A win for fuel blending as govt weighs molasses export levy

India doesn’t currently impose an export duty on molasses, a byproduct of sugarcane refining and a key ingredient in the production of ethanol, a biofuel. The government, though, has been considering the levies to discourage its exports given the shortage of sugarcane following erratic monsoon rains.

India’s targeting 20% ethanol-blended petrol by 2025-26, up from the present 12% mix. A steep export duty on molasses, which several sugar industry lobbies have also sought, could boost its availability to produce ethanol-blended petrol.

India is the world’s largest molasses exporter and contributes about 25% to global trade.

The efforts to boost domestic availability of molasses for ethanol production follow recent curbs on sugar exports and directions to mills to cease using cane juice for the biofuel, which was reversed later. An expected shortage in sugar supplies for domestic consumption has already spiked the prices of the sweetener to a 14-year high.

“In September, a proposal was made to impose a 30% export duty to discourage the export of molasses, but no decision was taken then," one of the officials said mentioned above said. 

“Because of the recent development of limited availability of sugar-based feedstock for ethanol production and trends in international market prices of molasses, the food department has proposed imposing a 50% export duty." 

A decision is likely in January, the official added.

Queries sent to the commerce and food and public distribution departments remained unanswered till press time.

Industry associations including the National Federation of Cooperative Sugar Factories Ltd, the West Indian Sugar Mills Association, and the South Indian Sugar Mills Association have sought restrictions on the export of molasses.

“C-heavy molasses production is estimated to be approximately 4.5% of the total cane crushed, yielding around 225 crore litres of ethanol. Currently, a big chunk of C-heavy molasses is being exported to countries such as the Netherlands, Philippines and the UK for various uses, potentially generating 30 crore litres of ethanol," NFCSF said in a letter sent to the food ministry, a copy of which Mint has seen.

To achieve the 20% blending target, it is crucial to utilise all C-heavy molasses for ethanol production, the industry body added, proposing “substantial customs duties or… a complete ban". C-heavy molasses is the last by-product of the sugar refining process, and has no sugar content left in it, unlike B type and sugarcane juice.

As of 30 November, India’s ethanol production capacity was about 13.8 billion litres. Of this, about 8.75 billion litres were molasses-based and about 5.05 billion litres grain-based. 

To achieve the target of 20% blending, about 10.16 billion litres of ethanol is required. Another 3.5 billion litres of alcohol or ethanol would be required for other sectors. 

For this, about 17 billion liters of ethanol production capacity is required to be in place by 2025-26. About 7 billion litres of 13.5 billion litres—nearly half of the total ethanol requirement—would have to come from the sugar sector, and the remaining from food grain-based feedstock.

The weak monsoon this year has resulted in a shortfall in sugar production, which is expected to affect the diversion of sugar for ethanol production.

Sugar production in the ongoing crop year that began in October is projected to be 29-30.5 million tonnes, against domestic consumption of 27.5-28 mt. In the 2022-23 season, India is estimated to have produced 32.7-32.8 mt of sugar after the diversion to ethanol.

“The government’s supportive ethanol policy, emphasising pricing and diverse feedstocks like rice and maize, has strengthened the supply fluctuations, and ensured price stability," said Tarun Sawhney, vice chairperson and managing director at Triveni Engineering and Industries Ltd, among the largest integrated sugar producers in India.