How did this ethanol story evolve so far? Going by the popular perception, it is a new and viable avenue, which has come up for sugar manufacturers in the country.
I will give you some background. Before 2014, the industry was facing major issues in terms of cane payment to farmers. There was no diversification happening. After the current government came to power, they accelerated and reformed the entire ethanol making programme. The PM set the target of 20 per cent ethanol mix by 2025. And, the entire programme was revamped and launched in such a way that the industry was motivated to put up a lot of capacity with measures like interest subvention. As a result, the industry invested close to Rs40,000 crore to create capacity. The government also came up with a roadmap, which guaranteed an off-take from ethanol and also a price mechanism. Ethanol payment to producer was linked to a FRP (fair and remunerative price) model, which drives cane payment and is fixed on the basis of annual recommendation of the Commission for Agricultural Costs & Prices (CACP). And as per the law, we are mandated to pay to the cane farmers within 14 days.
This system was working well leading to significant reduction in the cane payment arears. The industry has managed to create a capacity of 8.5 billion litres.
But, in recent times, you have been raising the issue of sugar industry-driven ethanol production not being in the right equilibrium…
Unfortunately, in 2023, after the season started, the government anticipated a fall in sugar production. Government’s priority vis-à-vis sugar distribution is clear: the first preference has to be given to domestic demand, then ethanol production and if you still have some surplus, it can be sold in the international market. On 7 November 2023, the government restricted the diversion of cane for ethanol production. Because of that, there was a serious disruption. There were many players who were planning to expand their capacity but after restriction the diversion of cane reduced significantly. And, in the last three years, there has been no revision in ethanol pricing even as FRP for sugarcane has increased by 29 per cent in the same period.
Since ethanol prices have not been revised for the last three years, many players do have an apprehension pertaining to the future viability of their projects
In your opinion, what could be the reason?
I don’t know what the strategy is. The problem could be in the thinking of Oil Marketing Companies (OMCs). They would not like to pay more for procurement of sugarcane because that would keep their production cost down.
There is a perception that, since sugar mill owners found a profitable avenue in ethanol, they started showing more than required inclination to ethanol. How would you respond?
It is totally unfounded. In the last 10 years, except in one season, we have consistently produced more sugar than domestic production.
In the last 4-5 years, what is the capacity growth the sugar companies have put up for ethanol production?
Currently, our capacity is 8.5 billion litres on an annual basis. About five years back, it was 2.54 billion litres. So, if you look at the capacity growth in ethanol production at sugar mills, there has been more than three times jump. And, much of the investment that I talked about, of Rs40,000 crore from sugar industry for ethanol capacity, that has been pumped in last 4-5 years only.
Is there any substantial capex still waiting to be exhausted by the sugar producers for ethanol production?
There are players who are still putting up the capacity. They are still spending in anticipation of an increase in the demand of ethanol in the coming years. But, since ethanol prices have not been revised for the last three years, many players do have an apprehension pertaining to the future viability of their projects.
So, before the next season begins (November for ethanol and October for sugar), are you expecting some kind of price revision?
Yes, absolutely. I think it will happen this time. But why November? OMCs are going to come out with tenders in September. We are expecting that before the tender is released, the government will revise the price.