10% ethanol plan godsend for sugar units

The beleaguered sugar industry could double its annual earnings from ethanol to Rs 714 crore if the mandatory 10 per cent blending of ethanol (from October 2008), recommended by the group of ministers on sugar, comes into effect. The recommendation is yet to get a nod from the Cabinet.

The industry earns an average of Rs 6.50 on selling ethanol at the ruling price of Rs 21.50 per litre. At 550 million litres (required for 5 per cent blending), this translates into Rs 357 crore. With 10 per cent, the consumption is likely to double to 1,100 million litres and the industry's earning touch Rs 714 crore.

Most sugar stocks, under pressure for long, saw an upward movement today on reports of 10 per cent mandatory blending. Bajaj Hindustan closed at Rs 134.10, up 5.01 per cent over yesterday, while Balrampur Chini rose 7.95 per cent to close at Rs 59.75.

However, the blending programme has not been successful so far. The 5 per cent blending, introduced last November, is still to cover West Bengal, Orissa, Madhya Pradesh, Chhattisgarh and Kerala due to issues like state levies. The 10 per cent blending programme may see similar problems before picking up.

The sugar industry is facing its worst crisis and the mills are not even able to recover the cost of the raw material. This year's production, at about 28 million tonnes, is 45 per cent higher than last year's 19.2 million tonnes. Consequently, sugar prices have crashed and most companies have reported losses in the last two quarters.

Mills have not been able to pay the cane prices to farmers. In Uttar Pradesh, for instance, mills owe Rs 1,500 crore to farmers. And the worst is still to come. Prices are expected to fall further with record production, over 29 million tonnes, projected for 2007-08. Annual domestic demand is around 20 million tonnes.

"The situation could also help the sugar industry if the government allows the B-Heavy route to produce alcohol. Under this, a mill that has an attached distillery can transfer intermediary molasses to alcohol production. By doing so, it can reduce sugar production by 25 per cent, and for every tonne decrease in sugar production, 300 litres alcohol can be produced," said Sanjay Tapriya, director (finance), Simbhaoli Sugars.

As sugar prices are expected to remain low for another year or so, regulating its production and diverting to alcohol will help stabilise prices and bring down stocks.

Kishore Shah, director (finance), Balrampur Chini Mills says, "Though we are selling alcohol, rectified spirit and ethanol, the offtake of ethanol is not regular. Making blending mandatory will ensure this. However, the most important thing is the implementation of the scheme with sincerity. The 5 per cent blending, introduced last year, has still not picked up across the country."

According to the Indian Sugar Mills Association, the total distillery capacity in the country is 3,700 million litres. Of this, the ethanol capacity is 1,500 million litres while the rest is accounted for by alcohol and rectified spirit. The offtake by the liquor and chemical industries in the form of alcohol and rectified spirit, respectively, is estimated at 1,500 million litres.