Govt hikes ethanol procurement price by Rs 1.95, nudges mills to blending

For the 2019-20 sugar season, government had fixed a target of producing 2.60 billion litres of ethanol.

The government on Thursday increased the procurement price of three categories of ethanol by Rs 1.95 to Rs 3.34 per litre, nudging mills to divert sugarcane for producing ethanol rather than sugar. The price change is for the 2020-21 season starting December 1.

Ethanol is produced from C-heavy molasses, B-heavy molasses and sugarcane juice or syrup or direct sugar. It is also made from broken, unused grains. The price hike is for ethanol derived only from sugarcane. The decision to increase the purchase price was taken at a meeting of the Cabinet Committee on Economic Affairs.

For ethanol produced from C-heavy molasses, the new price will be Rs 46.69 per litre, up from Rs 43.75 per litre in the current season and a jump of around 4.43 per cent. The procurement price for ethanol produced from B-heavy molasses for Oil Marketing Companies (OMCs) for the 2020-21 season will be Rs 57.61 per litre: an increase of 6.15 per cent.

The procurement price for ethanol produced from sugarcane syrup, juice or direct sugar for the 2020-21 season will be Rs 62.65 per litre: an increase of 5.33 per cent. As is the norm, OMCs that buy ethanol at a pre-fixed price will pay for the GST and transportation too.

OMCs have also agreed to reduce the security deposit amount from 5 per cent to 1 per cent, extending a benefit of around Rs 400 crore to ethanol suppliers, said a government statement.

The 2019-20 production season ends in a few weeks and sugar mills have contracted around 1.95 billion litres of ethanol. Of this, around 1.5 billion litres has been supplied to OMCs.

This accounted for around 5.1 per cent ethanol blending, while the government has targeted to blend around 10 per cent ethanol with petrol by the year 2022.

Sugar mills have an installed ethanol production capacity of around 3.55 billion litres which is expected to rise to around 4.66 billion litres in the next few years, thus enabling the mills to produce more ethanol.

For the 2019-20 sugar season the government had fixed a target of producing 2.60 billion litres of ethanol, up from 2.00 billion litres produced during the previous sugar season. However, actual ethanol production was around 1.95 billion litres due to low cane availability.

For 10 per cent ethanol blending in the current 2019-20 season, the OMCs had placed a requirement of 5.11 billion litres of ethanol from all sources (that also includes broken grains), of which actual contracted out from sugarcane sources is around 1.95 billion litres.

For the 2020-21 procurement season, OMCs have placed an initial requirement of 4.65 billion litres of ethanol for meeting the 10 per cent blending target.

“This decision puts to rest all doubts about ethanol prices getting reviewed due to the fall in crude oil prices and confirms the Government’s commitment to continue linking ethanol prices to sugar and sugarcane prices only, and not to crude oil price in any way. This should attract more supplies of ethanol in 2020-21 and will not only help in reducing some surplus sugar production of around 20 lakh tons,” said Abinash Verma, director general of Indian Sugar Mills Association.

N Vijayagopal, director (finance) of BPCL, said the hike in procurement price will not affect the company’s finances. He said given that the blending is of just 5 per cent, a price hike of 5 per cent to 6 per cent will not have any significant impact on BPCL's profits. “Moreover, ethanol blending also provides some tax benefits.”