India's struggling sugar mills seek solace in ethanol
Struggling sugar mills in India are seeking solace in producing ethanol from crushing sugarcane, as the government ramps up pressure on oil retailers to cut fossil fuel imports by blending gasoline with the biofuel.
New Delhi, scrambling for ways to cut nearly $20 billion off its oil costs as it battles a record current account deficit, could save around $1 billion on annual imports of crude as it pushes oil firms to hit a goal of 5 percent blending of ethanol in gasoline.
Reaching that blending target in 2013/14 for the first time since its introduction over six years ago would lift earnings at indebted mills in the world's No.2 sugar producer and help curb a notorious cycle of glut and deficit in Indian sugarcane planting.
With Indian mills making ethanol from molasses, a byproduct of sugar production, the fading of that cycle would also ensure more consistent output of the sweetener. That would provide greater stability to global sugar prices with India less prone to swinging between net exports and imports of sugar.
"Since oil companies have floated tenders ahead of the sugarcane crushing season and there are no tussles over ethanol pricing, 5 percent blending can be done this year," said Sanjay Manyal, an analyst at Mumbai-based brokerage ICICI Direct.
Disagreements between mills and oil companies over pricing stymied progress after India launched its ambitious ethanol blending programme in 2006, trying to emulate the success of Brazil's booming biofuel industry.
But state-run oil firms such as Indian Oil Corp Ltd , Hindustan Petroleum Corp and Bharat Petroleum Corp have been far more amenable to mills' demands on pricing since the rupee plumbed record lows in August, driving up their crude oil import costs. These firms import crude to produce refined products like diesel and gasoline, which they sell through their fuel pumps.
"Oil companies won't find any problem in paying higher prices for ethanol (than last year) as they are buying imported crude oil at much higher prices due to the weak rupee," said Deepak Desai, chief consultant at Ethanol India, a private company that helps set up ethanol production units.
Mills were supplying ethanol at around 38 rupees per litre in the latest tender, with imported gasoline costing 46 rupees per litre.
The matter has taken on greater urgency since Oil Minister Veerappa Moily told Prime Minister Manmohan Singh in August that 5 percent blending could be achieved in 2013/14, helping preserve the country's precious foreign exchange. India's crude import bill was $144 billion last fiscal year - the largest part of its overall import costs.