1. ‘Ethanol blending may help India save $1.7 bn a year’

‘Ethanol blending may help India save $1.7 bn a year’

In the study, McKinsey has listed certain short-term measures through which the crisis in the sugar sector can be addressed. These include clearing excess sugar stocks through exports, diverting more cane to ethanol and setting up a price stabilisation fund to safeguard farmers’ interest

By: | New Delhi | Published: August 12, 2015 12:05 AM

As the government seeks to promote ethanol blending with petrol to improve the cash flow of the crisis-ridden sugar industry, a study by McKinsey on Tuesday said the country could potentially save as much as $1.7 billion a year if the proposed programme of mixing the cane by-product with petrol at a 10:90 ratio is strictly implemented. The savings will be in the form of less oil imports to that extent.

In a study titled ‘The Indian Sugar Industry: Options for Sustainable Growth’, McKinsey has listed certain short-term measures through which the crisis in the sugar sector can be addressed, which include clearing excess sugar stocks through exports, diverting more cane to ethanol and setting up a price stabilisation fund to safeguard farmers’ interest.

“Based on experiences in other sectors, mills could export 10% of their annual production (around 2.5 million tonne), and compensated for the loss by an increase in cess on sugar which is sold domestically during periods of low sugar prices. If such an approach was taken, income generated could pay a part of the fair and remunerative price (FRP) to farmers who are attached to the mills (that is, by being credited to farmers’ accounts by the government),” the report said. It added that as much as 5 million tonne of excess sugar could be cleared from the domestic market through exports over a period of two years.

Excess sugar could also be cleared by using a government agency that could take 2.5 million tonne from mills and export it over three years, under the obligation of millers for covering any export losses, the report said. “Options for such a scheme could include only clearing sugar from millers who agree to certain covenants and pay off a set proportion of their arrears,” it said.

The study pointed out that authorities need to consider maximising revenues from all cane by-products. It should consider the removal of some restrictions on select by-products, increasing the ratio of ethanol blending with petrol and facilitating the setting up of distilleries and co-generation units.

It said the government needs to consider setting up of a cane price stabilisation fund that could be used to enable technological advancements in cane and sugar production and protect farmers from price volatility.

However, according to industry sources, implementing the 10% blending norm would be easier said than done even a decade after the government first mooted the programme to cut down on vehicular pollution. This is because while the producers and OMCs have been locked in a constant blame game over the delay in the finalisation of tenders, several other barriers in the implementation of the blending programme have come to the fore: levies imposed by various states on the inter-state movement of ethanol despite it being a central subject, mandatory requirement of various excise permits, often to be submitted manually, and fixed prices of ethanol for supplies even beyond 500 km that adds to transportation costs.

No wonder, the country could achieve only 1.4% ethanol blending with petrol in the last fiscal, even lower than 2013-14 level of 2%. Unless both the Centre and states display utmost seriousness in strict implementation, the blending programme wouldn’t be a success anytime soon, they added.

Earlier this month, Prime Minister Narendra Modi directed ministries concerned to look for ways to step up sugar exports and also make the proposed blending of ethanol–a cane by-product–with petrol at a 10:90 ratio a reality soon–both aimed at improving the ability of cash-starved mills to clear massive dues owed to farmers for cane purchases.

The industry has been bleeding as sugar prices have crashed to seven-year lows, while the cane prices have been fixed at exorbitantly elevated levels by state governments like Uttar Pradesh and even the Centre. Since global prices have also plunged due to a glut in other producing nations, exports from India aren’t that attractive without a subsidy for the simple reason that Indian cane is the most expensive in the world. Consequently, mills and cooperatives across the country owe around Rs 14,500 crore to farmers.

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  1. B
    Bobby Fontaine
    Aug 12, 2015 at 5:05 pm
    The kind of ethanol added to gasoline is anhydrous, which is basically moonshine with the last few percentage points of water removed because gasoline (oil) and water don't mix. You say ethanol has a third less energy content than gasoline, which translates into a 33% mileage loss over gasoline. When added to gasoline at a ratio of 10% (E10), it's claimed to cause 3% mileage loss. But that doesn't explain how 100% ethanol, even hydrous ethanol (moonshine with the water left in it), does not cause a 33% mileage loss in a high compression engine. What's really behind the loss of mileage with E10 has already been mentioned, oil and water don't mix, meaning the hydrocarbon chain connecting gasoline to ethanol is very weak, so weak that too much water causes a “phase separation”. This is where the ethanol and water sink to the bottom of the tank with the gasoline floating on top of it, which causes a great deal of damage to engines. What no one talks about is what happens even with the bare minimum exposure to water, even normal water vapor in the atmosphere that fuel is exposed to in the piston chamber. This causes that weakly connected hydrocarbon chain to break so there are too distinct fuels being fired. So when the spark plug ignites what is supposed to be 87 octane fuel, the ethanol is now at 113 octane and the gasoline 83 octane. This is because in order to achieve an 87 octane balance when adding 113 octane ethanol at 10%, the gasoline it's added to is 83 octane. Low compression engines, like those that use regular gasoline, cannot compensate for a fuel mix of 113 and 86 octane at the same time, it's impossible. This results in the claimed 3% mileage loss along with high emissions of acetaldehyde and formaldehyde. I t also causes hotter running engine because so much of the fuel is not combusting, it's rather burning. The truth however is it causes a greater loss than 3%. Depending on the type fuel, engine, and ignition system, most suffer a 10% mileage loss or greater, meaning adding ethanol to gasoline at 10% by volume is a total wash even if it didn't require any energy to produce. This is while hydrous ethanol causes no mileage loss, meaning the w Midwest could be gasoline free using their own self sustaining 100% ethanol fuel rather than lobbying the federal government to force the rest of us to truck or train it to our regions so it can be used to ruin our fuels. To sum it up, even if ethanol came out of the ground ready to be added to gasoline, even if it fell like rain or magically appeared in our fuel tanks already mixed with our gasoline, it would still do more harm than good. On federal mandates driving commodities markets, ethanol forces high demand for corn, which means higher corn prices. So more farmers will grow corn over other crops. This means less of other crops coming to market, which drives their prices up as well. And the fact that ethanol is not just a drain on the economy because it requires more energy to produce than gives back in power, that is if we believe it works as a fuel, which it does not, this means our cheap energy model is broken, which drives down the value of the dollar. “That's absurd, if this was true, the dollar would have started sinking as quick as mandated ethanol use began in the Spring of 2006,,,,,,, well I' be, I just checked and that's where the dollar started to decline, and kept declining the more ethanol was produced and making it's way into gasoline supplies” Exactly, and a weaker dollar means higher prices for imports like oil. Not only that, but with all these federal mandated forces pushing markets in directions that can't be stopped, it invites speculators into commodities so already rising prices went that much higher. Cheap energy and food are hallmarks of our economic model. Our formally unsubsidized low wage work force was founded on three floating variables, cheap energy, especially gasoline so workers can afford to drive to work; cheap food so they can feed themselves and their families; and affordable rent. Also a strong second hand market in cheap hand me down products like used cars, thrift stores, clifieds, and yard s, all allow low wage workers a full flavor taste of the American Dream. Change any of them so workers can no longer afford to sustain themselves on unskilled wages and our financial markets start to come unraveled. We either have to import cheap labor or subsidized the work force we have, or both, which is what we've been doing. This is all predicated on one central factor working against all the rest, not just a fuel additive that doesn't work, and would be a bad idea even if it did what it's promised to do, it's a federal mandated fuel product that can't be competed against. So when it points markets downhill, that's where they will go, not only meaning nothing can stop it, but everyone knows where's it's all heading. So of course markets respond by investing somewhere else, which is correct, why back a dying horse, a horse that's being poisoned by it's owner when it's safer to take chances overseas or betting against US markets.
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