With ethanol turning cheaper than petrol, the sugar industry awaits to tap a new opportunity

As the price of petrol is continuously rising for a number of days and now the budget of the consumers has felt tremors because they have to pay 90 plus rupees per litre of petrol, some opportunities have been opened for Indian sugar mills. The sugar mills have found a solution to the problem of pending cane payment to farmers.
In 2020-21 (December-November), the oil marketing companies or OMCs are expected to buy 283 crore litres of ethanol from mills for blending 10% with petrol; in opposition to 167 crores, 179 crores, and 150.5 crore litres in the previous three supply years, respectively, and just 38 crore litres in 2013-14.
Furthermore, from the total of 283 crore litres of ethanol, only 59.7% ethanol is made by mills from ‘C’ molasses, the remaining cane syrup after the majority of the sugar has been processed and crystallised. Ethanol from entire sugarcane juice fermentation (42.2 crore litres) and intermediate ‘B-heavy’ stage molasses will make up the rest of the supply (181 crore litres).
As much as Rs 15,800 crores will be spent by the OMC’s (oil marketing companies) on the purchasing of ethanol in the given span of time and the amount of money which will be paid to the mills for producing ethanol from the process of ‘C’ molasses is about 45.69 rupees per litre which is less as compared to the ethanol produced from cane juice (rupees 62.65 per litre) and ‘B-heavy’ molasses (rupees 57.61 per litre).
Even the ex-mill cost of Rs 62.65/litre for ethanol from cane juice is significantly lower than the price of petrol for consumers (Rs 91.17/litre) in Delhi. The primary reason for the disparity is taxes: In Delhi, petrol is subject to a central excise duty of Rs 32.90 and a state tax of Rs 21.04 per litre.
According to a sugar industry source, ethanol does not need any subsidies today. The government only has to ensure that it is taxed less than gasoline (petrol).
A liquid (ethanol) which is used to mix with petrol contains 99.5% of alcohol, is only subject to a 5% GST. This is in contrast to the rectified spirit or potable-grade extra neutral alcohol, which has a purity of 95-96 per cent and is subject to a variety of state taxes.
However, the ethanol GST, which was reduced from 18 per cent to 5 per cent in July 2018, has nominal meaning. Since fuels are exempt from GST, OMCs are unable to demand an input tax credit. Additionally, excise and federal taxes are applied to petrol after it has been blended with ethanol. Oil marketing companies mix up petrol and ethanol in their depots rather than refineries.
The source also added that these taxes should only be applied to petrol which is not mixed with ethanol at the refining entrance. The OMCs will then be attracted to mix more ethanol, which is taxed at a flat rate of 5%.
Despite the lack of a significant tax benefit, India’s ethanol output capability has increased from 215 crore litres in 2014-15 to 426.6 million litres in 2019-20. The majority of this capacity expansion occurred after the Narendra Modi government announced a new biofuels program in May 2018, aiming for a 10% all-India average ethanol blending of petrol by 2022 (up from 4.2 per cent in 2017-18) and a 20% by 2030. In 2018-19, the government started setting lower ex-mill rates for ethanol made from ‘C’ molasses than the ethanol made from ‘B-heavy’ molasses and cane juice.
According to Roshan Lal Tamak, executive director & CEO of the sugar business, DCM Shriram Ltd, the current ethanol blending and pricing strategy has become a game-changer and his company opened a Rs 292-crore distillery at Ajbapur in Uttar Pradesh’s Lakhimpur Kheri district in December, adjacent to its sugar factory.
It is the state’s largest single-location distillery which has a capacity of producing 200 kilolitres of ethanol per day (KLD). Although more large plants of ethanol production have been set up in the northern part of Karnataka by Shree Renuka Sugars Ltd at Athani and Havalga which produces 300 KLD and Godavari Biorefineries at Mudhol which produces 400 KLD each.
Mills normally crush cane with a total fermentable sugars (TFS) content of around 13.5-14 per cent. They are able to extract about 115 kg which is 11.5 per cent of sugar from each tonne of cane. The non-recovered and uncrystallized TFS which is nearly about 2-2.5% is used to make ‘C’ molasses, which yields around 10.67 litres of ethanol.
Many ethanol manufacturing mills are considering it an opportunity to manufacture more and more amount of ethanol by the process of ‘B-heavy’ molasses at current ex-factory sugar realisations of rupees 32/kg. In the 2020-21 season, DCM Shriram alone is expected to divert nearly 80,000 tonnes of sugar to ‘B-heavy’ ethanol and in the year 2017-18, the company processed about 0.68 crore litres of ethanol and around 6.8 lakh tonnes of sugar. It expects to produce just 5.9 lakh tonnes of sugar, this season and 12.7 crore litres of ethanol.
The government estimates that 900 crore litres of ethanol will be required to achieve 20% mixing it with petrol by 2025, with supplying 610 crore litres by the sugar mills and distilleries which are grain-based provides the other 390 crore litres. In 2020-21, average ethanol blending is projected to be just 8.5 percentage, with mills meeting 283 crores of the estimated 325 crore litres demand.