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Oil marketing companies’ policies hampering ethanol production: Indian Sugar Mills Association

India has adequate feedstock to produce 1,016 crore litres of ethanol by 2025 for blending with petrol. However, the policies of oil marketing companies (OMCs) and other factors are restricting the output of ethanol, industry body Indian Sugar Mills Association (ISMA) said on Thursday.

Addressing the members of the Parliament (MPs) at the Lok Sabha Secretariat, Abinash Verma, director-general at ISMA said that the country has achieved 9.6% ethanol blending with petrol to date and was confident that 10% blending with ethanol will be achieved by the end of the year. To achieve the 20% blending target, Verma said about 1,016 crore litres of ethanol is required, for which raw material is available. Although the government has put in place encouraging policies for capacity creation, the delay in bank loans is creating hurdles, he pointed out.

Shortlisting of OMCs has not checked the creditworthiness of the companies. Moreover, OMCs have ignored sugarcane producing states and given large allocations to non-cane producing states like Kerala and Jammu & Kashmir. OMCs are not signing the long-term purchase agreements with existing ethanol producers and new ethanol plants which are not interested in the concessional loans, Verma said.

The Department of Food and Public Distribution (DFPD) has been encouraging ethanol capacity creation since 2018 and around 983 projects have received in-principle approval under interest subvention schemes. The OMCs in August 2021 approved 131 projects. However, banks are not willing to sanction loans unless there is an in-principle approval of DFPD and there is a long-term bipartite purchase agreement (BPA) between OMCs and project proponents. Thus, only 67 projects are eligible as per the banks’ guidelines, Verma said.

“To overcome the problem of finances for capacity creation, necessary approvals for bank loans should be given within seven days from the date of application by the companies. Otherwise, the pace of capacity creation will see a major fall, and achieving 20% ethanol production by 2025 will become extremely difficult,” said ISMA.

The industry body said that the storage capacities at depots of OMCs across the country need to be augmented. Even the Indian railway network and laying of pipelines will be crucial. ISMA further said it is crucial to augment demand and use more ethanol. Therefore, there is a need to launch flex fuel vehicles as early as possible to achieve 20% ethanol blending by 2025, he said.

ISMA also said that with export subsidies not possible after the year 2023 as per the World Trade Organization (WTO) norms, the Indian cane pricing policy requires urgent reforms. If India is a structural surplus sugar producer, it needs to export regularly. Such high cane prices make Indian sugar uncompetitive and always dependent on Government subsidies for exports.

In other sugar-producing nations, the cane price automatically gets determined as per formula as a percentage of revenue from sugar and/or by-products. This varies in the range of 60-66% across the world, Verma said. If compared Indian sugar with the three largest producers and exporters of sugar globally- Australia, Thailand and Brazil — Indians pay a cane price of $43 per tonne to farmers as compared to $20 per tonne paid to farmers in Brazil, $23.91 per tonne in Australia and $30 per tonne in Thailand. When cane price is 50% higher as compared to other countries, India becomes uncompetitive globally. In India, the Rangarajan Committee in 2013, CACP and Niti Ayog in 2021 have recommended a formula called Revenue Sharing Formula (RSF).

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