The second ethanol procurement tender floated by oil marketing companies (OMCs) about three months ago has recorded a poor response from sugar mills, primarily due to the delay in finalising orders of the first tender.
Adhering to the Cabinet mandate of five per cent ethanol blending with petrol, OMCs had floated the first tender to procure 1,050 million litres of ethanol this financial year. But sugar mills offered to supply only 550 million litres. To bridge the gap, OMCs had floated another tender in July to procure 1,335 million litres between December 2013 and November 2014. Sources said this time, sugar mills offered to supply just 620 million litres, 46 per cent of the tendered quantity. Early this year, sugar mills had claimed they would supply enough ethanol if OMCs agreed to pay higher prices.
A source said the price finalised by OMCs was too low. While the ex-mill price for ethanol supply to OMCs in Uttar Pradesh was finalised at Rs 36 a litre, in Maharashtra and Karnataka, it was fixed at Rs 39-40 a litre.
“Sugar mills were discouraged by the delay of around seven months, which kept the industry in uncertainty for such a long period of time. Additionally, the entire capital was blocked on which the industry continued to pay interest to banks,” said a senior industry official.
OMCs had rejected an offer of 150 million litres of ethanol from sugar mills in the first tender, owing to the high price quoted. Despite seeking about 400 million litres in July, OMCs had managed to procure only about 80 million litres, as of the first fortnight of October.
For the second tender, technical bids are being opened and the orders would be finalised soon. “Nothing has been finalised yet. Currently, the processes are on,” said K K Gupta, director (marketing), Bharat Petroleum Corporation Ltd.
Sources said the average offer price for the second bid was between Rs 36 and Rs 38 a litre (ex-mill).
“We are ready to supply the desired quantity of ethanol. But OMCs will have to pay a higher price. When rectified spirit is comfortably sold at Rs 40-42 a litre and extra-neutral alcohol at Rs 48 a litre, why would a mill incur costs to process these further to produce ethanol and sell at a loss?” asked an official.
Sources said OMCs finalised a benchmark price for ethanol, which currently stood at Rs 36-38 a litre across the country. Any offer beyond this level was rejected, they added.
At Rs 50 a litre, sugar mills would be able to convert 1.7 million tonnes of surplus sugar into ethanol, as 0.6 litres of ethanol ca be secured from a kg of sugar. Therefore, at an average price of Rs 28 a kg for sugar, ethanol conversion would cost at least Rs 50 a kg.
Meanwhile, sugar mills are upbeat; they feel active ethanol procurement would change their fortunes. Ethanol supply would increase sugar mills' cash flow by Rs 5,000-6,000 crore, helping clear farmers' cane arrears and generating profits. The mills hope full procurement of ethanol, according to the second tender, would help India achieve the mandatory five per cent ethanol blending in the next 12-months.