The government had made it mandatory for sugar mills to sell ethanol to oil companies at a market price of Rs 45 a litre, up 30 percent from the earlier rates. Sugar companies like Balrampur Chini find the latest initiative beneficial for both oil retailers and sugar companies.
Earlier, sugar mills were keen on selling ethanol to petroleum marketing companies because the by-product fetches more money if sold to the alcohol industry.
The government's decision to implement mandatory blending of ethanol with petrol at this price will boost realisation for the sugar industry by around 25 percent, say analysts.
In an interview to CNBC-TV18. Vivek Saraogi, MD of Balrampur Chini said that even at this price oil companies will make money and since the price is higher than what companies were getting last year, it is a win-win situation for both parties.
Below is the edited transcript of Saraogi’s interview to CNBC-TV18.
Q: What does it mean in material terms, the kind of prices that you agreed to with the oil marketing companies yesterday?
A: I think the benchmark rate has moved up from Rs 27 to Rs 35. So, it is up by Rs 8 and we are happy with that. It is a professional price. It is a price at which oil marketing companies (OMCs) make money. It is a price higher than what mills were getting last year. Therefore, I think it is a a win-win situation.
Q: What does this mean for Uttar Pradesh (UP) in specific? At what price will tenders be invited and what could it mean in terms of revenues for your company in specific?
A: For UP about 20 crore litre have been bid at this price so that is a good thing. Hence the programme also moves ahead. We are producing about 7.8-8 crore litres a year. So, for all who have bid and for all who do produce ethanol, it is a positive move.
Q: The estimate seems to be that this could add between Rs100-110 crore per year in terms of revenues for Balrampur Chini. Would you say that is an accurate assessment?
A: We produce about 8 crore litre, so Rs 55-60 crore is the revenue and the bottomline the. It is basically an enhancement in price.
Q: This put together with the levy and the release mechanism changes which happened last week put together, what kind of performance do you expect from the sugar division this year?
A: The move on the levy was very welcome and we have no levy going ahead in the new season. So, whatever the sugar division produces is free sugar. Cane prices are known, its Rs 280 but even with that cane price, we were required to give 10 percent levy. So, that is a big relief. So, if sugar prices move up a little, one does not have levy loss, so even that division would then start giving profits. However, I am not saying today’s price is profitable in sugar.