The Cabinet Committee on Economic Affairs (CCEA) approved a mechanism late on Tuesday evening for ethanol procurement by public sector oil marketing companies (OMCs) which should provide respite to the beleaguered industry.
The CCEA approved the delivered price of ethanol to be fixed in the range of Rs 48.50-49.50/litre depending on the distance of the sugar mill from the oil depot. If the mill lies between 0-100 km then the applicable rate would be Rs 48.50/litre, while it would be Rs 49 and Rs 49.50 if the mills lie between 101-300 km and more than 300 km from the depot.
The proposed rates will be the delivered price at the depots and are inclusive of all Central and State taxes and transportation costs that are borne by the ethanol supplier. The OMCs will incorporate a 'Supply or Pay' clause backed by a bank guarantee in the supply agreement.
They will also sign memoranda of understanding (MoUs) with the State Governments for uninterrupted inter-depot transfer of ethanol within a State. This may include annual excise permits to OMCs for movement of ethanol and other relayed measures.
Significant move
The CCEA approval should see sugar mills, who currently owe about Rs 3,000 crore to sugarcane farmers, improving their balance sheets to some degree.
Nearly 90 mills out of 119 have begun crushing in Uttar Pradesh, the country's second largest sugar producing State, after much uncertainty, including threats of suspending operations at the beginning of the season on October 1.
The Government had decided on a mandatory 5 per cent blending of ethanol with petrol in late 2012, but the OMCs had not been getting enough ethanol with offers received for only 45 per cent of the total requirement in 2013-14.
The mechanism decided by the CCEA could be replaced by a new mechanism of uniform price of ethanol declared each year. At present, ethanol is priced at about Rs 42/litre but suppliers usually incur an additional Rs 6-8/litre.
In some cases, prices quoted by the sugar mills are higher than the benchmark 'refinery transfer price' (RTP), which is based on the average RTP of the previous financial year. As a result, procurement is less than what is offered. The CCEA move is, therefore, likely to reduce that uncertainty.