Mumbai: Ethanol production has become less rewarding in India with a skewed pricing policy making the biofuel cheaper than key inputs, but producers are hopeful the government will raise the price and make it profitable again.
Investments into ethanol has either dried up or being delayed with most money moving to expand capacities in potable or industrial alcohol, prices of which are beyond the pale of regulation, making it a more profitable alternative.
“Ethanol is fetching lower price than rectified spirit. Then why should one spend money on refining rectified spirit to produce ethanol?” asks a senior official at Kisan Veer Co-operative Sugar Mill in Maharashtra.
Rectified spirit is further distilled to make ethanol.
In 2006, India had fixed the price for ethanol at Rs21.5 a litre when sugarcane, a key input, was abundant.
Since, prices of molasses - a byproduct of sugar - have nearly tripled while that of rectified spirit has jumped by half to Rs27-28 a litre on lower cane supplies.
Oil refiners are obliged to blend five percent of ethanol with petrol and diesel, and the national policy mandates raising the biofuel component to 20% by 2017.
However, India falls well short of national demand even now.
Sugar millers, who sell ethanol to oil firms, have bid for new contracts at the start of the crushing season this month at a higher price, hoping the government will take the cue to raise price, analysts and officials said.
“The technical tender for ethanol is out. Now the price tender has been filled broadly in Rs25-27 range. So, we are hoping the government will raise the price this year,” an official at Renuka Sugars said.
But industry officials are optimistic in the long run.
“The ethanol programme is at an infant stage in India, so hiccups are bound to come. But over a period of time, it will be ironed out,” Sanjay Tapriya, director-finance, Simbhaoli Sugars, said.
“Price will have to be corrected upwards. It will take time but it will happen.”
There was a flurry of investments in 2006-07 and 2007-08 into distilleries for ethanol as a production glut depressed sugar prices and sent mills scampering for new source of revenues.
Since 2006-07 several millers have announced plans to either expand distilleries or establish new ones. Of projects worth Rs6-7 billion announced, only Rs2.5 rupees fructified.
Now, capacities are idling. India’s cane output fell 22% in 2008-09 and is unlikely to move up in the new season, squeezing revenues from distilleries and co-generation.
“If the ethanol price is revised from the present Rs21.5 to Rs25-26 it will give some value-addition and people will be interested to go for that,” said Tapriya.
“Though there is a lot of planned investment in ethanol, people are not committing the entire amount. It’s important for prices to be flexible,” said Deepak Desai, chief of consultancy Ethanol India.
“The investments and capacity expansions will concentrate on potable liquor and industrial alcohol prominently.”