1. Setback for sugar mills as govt slashes ethanol price to Rs 39

Setback for sugar mills as govt slashes ethanol price to Rs 39

Sugar mills will get a fixed price of R39 per litre for selling ethanol to oil marketing companies (OMCs) in 2016-17 for blending with petrol, effectively lower by R2-3 per litre from the 2015-16 level.

By: | New Delhi | Published: October 14, 2016 6:06 AM

Sugar mills will get a fixed price of R39 per litre for selling ethanol to oil marketing companies (OMCs) in 2016-17 for blending with petrol, effectively lower by R2-3 per litre from the 2015-16 level.

According to sugar mills—the biggest producers of ethanol—the decision to lower the price of ethanol, a cane byproduct, will hit them hard once states like Uttar Pradesh raise their cane prices for 2016-17, raising their costs.

The move could discourage sugar mills from supplying to the OMCs, lending a blow to the government’s blending programme just after it appeared that after over a decade of endeavour, the government may have achieved some worthwhile success in 2015-16, three millers from Uttar Pradesh said.

As of now, many mills—especially in Uttar Pradesh—may still continue to supply to the OMCs, given that the demand from some consuming industries like the chemical industry is a tad subdued, they added.

While fixing the ethanol price to be paid to mills at R39 per litre for 2016-17, the Cabinet Committee on Economic Affairs (CCEA) on Thursday directed the OMCs to bear taxes — including excise duty, value-added tax or the likely goods and services tax — and transportation and other charges over and above this price.

Earlier, the government had fixed ethanol price for sugar mills at R48.5-49.5 per litre, but the producers were mandated to bear taxes and all other charges. So, mills peg the effective reduction in ethanol price at roughly R2 per litre for 2016-17.

Petroleum minister Dharmendra Pradhan, however, indicated that the effective cut was to the tune of R3 per litre when he said the government was moving towards a market-determined pricing structure for this biofuel. “The rate paid to sugar mills was never R48.50. It was R42. That price (R48.50) was after including excise duty, VAT and other levies and transportation cost,” the minister said.

“If the need arises to increase/reduce the retail selling price of petrol by public sector OMCs, such increase/reduction would proportionately factor in the requirement of maintaining the fixed cost of purchase of ethanol during the ethanol supply year,” the government said in a statement.

“The prices of ethanol will be reviewed and suitably revised by the government at any time during the ethanol supply period that is from December 1, 2016 to November 30, 2017, depending upon the prevailing economic situation and other relevant factors,” it added.

Indian Sugar Mills Association director general Abinash Verma pointed out that the government should “find ways to compensate or give back the benefit of excise duty waiver announced in June 2015, but withdrawn prematurely in August 2016, to ethanol suppliers to ensure enough ethanol is contracted and supplied for the blending programme, especially when the ethanol price to suppliers has also been reduced”.

“The double whammy has to be avoided. Incentives are essential over a longer period for a successful biofuel programme in the country,” he said.

Nevertheless, Verma hailed the government decision that serves to remove “uncertainties of tax rates, including the duties levied by some states”. “By ensuring that GST will be borne by OMCs, the uncertainty of GST rate has also been taken away,” he said. Also, by asking OMCs to pay for transportation, the government has sought to ensure adequate availability of ethanol in states that are far away from producing centres.

In August, the government decided to withdraw a key incentive (roughly R5 per litre) by restoring a 12.5% excise duty on ethanol meant for blending with petrol. This was supposed to continue at least until the end of November.

Coming on the back of the reintroduction of the excise duty, the proposal to lower ethanol prices and the delay in floating expression of interest could discourage mills from pledging supplies and mar the government’s blending programme, senior sugar industry executives had told FE earlier this week.

The government had first proposed the 5% blending of ethanol with petrol in 2003 and made it mandatory in 2007. In December 2013, the Sharad Pawar panel mooted doubling the blending limit to 10%, which was reiterated by the Cabinet committee on economic affairs in April 2015.

In August last year, Prime Minister Narendra Modi directed ministries concerned to look for ways to make the proposed blending programme a reality soon.

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