Who would have thought that one day it is ethanol which would save the day for sugar companies?

As the year recorded a record output of sugar, pushing the prices down, it was ethanol which made the earnings look sweet. While returns from the sugar business fell for the second consecutive year, that from ethanol accounted for almost 50% of their EBIT. Yes, sugar remains the mainstay but ethanol is slowly but surely building up as this is a high margin business. And this is what the latest report from Bloomberg highlighted.

In Balrampur Chini, sugar contributed 78% to total revenue in FY19, down from 83% in FY18 while ethanol contribution rose from 7% to over 9.5%. Ditto in Dhampur Sugar too where contribution from sugar fell from 81% to 91% and that of ethanol rose from 10% to 17%.

What also worked in favour of ethanol is the Govt hiking the price in Sept’18. There was a 25% hike in ethanol procured directly from sugarcane juice for blending in petrol to Rs.59.13/litre from Rs.47.13/litre. On the other hand, ethanol made from B-heavy molasses or intermediary molasses was hiked from Rs.47.13/litre to Rs.52.43/litre. And price of ethanol made from C-heavy molasses was in fact reduced a bit from Rs.43.70/litre to Rs.43.46/litre.

Using ethanol to blend into petrol is a very good idea for India which guzzles imported fuel like there is no tomorrow, burning a hole into the balance of trade. Almost all across the world today, ethanol blending is a norm in sugar producing countries. Brazil is the leader in this sector.

In India, it was way back in 2003 that it was proposed to make 10% blending of ethanol in petrol as vehicle fuel mandatory.  It is made mandatory but sadly, only 4% blending is actually happening on the ground. Why? Simply because enough ethanol is not available; this in a country which is currently staring at a sugar surplus year reads like a misnomer. Over 45% of the ethanol is used up by the alcohol industry and that could be one of the reasons for lack of adequate supply. The main bone of contention is also the pricing – what they get for alcohol is much higher than the one supplied for this fuel blending. And in that aspect, it is a very good move on the part of the Govt to hike the prices of ethanol on a regular basis so that the incentive to produce-to-sell remains.

ISMA, the sugar industry body has said that for 10% blending, 313 crore litre of ethanol is required; the short fall is quite a lot given the fact that ethanol supply was at 140 crore litre in 2017-18, up from 38 crore litre in 2013-14. To more than double up from current supply will take a couple of year; so we can say that 10% blending is most certainly two-three years away.

Today, we are talking about making 10% mandatory while the Govt has not even managed to make 5% fully compulsory. Why are we the common people bearing the brunt of every rise in crude pricing because of lop-sided policies of the Govt? New cars get launched yet not one single manufacturer is working with the Govt to reduce oil import bill? If car makers push, just as they do when they want duties to be reduced, wont the Govt relent? We now hope that the Govt, will be able to push this through and take the much needed step towards better fuel management.