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The roll-out of ethanol blending programme stares at a fresh hurdle as oil marketing companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum Corporation are planning to renegotiate prices with sugar millers as global crude prices have dropped in the past few months.
Such a move could fuel concerns among the beleaguered sugar mills as crushing gains momentum in the key states such as Maharashtra, Uttar Pradesh and Karnataka.
Crude oil prices have declined over 38 per cent from about $114 a barrel in July to the current level of below $70.
Official sources hinted at the OMCs considering going in for a renegotiation of ethanol prices with sugar millers. This seems imminent, especially after the recent cancellation of the Expression of Interest (EOI) issued by the OMCs for about 120 crore litres in October. While no reason was attributed to the cancellation of EOI, it is widely believed that declining crude prices prompted the OMCs to take such a step, sources said.
The OMCs had fixed a price of ₹47.5 per litre for ethanol to be delivered at their depot for blending starting October. In the tender floated for 156 crore litres in July, sugar mills had placed bids for only 62 crore litres, while the OMCs had finalised contracts for 35.5 crore litres for delivery from October this year.
The pricing was based on the Government’s revised benchmark price formula for ethanol that was finalised in June, wherein the average of the refinery transfer price (RTP) for petrol for the previous year would be considered against the earlier practice of closest RTP. As a result, the impact of lower crude prices this year should be felt next year, said Abinash Verma, Director-General, Indian Sugar Mills Association.
However, millers are hopeful that the OMCs will come up with a fresh EOI over the next few days. “We are expecting the OMCs to re-float the tender soon,” Verma said. The decline in crude prices should not necessarily influence the OMCs decision. “Even at the reduced price of petrol, they will still stand to benefit at the current rates,” Verma said.
With the pick-up in cane crushing, the price of molasses and other by-products such as extra neutral alcohol and industrial alcohol are seen coming come down. Molasses prices are now hovering between ₹3,500 and ₹4,000 a tonne against ₹6,000-7,000 in July-August.
The Government had mandated five per cent blending of ethanol with petrol while the OMCs have been able to carry out blending of only 1.45 per cent.
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