Sugar mills seek third ethanol supply tender from OMCs on production spike

Topics Coronavirus | Sugar MSP | Lockdown

Sugar mills in Uttar Pradesh, which is the largest producer of the commodity, have urged government-owned oil marketing companies (OMCs) to float a third tender for ethanol procurement due to estimates of excess production of the green fuel, with additional quantity of cane being crushed this season.

The Indian Sugar Mills Association (ISMA) has written to the three government-owned oil marketing companies (OMCs) --Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) -- urging them to float a fresh ethanol procurement tender to help mills and distilleries supply more green fuel for blending with petrol and reducing the oil import bill.

India depends fully on the overseas market for supply of crude oil for its domestic requirement. This dependence not only impacts the economy due to a sharp fluctuation in crude prices but also creates uncertainty in fixing the prices of locally manufactured products and services. However, over the past few years, the government has encouraged sugar mills and distilleries through various policy measures to supply ethanol to OMCs and has fixed a target to achieve 20 per cent of blending in a couple of years.

"There are a few sugar mills and distilleries who are eager to supply some more quantity of ethanol to the OMCs during the current year. It is therefore requested a fresh express of interest (EOI) may be floated at the earliest to accommodate such sugar mills and distilleries," said Abinash Verma, Director General, ISMA.

The three OMCs have floated a second tender for ethanol supply to the petrol-blending programme. They want a total of 2.53 billion litres, for supply between February 1 and November 30. In response to the first tender, floated in September 2019, the mills offered less than a third of what the OMCs asked for.

Of the 5.11 billion litres asked for in the first one floated in September last year, mills contracted to supply only 1.56 billion. This was due to estimates of a decline in production this year, following lower cane supply.

The third round of the second cycle of EOI floated in January this year is now over and the OMCs could finalise a total quantity of appox. 1.85 billion litres of ethanol for the year 2019-20.

ISMA has urged the OMCs to consider five-day window to be provided in the beginning of every subsequent month where without an EOI sugar mills / distilleries who have set new capacities or expanded their existing capacity or who want to supply more ethanol than already offered in the previous EOIs can express their interest / give offers during this period. Thereafter, as is the  normal practice, OMCs can examine the offers and accordingly give depot-wise allocation to all those sugar mills and distilleries who have given offers.

Experts, however, believe that OMCs may disagree the proposal due to a sharp decline in crude oil prices and around 30 per cent fall in its demand globally due to coronavirus (Covid-19) outbreak. Currently, ethanol prices at around Rs 59 a litre is substantially higher than the cost of petrol production in India as crude oil prices have fallen to $30 a barrel and expected to decline further to stabilise at around $20 a barrel.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel