State govts slash price of electricity generated by sugar mills by 50%

Despite several measures taken by the government to overcome problems in the sugar sector, the profitability of mills, on account of electricity they produce, is likely to remain under pressure during the current crushing season due to a sharp cut in the prices of electricity by state grids.

Electricity is generated by sugar mills from molasses in cogeneration units. While a part of the electricity generated by individual sugar mills is used for captive consumption, surplus, if any, is supplied to state grids at a fixed price which used to be between Rs 5-6 per unit until the last year, especially in Maharashtra and Karnataka, depending upon the demand and supply situation in the specific area. The average price of electricity, which worked out to Rs 6.50 per unit last year, has now been slashed to Rs 3 - 3.50 per unit.

This means that the average electricity price has declined by 50 per cent this year. Since the electricity generated by using residual molasses, a by-product, as the raw material, sugar mills do not incur any expenses on procuring it and generating electricity in their factory premises.

“Power (electricity) contributes nearly 5-7 per cent of our total turnover. But, most of its turnover directly goes into profit due to almost negligible expenses incurred on power generation. Hence, a nearly 50 per cent decline in the prices of electricity would certainly have a negative bearing on our profit. The industry is making representations to the concerned state governments for an upward revision in power purchase prices,” said a senior official of an Uttar Pradesh-based sugar mill.

Electricity being a state subject, the Centre has no role to play in fixing the price electricity. Normally, sugar mills enter into a power purchase agreement with the state government in the jurisdiction to sell their merchant electricity.

“We have seen some discouragement from the government on cogeneration i.e. electricity generation side. There is a decision by almost all state governments to slash power prices by over 40-50 per cent due to cheap electricity available from solar and wind. This is a bit negative for the sugar mills,” said Abinash Verma, Director General, Indian Sugar Mills Association (ISMA).

Informed sources said that the Uttar Pradesh government has slashed electricity prices to around Rs 3 per unit now as against Rs 5 a unit last year.

Meanwhile, the Centre in September 2019 raised ethanol prices by upto Rs 1.84 per litre to encourage sugar mills to produce more of ethanol in order to cut the crude oil import bill by $1 billion between December 2019 and November 2020. Ethanol is directly blended with petrol for its use as auto fuel.

The price of ethanol from C-heavy molasses has been raised by 29 paise to Rs 43.75 a litre, while the same for B-heavy molasses has been raised by Rs 1.84 to Rs 54.27 per litre.

While the government has fixed the minimum selling price of sugar at Rs 31 a kg (ex-factory of sugar S variety in Maharashtra), its prices jumped by 50-75 paise to trade currently at around Rs 32 a kg. Similarly, sugar price in Uttar Pradesh has risen to Rs 33.5-34 a kg.

“Given that the industry is expecting around 10 million tonnes of carry over stock, over and above a bumper 33 million tonnes of output next season (as against 27 million tonnes this year), there is no room for further price hike of sugar,” said Praful Vithalani, Chairman, All India Sugar Trade Association (AISTA).