Against 2 mn tonne govt goal, mills earmark 500k tonnes sugar for ethanol

Lack of ethanol-producing capacity a major stumbling block; green fuel makers not satisfied with incentive structure, reluctant to boost production

Sugar mills are a worried lot today, as they will be able to set aside only 500,000 tonnes of sugar for producing ethanol this year, as there isn't enough installed capacity for manufacturing the green fuel. The reason is that companies aren't too keen to invest in ethanol capacity due to the short-term incentive policy of the government. Currently, incentives are available only for a year.

The estimated quantity of sugar diversion for ethanol is just a quarter of the government's target of 2 million tonnes, made at the time of announcing the incentive package a few months ago.

The lower diversion will be an embarrassment for farmers, intermediaries and government alike. The government is making all efforts to get rid of the sugar glut through several policy initiatives. It raised the purchase price of ethanol for oil marketing companies (OMCs) by nearly a fourth in September. Through this initiative, the government aimed to get mills to successfully divert two million tonnes of sugar during the ongoing crushing season, October 2018- September 2019. However, the problem of plenty is unlikely to ease this year despite the incentives offered by the government.

"We expect only 500,000 tonnes of sugar equivalent cane juice will be diverted to produce additional ethanol directly this year," said Atul Chaturvedi, Vice Chairman,  Shree Renuka Sugars Ltd on the sideline of a seminar organised jointly by All India Sugar Traders Association (AISTA) and Maharashtra Rajya Sahakari Karkhana Sangh Ltd in Mumbai on Monday.
 

India currently has a huge sugar surplus, with around 10.3 million tonnes of carry over stock and 32 million tonnes of new season output (started this month) against an annual consumption of 25 million tonnes. The government wants to extend all possible support to the sugar industry to reduce this surplus, which will ultimately help mills clear cane dues to farmers.

The government aims to achieve 10 per cent ethanol blending with petrol, for which a policy was framed a few years ago. OMCs need to procure 2.330 billion litres of ethanol a year from sugar mills, but the latter have been able to supply no more than 1.330 billion litres.

"The biggest impediment to fresh investment in ethanol production is the short-term duration of incentives. The subsidy offered by the government is meant for one year only, so why would any corporate invest so much on fresh capacity addition? The government should have offered subsidy for three years at least, in order to help investors plan long term for better future value," said Chaturvedi.

Echoing this response, Praful Vithalani, President, AISTA, said, "The fresh capacity planned after the policy announcement will come on stream next year, that is, 2019-20."

Prakash Naiknavare, managing director of National Federation of Cooperative Sugar Factories, believes the global sugar surplus is gradually tapering off. "From the level of 3.7 million tonnes a few months ago, sugar surplus was estimated lower at 1 million tonnes later. The scenario seems to indicate that there will be no surplus in the current season. So we have time till March 2019 to export. Since we used to plan for exports after March every year after visualising the domestic supply-demand scenario, we will be late this year. Since, sugar prices have also risen in the world market, it is a wonderful opportunity for India to export raw and refined sugar now," he added.

Global refined sugar prices have jumped to 14 cents a pound in the last one month from 12 cents.

Dev Gill, an analyst at London-based Marex Spectron, a global commodity trading firm, said sugar output in Brazil, European Union, Thailand and India is estimated to decline this year. This means the global sugar glut is concentrated in India.