 "Petroleum ministry considers ethanol price hike")
With ethanol producers diverting raw material for alcohol and industrial chemical manufacturing in search of higher returns, the government is considering raising the base price of ethanol to ensure adequate supply for its 10% mandatory blending with petrol.
“The government is considering raising price over minimum support price of ethanol,” Dharmendra Pradhan, Minister of State (Independent charge) for Petroleum and Natural Gas, confirmed.
In November 2012, the government made a 5% blend of ethanol – a cleaner burning green fuel – in petrol compulsory, but the program has not gone beyond certain centres because of supply and pricing issues.
In December 2014, besides raising the mandatory ethanol blend percentage to 10, the government also fixed the minimum delivered price of ethanol between Rs 48.50 and Rs 49.50 a litre, depending on distance of distillery to oil marketing companies’ (OMCs) depots. The procurement price of ethanol was earlier jointly decided by OMCs and sugar mills.
At this base price, the actual realisation for distilleries of sugar mills was estimated at Rs 42-43 a litre, with the rest as various state levies. Before this price fixation, however, the actual realisation for distilleries was estimated at Rs 36-37 a litre.
“Even this price level is not attractive for sugar mills as competing industry i.e. potable alcohol manufacturers are paying higher prices than the actual realisation from ethanol,” said Deepak Desai, Consultant, Ethanolindia.net, a Kolhapur-based consultancy firm, pointing out that potable alcohol fetches about Rs 44-45 a litre, against Rs 42-43 for ethanol.
Consequently, he said, sugar mills started diverting rectified spirit, a by-product of sugar and pre-form of ethanol, to potable alcohol manufacturers. Also, the potential for price increase in potable alcohol is higher than ethanol. Manufacturers of industrial chemical also pay higher for rectified spirit than producers of ethanol and potable alcohol, Desai said.
Each extra rupee in realisation can fetch at least Rs 224 crore to distillery units, considering 2240 million litres of installed capacity and assuming 100% utilisation. Actual utilisation, however, averages about 80% of installed capacity.
“That’s the reason for OMCs failed to achieve 5% of mandatory blending,” reveals Desai.
K K Gupta, Director (Marketing), Bharat Petroleum Corporation Ltd (BPCL), confirmed that OMCs have achieved just 3.5% of ethanol blending with petrol.
For the current year i.e. 2015-16, OMCs have floated a tender for procurement of 2660 million litres of ethanol – more than the industry’s total installed capacity – for the mandatory 10% blending; however, they are looking at achieving only a 5% target this year. Moreover, with mounting losses over the past few years, sugar mills are also hard-pressed to invest in new capacity for ethanol production.
Abinash Verma, Director General of Indian Sugar Mills Association (ISMA), estimates around 100,000 tonnes of sugar may be diverted towards ethanol production this year. On raising price, however, the industry estimates diversion of only 300,000 – 400,000 tonnes.
“In April 2015, the Cabinet decided to waive excise duty on sugar mills which is estimated to benefit sugar mills to the tune of Rs 575 crore i.e. Rs 5.75 per litre of ethanol. Since, distilleries are paying excise duty on molasses, a by-product of sugar and raw material for ethanol production, the actual benefit works out to Rs 2 per litre,” said Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd, India’s largest sugar refiner and ethanol producer.
Murkumbi argues that waiving excise duty on molasses would give distilleries an additional benefit of Rs 2 – 3 per litre which, in turn, would take actual realisation to Rs 45-46 a litre.
“Instead of short term measure, the government should take a long term measure for a sustainable policy for sugar mills,” he said.
