FoodMin urges govt to direct OMCs not to lower ethanol prices

The food ministry has approached the ministries of petroleum and the finance ministry to direct Oil Marketing Companies (OMCs) against lowering the purchase price of ethanol in the next sugar season.

Officials said that the food ministry is of the view that OMCs should not lower the purchase price of ethanol from the already fixed Rs 48.5-49.5 per litre for the 2015-16 season in view of waiver of excise duty on ethanol. The sugar season runs from October to September and the 2015-16 season will start from October 2015.

The excise duty of 12.36 per cent on ethanol was waived last month which enabled sugar mills to earn an extra Rs 5 per litre from their mill gate sale price.

At present, sugar mills sell ethanol to OMCs at the rate of Rs 48.5 to 49.5 per litre at their depots, inclusive of all taxes and duties.

At the mill-gate, the same ethanol costs them around Rs 40-41 per litre. The waiver of excise duty will push up this realization by another Rs 5 per litre and the actual realization would be somewhere around Rs 45-46 per litre at mill gate. In terms of sugar this translates into a price of Rs 30 per kilogram.

The government said that these steps would significantly improve the adverse price sentiments in respect of sugar and would improve the liquidity in the industry, facilitating the clearing up of cane dues arrears of the farmers.

However, this benefit can be negated if OMCs lower their purchase price because of the concession given to sugar mills from the government.

“We have told the respective departments and ministries that there should not be any attempt to lower the price or else the entire intention of the waiver which is to encourage mills to produce more ethanol and less sugar from cane will be lost,” a senior official said.

He said that as per ministry estimates, sugar production next year could be lower than 2014-15 because mills would be encouraged to produce more ethanol than sugar.

Sugar production in 2014-15 is expected to be around 28 million tonnes, while consumption is estimated to be around 24 million tonnes leaving an estimated surplus of almost 4 million tonnes.

This has pulled down retail sugar prices to multi-month lows, leading to cane arrears of almost Rs 21,000 crore as on March 31, 2015.

The Centre last month announced some measures to ease the crisis, but millers said their immediate problem of surplus does was not addressed.

As per official estimates, India needs around 115 crore litres of ethanol annual to fulfill its mandatory 5 per cent blending with petrol, but mills have supplied around 80 crore litres so far.