Govt Hikes Ethanol Price to Cut Oil Import Bill by USD 1 Billion

(Economic Times) The decision was taken by the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi. The government on Tuesday raised the price of sugarcane-extracted ethanol used for blending in petrol by up to Rs 1.84 per litre as it looked to cut oil import bill by USD 1 billion annually through its greater use in auto fuels.

State-owned oil marketing companies will buy ethanol from sugar mills, for mixing in petrol, at enhanced rates for ethanol year beginning December 1, Petroleum Minister Dharmendra Pradhan said here.

Ethanol is a by-product of molasses generated on crushing of sugarcane and the higher price is to encourage sugar mills to divert from sugar production.

Cane-based ethanol can be produced three different ways — directly from cane juice, from B-grade and C-grade molasses.

"Increased ethanol blending in petrol is expected to replace 2 million tonnes of oil annually, helping save USD 1 billion in import bill," he said.

The percentage of ethanol being doped in petrol will rise from about 6 per cent now to 7 per cent next year and to 10 per cent by 2021-22, he said.

The sugar industry, he said, is responding very positively by hugely investing in new or expansion of ethanol production capacities, which will help achieve the government's 10 per cent ethanol blend targets by 2022.

The world's third largest oil consumer is dependent on imports to meet 83 per cent of its needs and substituting some of the fuel with biofuels will help cut import dependence.

India started blending ethanol, produced as a by-product during the process of making sugar from sugarcane, in petrol during the first NDA regime in 2002. But the programme slowed almost to a grinding halt in the 10-year rule of Congress-led UPA.

This comes at a time when a surplus of sugar production is depressing sugar price. Consequently, sugarcane farmer's dues have increased due to the lower capability of the sugar industry to pay the farmers. READ MORE

Excerpt from The Hindu Business Line: More ethanol capacities are likely to be added in next three years ending existing constraints; even at current oil price, ethanol blending is profitable for oil companies -- ... In fact, we are entering the Sugar season 2019-20 (October- September) with a record opening stock of 142 lakh tonnes of sugar — that can actually serve half the country’s annual demand.

While scrapping FRP to dissuade farmers from growing cane is not in consideration by states, given the vote bank of cane growers, all focus is now in pushing mills to divert cane into making of ethanol — a biofuel that derived from sugarcane that when blended with petrol, limits carbon discharge.

This will reduce excess sugar supplies in the market, and boost sugar price, helping mills. It will also reduce oil imports, and save dollars for the country. That way, the Centre thinks it can kill two birds with one stone.

While the Centre keeps rising its ethanol-blended petrol (EBP) target every year (from 5 per cent to 10 per cent and now 20 per cent by 2030), given that it is not mandatory for oil companies, will they oblige? As oil prices have fallen sharply, will it still be worthwhile? Also, do sugar mills have enough capacity to produce sufficient ethanol to reach the 20 per cent blending target?

To reach the Centre’s ambitious target of 20 per cent in blending by 2030, a back of the envelope calculation with India’s current fuel consumption shows that there is the requirement of around 700-800 crore litres of ethanol in a year. But India’s current ethanol production capacity is only around 355 crore litres.

The lack of capacity in ethanol production is not likely to pose a hurdle in reaching the blending target. With the Centre’s soft loan (interest subvention) provision for sugar mills to build capacity in ethanol in June last year, many companies have come forward to expand or add new capacities. So far, a total number of 245 projects have been approved by the Government under the scheme for financial assistance says ISMA.

Why oil companies are interested
Though there is no written mandate, oil companies have begun to show interest in blending petrol with ethanol in last few years, due to the government’s constant push and the high price of oil, that has made blending ethanol with petrol an attractive deal.

Note that the cost of ethanol is lower to petrol for oil companies, but when selling it at the retail pump, oil companies sell ethanol-blended petrol at the same price as petrol and make a profit. READ MORE