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  • Writer's pictureTritech

Govt plans to enhance ethanol production, increase blending to reduce oil imports

Government is planning to more than double ethanol production and increase blending of ethanol with petrol to reduce oil imports. It plans to enhance ethanol production capacity to 9 billion litres from 3.55 billion litres in two years, said a consumer affairs, food and public distribution ministry official. "For this, it has given in-principle approval to 362 new plants in sugar mills for adding capacity of 5.5 billion litres. This will require an investment of 18,000 crore," said the official, who did not wish to be identified. The enhanced capacity will help meet the government's target of 10% ethanol blending by 2022. This is likely to reduce the country's oil imports by 2 million tonnes annually and reduce the oil import bill by 7,000 crore.

Ethanol is a by-product of molasses generated from crushing of sugarcane. It can be produced directly from cane juice as well as from B-grade and C-grade molasses. The price of ethanol from sugarcane juice has been fixed at 59.48 per litre while ethanol extracted from C-grade molasses fetches 43.75 a litre and that from B-grade molasses gets 54.27 a litre. The official said the country needs at least 4.25 billion litres of ethanol to meet the 10% blending target.

"Last year, 1.91 billion litres of ethanol was blended with petrol, achieving just 5.5% blending," said the official. "This year, so far oil companies have signed up contracts for 1.4 billion litres and contracts of additional 310 million litres are in the pipeline. There is demand of 5.11 billion litres from oil companies. Since there is around 21% dip in production, the target of ethanol blending could reach 4.5% only." The government is targeting to divert 700,000-800,000 tonnes of surplus sugar in each of the next two years for ethanol production to maximise profitability of sugar companies, according to officials. "This year sugar production is down due to bad weather in Maharashtra and Karnataka. If production surges in the next season, we may divert double the quantity for ethanol production," said the official.

However, expansion of new production capacity doesn't look easy given the tight financial condition of sugar mills. Out of 362 proposals, so far banks have agreed to finance only 56 projects. "The government should find a way to finance ethanol production plants of sugar companies. Weak balance sheets of sugar companies will be a deterrent to getting loans," said Abinash Verma, director general, Indian Sugar Mills Association. "Banks are open to finance standalone ethanol plants. They should understand that ethanol business is a profitable business which may turn around the finances of sugar industry also."


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