The government has decided to boost the ethanol production by making 10 percent blending with petrol mandatory from the next year onwards, starting October 2015. The decision in this regard is taken by the Petroleum Ministry after Prime Minister Narendra Modi said in a recent meeting that promoting ethanol production in a big way is the long-term solution for cash-starved sugar mills, which owe over Rs 14,000 crore in dues to the cane growers.

Presently, it is compulsory to blend 5 percent ethanol with petrol, but oil marketing companies (OMCs) are able to do only 2 per cent due to the nonavailability of ethanol.

Sugar mills will be asked to increase ethanol production from the 2015-16 marketing year (October-September) to meet the demand of 230 crore litres for 10 percent blending with petrol," a senior government official said. "It makes economic sense to manufacture higher quantities of ethanol instead of sugar, considering a sharp fall in sugar rates in view of surplus stocks both in domestic and global markets," the official added.

Sugar mills can earn as much as Rs 48-49 per litre of ethanol. In the case of sugar, they are not even able to recover the production cost as the ex-mill rate has fallen below Rs 20 per kg now. The country has an installed capacity to manufacture around 450 crore litres of ethanol, of which 240 crore litres of capacity are with sugar factories.

To avoid piling up of surplus sugar stocks, the official said that mills will be asked to step up ethanol output following the 'B-heavy' molasses route to help reduce the sugar output by 1.5 million tonnes annually. Usually mills manufacture ethanol from 'C' (final -stage) molasses, which is a by-product of sugarcane.

There is a weak response from sugar factories towards the ethanol-blending program. OMCs are able to produce only 82 crore litres of ethanol as against the requirement of 133 crore litres for five percent blending.

This very step is aimed at two birds with one stone. The sugar mills can earn more than by the production of sugar and it will help the sugar mills to pay off the sugar cane growers. While reducing the sugar production the cost of the sugar will increase and that will also benefit the sugar mills and cane growers. Moreover, 10% blending will help the oil companies to reduce the expense in procuring petrol.

By Premji