As ethanol becomes cheaper than gasoline, the sugar industry sees an opportunity

Gasoline at over Rs 90 per liter pinches the pockets of consumers. But for Indian sweets, it opened up opportunities – and a way out of the problem of paying farmers for cane.

Petroleum Marketing Companies (OMCs) are expected to source 283 crore liters of ethanol from factories for blending up to 10% with gasoline in 2020-21 (Dec-Nov). This is up from 167 crore, 179 crore and 150.5 crore liters in the previous three years of supply and just 38 crore liters in 2013-14.

Additionally, of the 283 crore in liters, only 59.7 crore includes ethanol normally produced by mills from “C” molasses, with the cane syrup remaining after most of the sugar has been extracted and crystallized. . The remainder of the supply would be ethanol from the fermentation of whole sugarcane juice (42.2 crore liters) and intermediate “B-heavy” stage molasses (181 crore liters).

Factories will also be paid more for ethanol produced from “heavy B” molasses (Rs 57.61 / liter) and cane juice (Rs 62.65 / liter) than from “C” molasses. conventional (Rs 45.69 / liter). The total purchases of ethanol projected by the WTO in 2020-2021 would be worth nearly Rs 15,800 crore.

It is significant that even the ex-works rate of Rs 62.65 / liter for ethanol from cane juice is much lower than the retail price of Rs 91.17 / liter for gasoline in Delhi. The difference is mainly due to taxes: gasoline is subject to a central excise tax of Rs 32.90 plus a state tax of Rs 21.04 / liter in Delhi.

“Ethanol does not require any subsidy today. The government only has to make sure that it is taxed less than gasoline, ”noted a source from the sugar industry.

Ethanol, used for blending with gasoline and containing 99.5% alcohol, is only subject to a Goods and Services Tax (GST) of 5%. This is different from rectified alcohol or drinking grade extra neutral alcohol, having a purity of 95-96% and subject to a multitude of government taxes.

But the 5% GST on ethanol, reduced by 18% in July 2018, has a notional value. This is because fuels are not subject to the GST and the WTO cannot claim any input tax credit. In addition, excises and state taxes are levied on gasoline after blending ethanol, which MOCs do in their depots and not in refineries.

“Ideally, these taxes should only apply to unblended gasoline leaving the refinery. MOCs will then be encouraged to mix more ethanol, which only attracts a fixed 5% TPS, ”added the source.

Despite the absence of any substantial tax benefits, India’s ethanol production capacity has doubled from 215 crore liters in 2014-15 to 426.6 crore liters in 2019-20. Most of this capacity addition came after May 2018, when the Narendra Modi government unveiled a new biofuels program targeting an average 10% ethanol blend in gasoline across India by 2022 ( against 4.2% in 2017-18) and 20% by 2030. From 2018-19, the government also started to set higher ex-factory prices for ethanol derived from “heavy B” molasses and cane juice than those of the raw material of molasses “C”.

The new ethanol blending and pricing policy has been a game-changer, according to Roshan Lal Tamak, executive director and CEO (sugar business), DCM Shriram Ltd. His company, in December, commissioned a Rs 292 crore distillery attached to its sugar mill in Ajbapur in the Lakhimpur Kheri district of Uttar Pradesh.

With an ethanol production capacity of 200 kiloliters per day (KLD), it is the largest single-site distillery in the state. Even larger factories have been set up in northern Karnataka by Godavari Biorefineries in Mudhol (400 KLD) and Shree Renuka Sugars Ltd in Athani and Havalga (300 KLD each).

Mills typically crush cane with a total fermentable sugar (TFS) content of 13.5-14%. From each tonne of cane, they can recover up to 115 kg (11.5%) of sugar. Uncrystallized and unrecovered TFS (2-2.5%) enters molasses “C” which gives approximately 10.67 liters of ethanol.

Alternatively, they can extract just 10% sugar (100 kg) and divert the extra 1.5% TFS to an earlier stage of “heavy B” molasses producing around 19.42 liters of ethanol. A third option is to not make any sugar and ferment all of the 13-14% TFS in the cane to produce around 76 liters of ethanol.

With the current ex-factory sugar achievements of Rs 32 / kg, many factories believe that it is viable to produce more ethanol via the “heavy B” molasses route. DCM Shriram alone is likely to divert around 80,000 tonnes of sugar during the 2020-21 season to “heavy B” ethanol. The company, in 2017-2018, produced 6.8 lakh tonnes (lt) of sugar and 0.68 crore liter of ethanol. This season, he forecasts sugar production at just 5.9 liters and 12.7 million liters of ethanol.

Higher ethanol prices – and a government proposal to advance the 20% blending target to 2025 – have also excited other big millers. Balrampur Chini Mills Ltd announced the establishment of a 320 KLD distillery in Maizapur (Gonda) to produce ethanol directly from cane juice / syrup during the grinding season (November-April) and from of grains (broken / damaged rice and corn) off. season. Once operational, the company will stop producing sugar from its existing mill there.

The Indian Sugar Mills Association has estimated the diversion of 20.10 liters of sugar for the production of ethanol from “B-heavy” molasses and cane juice during the 2020-21 season. This includes 6.74 lt in UP, 6.55 lt in Maharashtra and 5.41 lt in Karnataka. With an average annual India sugar production of 300 lt exceeding the domestic consumption of 255-260 lt, there is a possibility of further diversion.

“In addition to being a native green fuel, ethanol will help factories make timely payments to sugar cane producers. The current program can be accelerated by increasing the blending mandate in major ethanol-producing states and promoting production from direct cane juice, ”Tamak said.

The government has projected ethanol requirements to reach a 20% blend by 2025 at 900 crore liters, with sugar factories providing 610 crore liters and grain-based distilleries the remainder 390 crore liters. The average ethanol blend is expected to reach just 8.5% in 2020-2021, with 283 crore out of the 325 crore liters required by factories.

Rachel J. Bradford