1. Maharashtra sugar mills stumble over ethanol bidding condition

Maharashtra sugar mills stumble over ethanol bidding condition

7.5% bank guarantee of total value of ethanol could be a steep price for mills to pay

By: | Pune | Published: January 2, 2015 2:20 AM

OIL marketing companies (OMCs) have floated a tender to procure 97 crore litres of ethanol at Rs 42 a litre ex-mill. However, a 7.5% bank guarantee of the total value of ethanol, specified as one of the conditions for bidding, could prove to be a hindrance for mills in Maharashtra to participate in the programme.

Senior officials from Maharashtra State Cooperative Sugar Factories Federation (MSCSFF) hinted that mills do not have funds to pay the fair and remunerative price (FRP) and therefore may find it difficult to bid for tenders. “Maharashtra’s share in the tender comes up to 18 crore litres and although the state has the capacity to supply ethanol, the 7.5% bank guarantee of the total value of ethanol could be a steep price for mills to pay. Mills in the state are not in a position to make cane payments to farmers,” Sanjiv Babar, MD, MSCSFF, said.

The federation had demanded 1% as bank guarantee. Oil companies have also reduced the earnest money deposit to Rs 2 lakh. Babar said the response of the mills will be known in a few days but remained doubtful about how many would be able to cough up the bank guarantee.

Around 119 mills in Maharashtra have received legal notices from the sugar commissioner for non-payment of FRP within the stipulated 15-day period after cane delivery to the mill. Mills have been seeking government aid to bail them out of the current crisis.

Interestingly, falling sugar prices have prompted the state’s mills to seek permission for production of more ethanol. The state produces ethanol as per demand.

Maharashtra has the capacity to produce around 160 crore litres and currently produces only around 60 crore litres.”

Indian Sugar Mills Association recently made a case for more ethanol production.

In view of surplus production and high opening stock of about 7.5 million tonne, the industry body said new avenues should be explored to dispose of surplus sugar, such as conversion of cane juice into ethanol with government aid, including incentives and subsidies. Some mills in the state  have resorted to advance sale of sugar at distress prices.

The three OMCs — Indian Oil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — have sought bids from ethanol manufacturers by January 12 to procure 97 crore litres of cane extract for mixing in petrol. Sugar millers have been asked to quote quantities they can offer, according to the tender document. The tender follows the Cabinet Committee on Economic Affairs’ decision on December 10 on fixing the delivered price of ethanol in the range of Rs 48.50-49.50 per litre, depending on distance of the mill from depot/installation of the oil firm.

The OMCs had procured ethanol in the range of Rs 39-45 per litre during December 2013 to November 2014, they said. The government had started the programme to blend 5% ethanol in petrol in 2003. It was extended to the entire India, except N-E states, J&K, Andaman and Nicobar islands and Lakshdweep, by November 2006.

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