The Narendra Modi government’s much-touted ethanol solution to the sugar industry’s problem of plenty appears to find few takers — at least for now. This, despite the significant increase in prices of ethanol procured by public sector oil marketing companies (OMC) for blending with petrol and mills being given the flexibility to produce it directly from sugarcane juice or even sugar and sugar syrup.
On September 20, the OMCs floated purchase tenders for 511 crore litres of ethanol for the 2019-20 supply year (December-November). But when the tenders were opened on October 11, bids were received for only 164 crore litres. This was below the 185 crore litres supplied by mills in 2018-19, against a much lower tendered quantity of 329 crore litres. In the preceding two years, tenders were floated for 313 crore litres and 280 crore litres, with the corresponding quantities supplied amounting to 150.5 crore litres and 66.7 crore litres, respectively.
Abinash Verma, director-general of the Indian Sugar Mills Association, attributed the lukewarm response from mills to reduced sugarcane and molasses availability this year, especially in Maharashtra and Karnataka. “Drought followed by floods in large cane-growing areas of both states has made their mills reluctant to commit significant ethanol supplies, even as molasses prices have almost doubled to Rs 8,000-8,200 per quintal,” he said.
Even for the 164 crore litres of committed supplies, 95 crore litres or 58% came from Uttar Pradesh, with mills in Maharashtra and Karnataka offering just 22 crore litres and 16 crore litres, respectively. Sugar production, too, is expected to drop this year to around 55 lakh tonnes (lt) in Maharashtra, from 107.20 lt in 2018-19, while similarly falling from 44.30 lt to an estimated 33 lt for Karnataka.
Between 2017-18 and 2019-20, the government has raised the ex-distillery price payable by OMCs for ethanol manufactured from ‘C’ molasses — the residual mother liquor after the maximum possible recovery of sugar from the cane juice — from Rs 40.85 to Rs 43.75 per litre. More significant, though, has been the decision to permit mills to make ethanol from the earlier ‘B heavy’ molasses stage and even directly from sugarcane juice. Further, mills are being offered higher rates for ethanol derived from these non-conventional routes. For the 2019-20, mills would be paid Rs 43.75/litre for ethanol manufactured from ‘C’ molasses, with these fixed at Rs 54.27 from ‘B heavy’ molasses and Rs 59.48/litre for the sugarcane juice and sugar/sugar syrup routes.
These incentives — plus the government mandating 10% ethanol blending in petrol and targeting this at 20% by 2030 — have, however, not really enthused sugar mills.
Bhairavnath B Thombare, chairman of the Latur-based Natural Sugars and Allied Industries, has a simple explanation for this. Currently, rectified spirit (RS) used by alcohol-based chemical makers and other industrial users is fetching a price of Rs 43-44 per litre. The ex-distillery realisations from extra neutral alcohol (ENA), which is what goes into potable country and Indian Made Foreign liquor, are even more at Rs 58-60.
“Both are produced by fermenting molasses, but the alcohol content is only 95% in RS and 96% for ENA. On the other hand, ethanol is alcohol of 99%-plus purity. Converting RS into ethanol costs about Rs 5 per litre. It is more viable, then, to sell RS than ethanol. While making ENA from RS costs Rs 3/litre, the higher price makes it worth selling the former. Either way, production of ethanol does not make much sense this year,” he pointed out.
Verma felt that the picture might change when the OMCs float their next tender in December or January. By then, the cane crushing season would have progressed, which should help ease availability of molasses. “We would see more bidding from mills that have expanded their ethanol production capacities,” he noted. But in all likelihood, the bids will come mostly from UP mills, which have no dearth of cane for crushing in 2019-20 as well.