As petrol prices skyrocket sugar industry sees opportunity in ethanol

Oil marketing companies (OMC) are set to procure 283 crore litres of ethanol from mills for blending up to 10% with petrol in 2020-21 (December-November). This is against 167 crore, 179 crore and 150.5 crore litres in the preceding three supply years and a mere 38 crore litres in 2013-14.

Moreover, out of the 283 crore litres, only 59.7 crore comprises ethanol normally produced by mills from 'C' molasses, the leftover cane syrup after most of the sugar has been extracted and crystallised. The balance supply would be ethanol from fermentation of whole sugarcane juice (42.2 crore litres) and the intermediate 'B-heavy' stage molasses (181 crore litres).

Mills will also be paid more for ethanol produced from 'B-heavy' molasses (Rs 57.61/litre) and cane juice (Rs 62.65/litre) than from the conventional 'C' molasses route (Rs 45.69/litre). The total projected ethanol purchases by OMCs in 2020-21 would be worth nearly Rs 15,800 crore.

It is significant that even the Rs 62.65/litre ex-mill rate for ethanol from cane juice is way below the Rs 91.17/litre retail price of petrol in Delhi. The difference is mainly due to taxes: Petrol attracts a Central excise duty of Rs 32.90 plus a Rs 21.04/litre state tax in Delhi.

Ethanol, used for blending with petrol and containing 99.5% alcohol, is chargeable to only a 5% goods and services tax (GST). This is unlike rectified spirit or potable-grade extra neutral alcohol, having 95-96% purity and subject to a host of state government levies.

The new ethanol blending and pricing policy has been a game-changer, according to Roshan Lal Tamak, executive director & CEO (sugar business), DCM Shriram Ltd. His company, in December, commissioned a Rs 292-crore distillery adjoining its sugar mill at Ajbapur in Uttar Pradesh's

The government has projected the ethanol requirement for achieving 20% blending by 2025 at 900 crore litres, with sugar mills supplying 610 crore litres and grain-based distilleries the balance 390 crore litres. The average ethanol blending is expected at only 8.5% in 2020-21, with 283 crore out of the total 325 crore litres requirement being met by mills.