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In a significant move that could mark a turnaround in the fortunes of sugar mills, India’s public-sector oil marketing companies (OMCs) have started placing orders for ethanol procurement at an average ex-factory price of Rs 36-37 a litre. Until last year, OMCs had fixed the ethanol price at Rs 27. OMCs need the green fuel to blend it directly with petrol.
However, in response to tenders floated by the OMCs in January to procure 1,050 million litres of ethanol, mills have offered to supply 550 million litres. While many domestic suppliers could not participate in the tenders due to strict norms, some were left out because of a delay in the selection of bidders, which would have stretched commencement of supply beyond the current crushing season.
Placement of orders at a substantially higher price assumes significance as additional revenue would rescue sugar mills and partly compensate their loss from the core activity: sugar. The cost of ethanol production currently works out to Rs 34 a litre.
According to sources, in the first tranche, OMCs placed orders for 110 million litres with smaller sugar mills that offered to supply the fuel at lower price.
In the second phase, OMCs placed orders to procure 230-250 million litres. They have also held several rounds of discussions with bidders above Rs 36-37 a litre and asked them to bring down their quotes in and around this range. Sources said most bidders have agreed to OMCs’ proposal. Consequently, orders for around 200 million litres are expected to be placed by the end of the first fortnight of June.
The remaining quantity is proposed to be met through imports.
Consequently, the OMCs floated global tenders to procure 820.30 million litres for which technical bids opened on April 1 only to surprise the government. The price quoted by Mumbai-based Shree Renuka Sugars (SRS) ranged between Rs 71 and Rs 76 a litre, higher than the prevailing price of petrol at most of pumps in the country.
“Since the tender process is currently on, we would not comment on the price quoted by us,” said Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd.
SRS offered to supply 150 million litres of the green fuel from Brazil where the company owns one of the world’s largest ethanol producing plants. To surprise more, Chennai-based Indian Molasses Company (IMC) offered to avail 360 million litres at a price between Rs 84 and Rs 92 a litre.
“At an average ex-factory price of Rs 36-37 a litre, we offer OMCs a profit of at least Rs 6-7 a litre, which may be partly offset through procurement at higher price from overseas. But, to avoid procurement at substantially higher price, we have urged the government to float a supplementary tender which would allow us to supply additional quantity of the green fuel,” said Abinash Verma, director-general of the Indian Sugar Mills Association (ISMA).
The government, through its notification on January 2, asked OMCs to comply with the five per cent mandatory blending of ethanol with petrol latest by June 30, 2013.
Interestingly, the four-month validity of ethanol price fixed by the government expired on May 27, after which the OMCs asked for two months’ extension.
