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  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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