The central government is considering whether to raise its base price for procuring ethanol, for its stated aim of 10 per cent mandatory blending with petrol. This is because ethanol manufacturers prefer to divert inputs to make ethanol for the manufacturing of alcohol and industrial chemicals, which offer a better price. Dharmendra Pradhan, the minister of petroleum and natural gas, says the government is considering whether to raise the said price.
In November 2012, the Centre mandated a five per cent blending of ethanol in petrol. This has not progressed much, due to supply and pricing issues. In December 2014, the level of mandatory blending was declared at 10 per cent. In addition, the government fixed the minimum delivered price of ethanol between Rs 48.50 and Rs 49.50 a litre, depending upon proximity from distillery to the delivery depots of oil marketing companies (OMCs). The procurement price was earlier decided by OMCs and sugar mills, jointly. At this base price, the actual realisation for distilleries of sugar mills were estimated at Rs 42-43 a litre, with the rest as various state levies. Before this, actual realisation for distilleries was estimated at Rs 36-37 a litre.
“Even this (new) price level is not attractive for sugar mills. The competing industry i.e. potable alcohol manufacturers is paying higher prices than the actual realisation from ethanol. Consequently, sugar mills started diverting rectified spirit, a byproduct of sugar and pre-form of ethanol, to potable alcohol manufacturers. As against Rs 42-43 a litre of realisation from ethanol, distilleries receive Rs 44-45 (from the latter). Also, the potential for price increase in potable alcohol is higher than ethanol. Manufacturers of industrial chemicals also pay more for rectified spirit than producers of ethanol and potable alcohol,” said Deepak Desai, consultant, Ethanolindia.net, a Kolhapur-based consultancy. Every Rs 1 additional realisation would fetch at least Rs 224 crore to distillery units, calculated at 2,240 million litres of installed capacity and 100 per cent utilisation. “That’s the reason OMCs failed to achieve (even) five per cent of mandatory blending,” added Desai.
K K Gupta, director (marketing), Bharat Petroleum Corporation, said the OMCs had achieved only 3.5 per cent of ethanol blending with petrol.
For the current year, 2015-16, the OMCs have issued a tender for procurement of 2,660 million litres of ethanol for 10 per cent mandatory blending.
“In April the Cabinet decided to waive excise duty on sugar mills, which is estimated to benefit them 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 byproduct of sugar and raw material for ethanol production, the actual benefit works out to Rs 2 a litre. On waiving excise duty on molasses, distilleries would get additional benefit of Rs 2–3 a litre, which would take actual realisation of Rs 45-46 a litre. Instead of a short-term measure, the government should take a long-term one, for a sustainable policy,” said Narendra Murkumbi, managing director of Shree Renuka Sugars, the country's largest sugar refiner and ethanol producer.
Sugar mills are not in a position to invest on creating new capacity for ethanol production, due to sustained losses for some years. Against the total requirement of 2,660 mn litres a year for 10 per cent blending, installed capacity is 2,240 mn litres, with an average 80 per cent of capacity utilisation.
