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India’s 5 Percent mandatory ethanol blending programme is going for a toss due to poor supply response from sugar mills of both tenders floated by the oil marketing companies (OMCs). The second tender floated for procurement of 250 million litres by OMCs for direct blending with ethanol opened on January 21st  and closed on February 5 evoked very poor response from sugar mills. Interestingly, OMCs had come out with an open tender inviting ethanol of any quantity from interested suppliers at depot at INR 44 a litre. But, due to prevailing duties and transportation cost, the exact income for sugar mills worked out to just INR 36-37 a litre, almost similar to the price offered in the first tender between INR 34-36 a litre.

According to industry sources, mills were not very encouraged in supplying desired quantity of ethanol to OMC depots for earning just a couple of bucks. “While the exact response was not disclosed by OMCs, it was certain that sugar mills were not very keen on supplying ethanol to OMCs,” said an industry source.

Adhering to the cabinet approval for mandatory 5 Percent ethanol blending with petrol early last year, OMCs floated first tender to procure the required quantity of 1050 million litres of the green fuel in the financial year 2013-14. But, owing to the lapses in crushing season, sugar mills offered to supply 550 million litres in response to the first tender. Of which, however, OMCs places orders for 400 million litres.

Of this, however, OMCs have lifted just 220 million litres of ethanol for direct blending with petrol. Sugar mills are doubtful that the remaing 180 million litres would be lifted in just 6 weeks as the supply order lapses by 31.03.2014. “It was just a matter of couple of rupees. Hence, it makes no business sense to continue supplying ethanol to OMCs,” said Rakesh Bharatia, Managing Director, India Glycols Ltd.

As per conservative estimates, India produces around 2400 million litres of alchohol of which a quantity of around 1000 litres goes for potable consumption. Another quantity of 700 milion litres is consumed by chemical and allied industries meant for industrial consumption. Thus, there is hardly 700 million litres of quantity left for converting into ethanol for blending with petrol.

In order to bridge the supply gap to the first tender, OMCs floated another tender in July to procure 1335 million litres of ethanol between December 2013 and November 2014. In response to that, sugar mills, according to sources, offered to supply a meager 620 million litres, around 46 Percent of the tendered quantity.

“For industrial alcohol, cost of production works out to INR 33-34 a litre which if further converted into ethanol, the cost of production goes to INR 36 a litre. Selling at INR 36-37 a litre, therefore, does not make any economic sense for sugar mills,” said Deepak Desai, Deepak Desai - chief consultant, ethanolindia.net, an ethanol consultancy firm.

For sugar mills, the timeliness of molasses supply also makes much sense, he added. Last year, India exported 5.80 lakh tonnes of molasses due to delay in tender and unprofitable ethanol price offered by OMCs resulting into loss of around 150 million litre of ethanol production in India.

Source-On Request