In a span of 15 days, distilleries have got a second hike in rates of ethanol purchased by oil marketing companies (OMCs) as the government does not want the target of achieving 12 per cent blending to be disrupted in any way after the Food Corporation of India (FCI) halted supply of subsidised rice.

In a notification, the government has raised prices of ethanol made from damaged/broken rice and maize by ₹3.71/litre with immediate effect to help distilleries continue production, official sources said.

Ethanol made from damaged/broken rice was increased by ₹4.75/litre from August 7 and from maize by ₹6.01/litre. After Tuesday’s upward revision as “additional incentives”, ethanol prices stand at ₹64/litre (from damaged rice) and ₹66.07/litre (from maize), up by 15-17 per cent from the rates fixed for the season.

Until July 31, the OMCs had achieved 11.77 per cent blending since the ethanol season started in December 2022, industry sources said. The government has shortened the current ethanol season to 11 months and from the 2023-24 season, it has been changed to run from November to October.

Operations halted

Out of 21.25 crore litres contracted by OMCs in current season to buy from grain-based plants and to be produced from damaged rice, distilleries have supplied only 9.52 crore litres whereas the season will end in October 31. The current decision to hike rates may help the distilleries to speed up manufacturing and supply the whatever possible out of remaining 11.73 crore litres during August-October, sources said.

Many distilleries stopped operation in July after the FCI stopped issuing rice and if they do not operate during August-October, there is a chance of fall in blending rate from current level, industry earlier informed the government demanding the mid-season price revision.

Acting on the industry’s apprehension, an inter-ministerial group was constituted to recommend revised ethanol prices for next season in view of the expected higher availability of sugarcane that may increase diversion towards ethanol. The panel was also tasked to recommend if any incentive in prices of ethanol is required mid season.

In terms of sugar, the Food Ministry expects about 5.5 million tonnes (mt) may be diverted towards ethanol against about 4 mt last season. The sugar industry is more conservative and has pegged the diversion at 4.5 mt. Actually, sugar is not diverted to produce ethanol, which is made out of molasses (a by-product of sugar) or sugarcane juice/syrup. The diversion estimate is based on how much quantity of sugar could have been produced from the same quantity of sugarcane that gets diverted towards ethanol.

From mid-July, FCI has stopped supplying ₹20/kg rice supplied to produce ethanol, which is attributed to the political controversy created due its withdrawal of approval within 24 hours with regard to supply of rice to Karnataka for human consumption at ₹31/kg, citing insufficient availability in the Central pool.

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