On Tuesday, the government approved an increase in the price of ethanol to be procured by public sector oil marketing companies (OMCs) from sugar mills for blending with petrol for the 2019-20 supply year from December 1. The Cabinet Committee on Economic Affairs (CCEA) also allowed conversion of old sugar into ethanol, which again is expected to help mills deal with the current overproduction in the sweetener and make timely payments to farmers for the cane delivered by them.
What exactly is ethanol and how do mills produce it?
Ethanol is basically alcohol of 99%-plus purity, which can be used for blending with petrol. The normal rectified spirit used for potable purposes has only 95% alcohol content. Both ethanol (also called anhydrous alcohol) and rectified spirit are produced mainly from molasses, a byproduct of sugar manufacture. Mills typically crush cane with a total fermentable sugars (TFS) content of about 14%. Much of this TFS — sucrose plus so-called reducing sugars (glucose and fructose) — gets crystallised into sugar. The un-crystallised, non-recoverable part goes into what is called ‘C’ molasses. The latter, constituting roughly 4.5% of the cane, has a TFS of 40%. Every 100 kg of TFS, in turn, yields 60 litres of ethanol. Thus, from one tonne of cane, mills can produce 115 kg of sugar (at 11.5% recovery) and 45 kg of molasses (18 kg TFS) that gives 10.8 litres of ethanol.
But rather than produce sugar, mills can also ferment the entire 14% TFS in the cane. In that event, they would end up making 84 litres of ethanol and zero kg of sugar. In between these two extreme cases, there are intermediate options as well, where the cane juice does not have to be crystallised right till the final ‘C’ molasses stage. The molasses can, instead, be diverted after the earlier ‘A’ and ‘B’ stages of sugar crystal formation. Mills, then, would produce some sugar, as opposed to fermenting the whole sugarcane juice into ethanol. If ethanol is manufactured using ‘B’ heavy molasses (7.25% of cane and with TFS of 50%), around 21.75 litres will get produced along with 95 kg of sugar from every 1 tonne of cane.
So what has the government done?
Given the surplus sugar production in the country, it has allowed mills to produce ethanol from ‘B’ heavy molasses and directly from sugarcane juice. On Tuesday, the CCEA approved even use of sugar and sugar syrup for production of ethanol; mills can simply add these to the molasses mother liquor for further fermentation. But the real impetus has come from mills getting higher rates for ethanol manufactured from the ‘B’ heavy and sugarcane juice routes. For the 2018-19 supply year (December-November), the ex-distillery price payable by OMCs for ethanol manufactured from the conventional ‘C’ molasses route was fixed at Rs 43.46 per litre. This was set higher at Rs 52.43/litre for ethanol from ‘B’ heavy molasses and Rs 59.13/litre from sugarcane juice. For the new 2019-20 supply year, the prices have been raised marginally to Rs 43.75/litre (‘C’ molasses), Rs 54.27/litre (‘B’ molasses) and Rs. 59.48/litre (sugarcane juice). Moreover, even ethanol produced from sugar and sugar syrup will enjoy the Rs 59.48/litre rate.
How will all this play out?
Currently, ex-factory prices of sugar are ruling at around Rs 32 per kg. If a mill were to produce 115 kg of sugar and 10.8 litres of ethanol through the conventional route, its gross realisation at Rs 32/kg and Rs 43.46/litre would be roughly Rs 4,149 from every tonne of cane crushed. But if it were to convert the entire cane juice into 84 litres of ethanol, the gross realisation at Rs 59.48/litre works out much higher at Rs 4,996 per tonne of cane. In other words, there is a huge incentive to produce ethanol today. This has been additionally facilitated by the government mandating 10% blending of petrol with ethanol. Between 2013-14 and 2018-19 (supply years), ethanol procurement by OMCs has increased from 38 crore litres to an estimated 200 crore-plus litres. Out of the latter, 32 crore litres is expected to be made from ‘B’ heavy molasses and sugarcane juice. If mills are able to divert more of cane juice for ethanol, it would mean producing less sugar. Since the country is producing too much sugar and is importing oil, the ethanol-blending programme is beneficial both for mills and for the country’s balance of payments. Ten-per-cent blending requires 330 crore-odd litres of ethanol, which can now be produced through the ‘B’-heavy molasses and sugarcane juice routes as well.
What is the present situation in sugar like?
Mills are expected to close the 2018-19 sugar season (October-September) with all-time-high stocks of 136 lakh tonnes (lt), which is equivalent to to six months of domestic consumption. Even if production falls from 329.5 lt to a projected 270-280 lt in the new season and exports nearly double to 60 lt — the country consumes only 265-270 lt a year — stocks will remain at levels where mills will still struggle to pay farmers (see box). As of now, they have outstanding cane dues of over Rs 10,000 crore, of which Rs 7,000 crore-plus is in UP alone. These will mount further as crushing for the 2019-20 season begins in a month’s time. Ethanol is the only real saviour under the circumstances — both for mills and cane growers.