Ethanol-blended fuel? TN prefers its liquor neat

Ethanol or potable alcohol? No prizes for guessing what the Tamil Nadu government prefers.

Keen on protecting — possibly even growing — its revenues from the liquor business, the State government continues to deny struggling sugar mills and farmers the benefits of the Centre’s ethanol-blended fuel programme (EBP).

Under the EBP, 5 per cent of ethanol is to be blended with petrol, but unlike in other States, Tamil Nadu’s sugar mills are virtually prevented from producing any ethanol for gasohol.

In 2014-15, oil marketing companies needed about 7.68 crore litres of ethanol to supply gasohol in Tamil Nadu. But the State government allowed production of 50 lakh litres of ethanol — just 6 per cent of the requirement.

In most other sugarcane-producing States, the offtake has been significantly higher — Andhra Pradesh supplied 4.7 crore litres; Karnataka 6.4 crore litres; Maharashtra 18.4 crore litres; Telangana 3.9 crore litres; and Uttar Pradesh 20.5 crore litres, according to the Indian Sugar Mills Association.

Liquor: the cash cow The liquor industry, which contributed about ₹26,000 crore or one-third of Tamil Nadu’s tax revenue last year, is a cash cow. And the State is protecting the business by ensuring that molasses, a by-product of sugar production and the raw material for alcohol, is almost exclusively used for the production of potable alcohol.

But for cash-strapped sugar mills, ethanol supply at about ₹48-49 a litre is critical. The industry last year saw sugar prices drop below the production cost to about ₹2,500 a quintal (100 kg) and lost about ₹700 on every quintal of sugar it sold.

With dues to farmers accumulating, the Centre stepped in and announced a sugarcane subsidy of ₹45 a tonne to help mills pay sugarcane dues. But it laid down two conditions — mills must meet sugar export quota and supply at least 80 per cent of the ethanol needed for the blended-fuel programme.

But sugar mills in Tamil Nadu are stymied as the ethanol programme is yet to take off.

Double whammy Worse, they are caught in a double bind. The liquor industry in Tamil Nadu procures roughly only 50 per cent of the potable alcohol produced by its sugar mills. Last year when the mills needed to pay farmers about ₹400 crore, they were sitting on an equivalent value of unsold alcohol.

In 2014-15, Tamil Nadu’s liquor companies bought only 13.70 crore litres of potable alcohol against an estimated annual requirement of 21.6 crore litres. The balance was met with cheaper imports from neighbouring States, including Karnataka, which have lower tax rates giving buyers a price advantage of ₹6 a litre.

Today, the mills have an opening stock of 3.9 crore litres of alcohol and 2.95 lakh tonnes of molasses, the equivalent of 10.7 crore litres of alcohol. They will produce an additional 27 crore litres of alcohol during the current season.

Says Palani G Periasamy, President, South Indian Sugar Mills Association: “The State government should revise its policy.”

The sugar mills are pleading with the State government to allow them to supply five crore litres of alcohol to oil companies. The offtake by liquor companies must be monitored monthly and surplus alcohol diverted to the gasohol programme, says the Association.

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