7 million tonnes of molasses was produced. Despite the 5% EBP programme, around 6.5 lakh tonnes of surplus molasses was available in the country, which had to be exported for cattle-feed to Europe. This exported quantity could have substituted 1% of country’s petrol consumption during the year. 13.During the current sugar year 2011-12, the OMCs have calculated their requirement of ethanol for the 5% EBP programme at 100.8 crore litres for the whole country. After deducting the requirement in non-implementing States like Tamil Nadu, Rajasthan, West Bengal, Odisha, Jharkhand, Chhattisgarh, and Madhya Pradesh, the requirement works to 72 crore litres, against which a total quantity of 61 crore litre have been offered by the sugar industry to the OMCs. 14. The offers could further improve if the final price for ethanol could be announced early as that would provide the ethanol manufacturers a clearer picture of the returns in comparison to alternate products like rectified spirit, which are fetching a price of Rs.34 per litre now. A final pricing policy of ethanol would ensure more ethanol manufacturers to come forward for supply of additional quantities. 15. The National Policy on Bio-fuels, approved by the Government, has targeted for a 20% ethanol blending programme by 2017. 16. It is important that final pricing of ethanol should be announced quickly (it has been delayed by over one year) to ensure the EBP programme succeeds in India. Besides the above quantity of ethanol, substantial quantities of RS / alcohol is annually available from the molasses produced by the khandsari manufacturers and grain-based alcohol, to cater the domestic demands. Points not clear to the sugar industry 17. Government of India through its Cabinet, GOM and inter-Ministerial meetings, has time and again decided for 5% mandatory ethanol blending with petrol, first in Oct 2007, then in Nov 2009 and again in Aug 2010. Points and doubts of Ministry of Chemicals on the issue of adequacy of availability of alcohol to meet all demands, including that of chemical sector, were considered in these meetings and then decision reiterated for 5% mandatory blending. Why are the same issues being raised by a few people within and outside the Government? 18. As per various decisions of Government a uniform ethanol price is to be fixed for procurement of ethanol and accordingly a provisional price was fixed last in Aug 2010 by CCEA to start the programme, why is the issue of having or not having a fixed price being raised? 19. Dr Saumitra Chaudhuri Committee report submitted in March 2011 has been signed by Ministry of Petroleum, Ministry of Food and Ministry of Chemicals for a linkage of ethanol price to petrol price. Why is it not getting accepted even after over 6 months and why should any of these Ministries now doubt its own report?