Oil firms float fresh tender to procure 2.53 billion litres of ethanol

Low ethanol supply from sugar companies and also standalone distilleries could seriously impact India’s 10 per cent blending target by 2022.
After failing to get adequate response from sugar firms twice, oil marketing companies (OMCs) have again floated a tender to procure 2.53 billion litres of ethanol for the remaining months of the 2019-20 season.


The season runs from December to November. The new tender was floated because the first one for procurement of 5.11 billion litres of ethanol, issued in August last year, was vastly under-bid.  This was because sugar mills simply didn’t have adequate quantities of sugarcane to convert them into molasses. In response to the first tender, only 1.4 billion litres were offered and finalised by sugar companies and standalone distilleries.


For the remaining requirement of over 3 billion litres of ethanol, OMCs floated a second tender of 2.53 billion litres in January, 2020, after reassessing their needs.

In the second tender as well, sugar mills could not guarantee supply of the entire quantity and offered 0.31 billion litres. Of this, contracts were finalised for just 0.29 billion litres. The new tender, billed as the second round of the second tender, was again opened last week for 2.53 billion litres. However, sugar companies said that in this, too, there won’t be bids from many suppliers. This is because adequate number of capacities simply won’t get added in the next one year.


Low ethanol supply from sugar companies and also standalone distilleries could seriously impact India’s 10 per cent blending target by 2022. In 2018-19, India achieved a blending target of around 5 per cent. The performance would not be any better in the current season of 2019-20, going by the existing trend.

Delay in the mandatory ethanol blending programme could keep the average sugarcane farmer exposed to volatile sugar prices, leading to mounting payment delays.


Industry insiders said apart from low cane availability, another big factor behind the poor response of the procurement tenders floated by OMCs is slow addition of ethanol production capacities in integrated sugar mills, standalone distilleries and grain-based producers.


Sources said ethanol production capacities haven’t come on-stream in the desired pace despite swift approval from the food ministry to the proposals for adding these capacities.


This is so because banks are reluctant to finance ethanol expansion projects of sugar companies under the Centre’s subsidised interest scheme due to weak balance sheet of these companies. “Banks are reluctant to extend soft loans even after the Centre cleared the expansion project because of weak balance sheets of companies on account of previous losses in the sugar business,” said a senior industry official.


He said of the 362 ethanol production projects cleared by the ministry of food and consumer affairs in more than a year, just around 56 (around 16 per cent) have got final clearance from banks and out of this 37 have received cheap loans.


Consequently, the total ethanol production capacity from all sources in August 2019, when OMCs first floated the tender to procure 5.11 billion litres of ethanol was estimated to be around 3.55 billion litres. This has now risen to 3.80 billion litres, an increase of just 0.25 billion litres in almost eight months.


If all the capacities to be created by 362 projects come on-stream in the next 2-3 years, the total ethanol production capacity will be almost 10 billion litres. This is because another 6 billion litres will be added to the existing 3.8 billion litres.


In March 2019, the Centre had cleared a soft loan package of Rs 15,000 crore with an interest subsidy of Rs 3,355 crore to companies that are setting up distilleries as a part of the ethanol blending programme. This was in addition to the Rs 1,332 crore interest subvention on soft loans by sugar mills that was announced in June 2018.


For FY20 season, the government has fixed a target of producing 2.6 billion litres of ethanol, up from 2 billion litres produced during thsi sugar season. But, for that to happen, industry players said they had to quicken their loan approvals.


Also problems in the balance sheet of companies have to be delinked on account of the sugar business from ethanol.


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