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Sugar companies in Tamil Nadu, already reeling from high sugarcane prices, are now drowning under a stockpile of 225 lakh litres of unsold alcohol.
Industry sources said this was the result of the skewed policy of the State Government, which prevents them from participating in the national ethanol-blended fuel programme. Added to this, State taxes make it uncompetitive for them to sell to local alcohol producers.
According to sources, the State has not yet given the go-ahead to sugar mills to supply ethanol to oil marketing companies (OMCs) for use in the 5 per cent blended petrol programme.
In December 2014, the OMCs floated countrywide bids for sugar mills to supply 10 lakh kilolitres of ethanol at about ₹49 a litre. But they are yet to get any supplies from Tamil Nadu. Elsewhere, the project is in various stages of rollout, according to sources, who spoke on condition of anonymity.
Sugar companies in Tamil Nadu hoped to supply about 3,800 kilolitres of ethanol and are awaiting permission to use molasses, the raw material.
While the oil companies support the licence for sugar mills, they have also approached the government to directly import ethanol from neighbouring States as local producers are unable to start supply, said sources.
Tamil Nadu zealously guards molasses use for alcohol production by manufacturers of Indian Made Foreign Liquor as this is a major source of revenue. And it also allows the liquor industry to import Extra Neutral Alcohol (ENA) from other States.
Locally made alcohol is costlier because of a value added tax of 14 per cent. ENA from other States comes in with an inter-State tax of just 2 per cent, say sugar industry sources. As a result, sugar mills are stuck with unsold stock of alcohol.
It is not just the sugar mills that will be hit but also the sugarcane farmer, say sources, as cash-strapped mills will not be able to pay for sugarcane. The Centre has recognised that the ethanol programme will benefit the sugar mills by augmenting their revenue and improve their ability to pay sugarcane farmers.
The State Government has handicapped the sugar mills by levying 5 per cent VAT on sugar. Cheap sugar from Karnataka is moving into Tamil Nadu which has also lost its traditional market in Kerala to competition. Now sugar mills in other States will also benefit from local policies on ethanol, the sources said.
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