Midcourse correction in ethanol project gives jitters to sugar mills

NEW DELHI: The recommendation of an expert panel to prune the ethanol-blending programme of fuel retailers could spell trouble for the country’s sugar industry that has already contracted to sell about 60 crore litres of ethanol.

A committee under planning commission member Saumitra Chaudhuri has suggested that the quantum of ethanol for the plan be restricted to 40-50 crore litres for the current financial year, saying the ambitious programme could starve other industries that use spirit.

The fuel retailers will pay an interim price of. 27 a litre fixed by the government, which is higher than the current market price. If the programme is pruned, sugar mills will be forced to sell ethanol to industrial users at lower prices.

An informed decision is not possible as the data on ethanol production is not very reliable. “It appears that there is a problem with the production data for industrial alcohol,” the panel said in its report, noting with shock that despite industrial alcohol being subject to excise duty there were no official numbers available.

Food minister Sharad Pawar has sought to deflect the debate saying that panel’s mandate is limited to fixing prices.
In a recent letter to the prime minister, Mr Pawar said quota for the ethanol-blending programme has already been cleared by a group of ministers on the issue and the cabinet committee on economic affairs.

These complications have arisen at a time when the sugar industry is negotiating with farmers of UP to arrive at a consensus price for sugarcane this year. The state has announced a price of. 210 a quintal, but farmers are demanding more.

“The ethanol blending programme will help get better prices for molasses, to be factored into the benchmark price for sugarcane,” said A Verma, director general of industry lobby Indian Sugar Mills Association. If an agreeable market price for sugarcane is not discovered soon in the largest cane producer state, crushing could be delayed up to mid-November.

By insisting that the expert panel should restrict itself to pricing, the sugar industry may have created problem for itself. The expert panel’s report had, in fact, stringently criticised the Centre on the issue of ethanol pricing, indicating that the interim price of ethanol at. 27/litre for 2010-11 could not be taken for granted.

Since the government is a large buyer, it has ensured that this administratively determined price will directly impact on the price of ethanol for other industries, the committee has said.

Dubbing these “very sizeable and major interventions”, the panel report cautioned that “the government has to necessarily be concerned with what kind of an outcome its intervention may have on other domestic users”. It has also questioned the finance ministry’s decision to exempt the ethanol for the blending programme from excise duty payment over and above duty already payable for industrial alcohol.

“Without this relief on central excise duties, it is unlikely that the blending programme will be attractive in the present situation, for either the oil marketing companies or for the industrial alcohol industry,” the report said.
The indications are that the panel’s final recommendations could dilute the attractiveness of the blending programme for the industry.