Sugar mills upset as oil marketing companies bar UP investors from new ethanol tender

State-run oil marketing companies’ (OMCs) latest tender inviting expressions of interest (EoI) for supply of ethanol has upset sugar millers in Uttar Pradesh as bidding has been restricted to investors in “ethanol-deficit” states.

UP is the largest ethanol manufacturer in the country, and there are many distilleries coming up in the state.

Terming this a discouragement for sugarcane-based ethanol production efforts, the Indian Sugar Mills Association (ISMA) and the Uttar Pradesh Sugar Mills Association (UPSMA) have written to the joint secretary (sugar), department of food and public distribution (DFPD). They have asked for clarifications as the sugar industry, especially in UP, has already invested heavily into augmenting ethanol production capacities and more investments are in the pipeline.

The DFPD has already approved additional ethanol capacity of around 8,207 KL in Uttar Pradesh, which will entail an investment of Rs 7,071 crore. “It is a matter of great concern for manufacturers regarding utilisation of this additional capacity. If things are not rectified immediately, the sugar industry may well be staring at creating huge NPAs even before the projects become operational,” one sugar miller said on condition of anonymity.

Both the ISMA and UPSMA letters said the EoI discourages investments in sugarcane and molasses-based distilleries. It signals that the OMCs will not sign any long-term agreement with suppliers from UP, which is the largest producer of sugarcane, while they would purchase only 2 crore litres from Maharashtra and 18 crore litres from Karnataka (the second and third largest producers of sugarcane). This runs contrary to the Prime Minister’s ethanol blending programme, they said.

“This EoI is against the stated policy of the Government of India to reduce surplus sugar by diverting it into ethanol,” ISMA director general Abinash Verma has written. He said this will send a message to the banks that ethanol projects in these states are being discouraged, which will make them highly reluctant to fund sugar companies setting up distilleries there.

He said if the intention is to stop further investment in these states, a clarification would help so that the association can advise its members to review their investment plans in ethanol distilleries. “The assurance from the government, that all ethanol produced will be purchased by the OMCs now seems incorrect,” he said, and added that if sugar mills are discouraged from setting up distilleries, the country will fall short of the 20% blending target by 2025.

UPSMA president CB Patodia said, “The major objective of the ethanol blending programme was to divert excess stock of sugar and thus extend the benefit of bio fuel and to financially support farmers, who were not getting their sugarcane price arrears paid by the cash-starved sugar companies. In fact, many new ethanol plants and expansion of existing plants are in an advanced stage of installation. Un-prioritising their finished product at this juncture could jeopardise the whole sector,” he said.

Patodia said almost 88% of the ethanol currently being supplied to OMCs is made from molasses and sugarcane juice or syrup. “Therefore, ignoring major ethanol-producing states shall be a major setback for the ambitious ethanol blending programme.”