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The market gave a thumbs-up to the Government’s new ethanol procurement mechanism.
The ethanol procurement price will henceforth be fixed by the Government (Ministry of Consumer Affairs, Food and Public Distribution) every year.
The delivered price for oil marketing companies (OMCs) for the current year will range between Rs 48.50 and Rs 49.50.
Sugar stocks - Balrampur Chini Mills, Bajaj Hindustan and Shree Renuka Sugars -- which have a meaningful distillery capacity, gained between 6 and 7 per cent in Thursday’s trade.
Despite the Government mandating 5 per cent ethanol blending with petrol back in November 2012, in reality, the blending rate has been just 2.5 per cent.
Due to absence of a transparent and uniform price fixation mechanism, unattractive price and hassles in transporting ethanol from the mills to OMCs’ depots, sugar companies were forced to curtail ethanol production.
But these have been largely addressed by the Government through its new procurement policy which was approved by the Cabinet Committee of Economic Affairs (CCEA) on Wednesday. The approved procurement mechanism is very positive for ethanol producers for three reasons.
Ethanol producers benefitted
First, the phasing out of the current benchmark-based price fixation by oil marketing companies and implementation of an uniform price mechanism will improve the viability of ethanol producers. Under the new regime, the Government will announce the procurement price at the beginning of the sugar season every year.
Second, the ethanol price fixed by the Government will not only take into consideration the cost of production but will also cover the state and central taxes, and transportation costs incurred by ethanol makers.
Third, signing of MoU with the respective State Governments for hassle-free inter-state transport across various depots, will make ethanol transportation seamless.
All these should help sugar makers improve profitability on ethanol sales. Also, now with clarity on the procurement and pricing mechanism, sugar makers may be willing to invest more in expanding their ethanol capacity. This will not only help sugar makers, but will also improve the ethanol availability for OMCs.
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