The Hindu Business Line : UP sugar mills cry foul as oil firms shun ethanol

THE ethanol-petrol blending programme launched by the previous National Democratic Alliance (NDA) regime seems to have been given a quiet burial. This comes at a time when international crude prices have skyrocketed beyond $50 per barrel.

To begin with, the 30 paise per litre surcharge concession given on petrol used to manufacture `gasohol' — petrol with 5 per cent ethanol content — has been discontinued from July 1 by the Government.

Further, public sector oil companies are yet to finalise their new ethanol tenders, despite the supply period for the previous ones expiring in June for Uttar Pradesh and in May for States such as Karnataka and Andhra Pradesh.

The official reason being given for going slow on the programme — which envisages countrywide coverage of 5 per cent ethanol-doped petrol by 2004 — is the inability of sugar mills to supply the requisite quantity of ethanol on account of drought-induced sugarcane shortages. Second, the oil companies say the rates quoted by mills in the new tenders are far too high, compared to the Rs 17.50 per litre price in the earlier ones floated last year.

In the latest June tender for UP, the mills quoted Rs 24 per litre, which was re-negotiated `locally' by the oil companies at Rs 22.80 per litre, though not cleared at head office level.

The mills in UP, however, claim that cane shortages are mainly in Maharashtra and the South. "We have enough alcohol here for supplying ethanol to oil companies. But they are just not interested," said a prominent miller. For UP alone, the annual alcohol requirement for country liquor (CL) is placed at 7.4 crore litres, with the demand for Indian Made Foreign Liquor (IMFL) being 2.1 crore litre. The requirement for ethanol blending from UP is another 5 crore litres.

"If to this, one provides for consumption by alcohol-based chemical units, the total alcohol demand in the State will not exceed 20 crore litres per annum or 1.67 crore litres per month," the miller noted. On the other hand, alcohol stocks with various distilleries in UP — in the form of ethanol, rectified spirit, extra neutral alcohol, denatured spirit, CL and IMFL — stood at 3.32 crore litres as on September 1, with molasses inventories being another 1.26 million quintals (2.65 crore litres of alcohol equivalent).

"We have 6 crore litres of alcohol equivalent, enough to meet all requirements, including of ethanol, for over 3.5 months. And this is before the start of the current season from October, during which our mills would crush about 45 million tonnes (mt) of cane, yielding 1.8 mt of molasses or 38 crore litres of alcohol. So, where is the shortage here?" the miller quipped.

He further held that the Rs 22.80 per litre price for ethanol tentatively decided for the June tender was not high, considering that rectified spirit of lower purity was currently selling for Rs 23 per litre. Ethanol contains 99.8 per cent alcohol, against about 95 per cent for rectified spirit. "When global crude prices have gone up by about $20 per barrel, how can oil companies complain about our seeking a higher rate for ethanol?" the miller added.

Leading mills in UP, who have set up around 15 crore litres per annum ethanol production capacity in anticipation of meeting the demand from oil companies, are now caught in a quandary.

With the oil companies not showing any inclination to lift ethanol, what seemed like an `assured' 5-crore litres market — which would have doubled with the proposed increase in the blending percentage in petrol to 10 per cent — has disappeared. And supplies of molasses going up with crushing operations commencing for the new season, mills would find the demand for molasses alcohol restricted to only liquor and chemical manufacturers.

Molasses prices have over the last year gone up from Rs 100-150 per quintal to Rs 350-400 per quintal, which the mills were hopeful of sustaining through the ethanol-petrol blending programme.

Those who have established large ethanol distillation facilities in UP include Paramour Chini, Bajaj Hindustan, Upper Ganges Sugar (Seohara) and Oudh Sugar Mills (Hargaon) of the KK-Birla Group, Simbhaoli Sugar and the Upper Doab Sugar Mills of Sir Shadilal Enterprises.

Some of these mills, currently sitting on huge ethanol stocks, are said to be in process of re-converting these into rectified spirit for sale to country liquor and industrial alcohol users.

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