Cash-starved sugar mills stand to gain an annual Rs 7,500 crore if an informal group of ministers’ recommendation to double the mandatory blending of ethanol with petrol to a 10:90 ratio were to be implemented. This assumes that raising the blending limit will stir competition among industrial consumers, paving the way for the diversion of some molasses, even with sucrose content, towards the bio-fuel production and drive up prices of ethanol and sugar by 10% each.
Considering that the country needs 244 million tonnes of cane with an average recovery rate of 10% to produce the predicted sugar output level of 24.4 million tonnes for 2013-14, this benefit, albeit indirect, will translate into roughly R31 per quintal of cane.
However, there would still be a viability gap for sugar mills, especially those in Uttar Pradesh where the state-advised price (SAP) of R280/quintal for cane is way above the “viable price” of R225 as per the formula mooted by the C Rangarajan panel.
It is another matter though that considering the experience so far, 10% ethanol blending is an idea easier proposed than implemented. Ethanol content in petrol in India is projected to be just 2% this fiscal, even though 5% blending was first approved a decade ago.
Factoring in a direct benefit of R2.25 per quintal on interest-free loans recently announced by the Centre as well as an additional R11.03 per quintal incentive provided by the UP government in the form of a waiver of entry tax, purchase tax and society commission, the supposed indirect benefit of R31 per quintal from the 10% blending programme could significantly bridge the gap between the current viable price and SAP in the state.
Once endorsed by the Cabinet, the suggestion of the panel led by agriculture minister Sharad Pawar could provide sugar mills R7,050 crore more a year on a consumption level of 23.5 million tonnes if prices of the sweetener move up by 10% from the current R3,000 per quintal. Moreover, mills may get an additional R441 crore even on a supply of 105 crore litres for the current 5% blending limit if ethanol prices rise 10% from the average rate of R42 per litre, as offered against the last tender finalised by oil marketing companies (OMCs) in August.
However, the price of ethanol for the additional supplies of 105 crore litres to realise the 10% blending target will have to rise significantly