Sugar sector bats for favourable cane juice to ethanol policy in UP

Encouraged by the Centre’s stance of persuading more and more sugar mills to divert sugarcane for producing ethanol in order to reduce the glut in the domestic market, sugar mills in Uttar Pradesh might be keen to set up exclusive plants solely for the production of ethanol from cane juice and are looking ahead for some positive policy initiatives from the state government that would be beneficial for all the stakeholders. On the one hand, this will increase supply of ethanol from the state and on the other, it will attract new investment.

According to officials of the cane and excise department, an exclusive policy for the production of ethanol from cane juice is in the works and is expected to be finalised within a month.

In a letter to the state government, the sugar millers have said that backed by the Centre’s encouragement, members of the industry would be keen to make investments in the ethanol sector and have sought certain assurances that would further encourage the industry to invest.

Among the assurances that the industry is seeking are that the cane juice produced by the unit would not be subject to any reservation, preferential allotment or pricing control. The government has been also asked for an assurance that if a multi-unit sugar company opts for setting up a unit to manufacture ethanol directly from cane juice, the reservation of this particular unit would not be considered in the computation of total available molasses. This assumes importance as the state of Uttar Pradesh follows a policy for reserving molasses for production of country liquor, which is currently at 17% of the total available molasses.

Furthermore, since that plant would not be a regular sugar mill, going by the conventional definition, the millers have also urged that traditional regulatory framework should be suitably amended.

The optimism among the sugar mills towards ethanol stems from the fact that the oil ministry has recommended an increase in the procurement price of ethanol made from all three categories of ethanol made from 100% cane juice, B-heavy as well C-heavy molasses for ethanol year (EY) 2020-21. While the price of ethanol from sugarcane juice for the current 2019-20 season had been fixed at Rs 59.48 per litre, up from Rs 59.19 a litres in 2018-19, it is now expected to be increased by another Rs 3 per litre for the coming season.

A positive policy encouragement would go a long way in reducing excessive sugar production and its resultant difficulties. A sugar glut usually leads to negative market sentiment, thereby hampering the mills’ ability to clear farmers’ cane dues. The sugar sector in UP, having produced over 126 lakh quintal of sugar in 2019-20, is facing a piquant situation, where its outstanding cane dues are above Rs 8,000 crore, even as the receivables from the state and the central governments are to the tune of Rs 40,00 crore.

“Ethanol seems to be the only way out. It is the sugar sector’s cash cow, as OMCs usually pay in 30 days. Due to this, sugar production will reduce, which could lead to a sympathetic improvement in the rates of sugar. Mills have realised that diversion of 100% cane juice and B-heavy molasses for production of ethanol gives better returns, which is also likely to spur diversion of excess cane to the biofuel,” said an industry official.

“In the last season, UP’s sugar mills diverted around 5 lakh tonne to B heavy ethanol. With the ethanol price increase expected for the next season, we expect that to double to 10 lakh tonne. While we cannot start production of ethanol from cane juice immediately, as there is a gestation period involved, we would start working on B heavy as it is within our reach. So, more and more companies having captive distilleries would switch to B-heavy immediately, which means a compromise in sugar production, as it makes more commercial sense,” said a miller, requesting anonymity.

Taking advantage of Central government’s assistance for setting up ethanol distilleries, some more captive distilleries are in various stages of commissioning, which would further increase the ethanol supply from the state. The ethanol production only caters to the demands of the state, it also meets the requirements of neighbouring and other states.

Currently, UP has 54 distilleries, of which 44 are captive distilleries of sugar mills. The state had offered 105 crore litre of ethanol to OMCs for 2019-20 season, of which 63.73 crore litre has already been supplied.

Speaking to FE, additional chief secretary, sugar, Sanjay Bhoosreddy said that while the country has saved nearly 190 crore litre of petrol through ethanol blending in 2018-19, Uttar Pradesh had saved 40 crore litre of petrol in 2017-18.