The government today hiked price of ethanol, used for doping in petrol, by almost Rs 3 per litre to Rs 43.70 in a bid to cut India's oil import dependence as well as give higher price for sugarcane.
India, which is over 80 per cent dependent on imports to meet its oil needs, has mandated blending of up to 10 per cent ethanol in petrol but inadequate availability has restricted this to under 4 per cent.
Higher price for ethanol extracted in the process of making sugar from sugarcane will incentivise higher ethanol production.
The higher price for this grade of ethanol produced from C-molasses will be for sugar marketing year starting December 2018, Finance Minister Piyush Goyal told reporters after a meeting of the Union Cabinet headed by Prime Minister Narendra Modi.
For the first time, the government also fixed the price of ethanol produced from intermediary or B-molasses at Rs 47.49 per litre -- a move that would help mills divert cane juice for ethanol manufacturing during surplus years.
So far, the price was only fixed for ethanol produced from C-molasses or final molasses. Molasses is a viscous product resulting from refining sugarcane or sugar beets into sugar.
To bail out the sugar industry and help them clear about Rs 20,000 crore cane arrears, the government had recently announced relief measures of Rs 8,500 crore for the sugar sector, including a soft loan of Rs 4,500 crore for adding ethanol capacity, creation of buffer stock of sweetener and production-linked subsidy to cane growers.
The Cabinet Committee on Economic Affairs (CCEA) has approved the mechanism for procurement of ethanol by public sector oil marketing companies (OMCs) to carry out the Ethanol Blended Petrol (EBP) Programme with respect to price revision, an official statement said.
Goyal said the rate of ethanol derived out of C heavy molasses has been fixed at Rs 43.70 per litre as against current Rs 40.85 per litre. The CCEA also fixed ex-mill price of ethanol derived from B-heavy molasses and sugarcane juice at Rs 47.49 per litre. In both cases, GST and transportation charges will also be payable.
Industry body ISMA's Director General Abinash Verma told PTI that prices are attractive to boost ethanol production.
The minister said the government is keen to move forward to 10 per cent blending of ethanol with petrol, which will help reduce India's fuel import bill and help sugar industry as well as cane growers.
Goyal said ethanol supply has increased to 140 crore litre in 2017-18 marketing year from 38 crore litre in 2013-14.
Stating that the government intends to create more holistic framework for ethanol, he said the prices have been fixed based on estimated Fair and Remuneration Price (FRP) for sugar season 2018-19. The price will be modified by the oil ministry as per actual FRP, which is the minimum price that mills need to pay to cane growers for their produce.
The sugar industry and even NCP supremo Sharad Pawar had demanded a higher ethanol price to improve the liquidity of cash-starved mills and enable them clear cane arrears.
OMCs procure ethanol from sugar mills for blending with petrol. Mills are expecting revenue realisation of over Rs 5,000 crore from sale of ethanol to OMCs during the 2017-18 sugar season (October-September).
Doping petrol with 5 per cent ethanol was launched in 2003 to promote the use of alternative and environment-friendly fuels as also cut import dependence. Now the government intends to achieve 10 per cent blending of ethanol with petrol, for which 313 crore litre of ethanol is required, according to industry body ISMA.
"Ethanol availability for EBP Programme is expected to increase significantly due to higher price for C heavy molasses based ethanol and enabling procurement of ethanol from B heavy molasses and sugarcane juice for first time. Increased ethanol blending in petrol has many benefits including reduction in import dependency, support to agricultural sector, more environmental friendly fuel, lesser pollution and additional income to farmers," the statement said.
Sugar mills are incurring losses as prices have fallen below production cost on account of record output of 31.5 million tonne in 2017-18 season as against the annual domestic demand of 25 million tonne.
"The sugarcane and sugar production in this sugar season is very high leading to dampening of sugar prices. Consequently, sugarcane farmers' dues have increased due to lower capability of sugar industry to pay the farmers. Government has taken many decisions for reduction of farmer's dues," the statement said.
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