Govt binds OMCs to mix 10% ethanol with fuel: Experts react

Sridhar feels that even at a 5% mandatory blending, the kind of alcohol production is not just adequate to meet the requirement. "If that is likely to increase to 10% then it would not be possible for two reasons. One is that you're likely to see a decline in sugar production, which in turn should lead to your lower molasses and therefore lower alcohol production."

Chandrasekhar believes the other alternative products which can come out of distillation products such as the rectified spirit or the potable alcohol which actually has a lower level of purity can actually fetch a higher price for sugar companies.

"So given this kind of differential prices between ethanol and other alternative products, the production would not be able to meet the demand. The sugar companies will simply find it more attractive to sell the other products."   

Narendra Murkumbi, MD, Shree Renuka Sugars  that there is a substantial investment pipeline in the industry and currently there is more than enough ethanol for the 5% blend. He feels  that the 10% blend is going to be rolled out in a few months. "So there should be enough production by then to cope with the supply for 10%."

Here is a verbatim transcript of the exclusive interview with Sridhar Chandrasekhar and Narendra Murkumbi on CNBC-TV18. Also watch the accompanying video.

Q: Does it make any sense to sell ethanol at the mandated price of more than Rs 21 per litre to the oil marketing companies?

A: In the current context Rs 21.50 per litre is quite a low price. The alternative price for other uses of alcohol is much higher and this price was set when oil prices were at about USD 60 per barrel. So clearly there is a need for rethinking on the price. I must say that there was a recent tender for 100 million litres in Maharashtra for supply over the next 19-months. That was the lowest tender that the oil companies have received which is about Rs 27 per litre. So clearly the market signals on what is the price that is required.

However, the issue at the moment is that the 10% blend has not been kicked off across the country from today. But it is going to be done on a trial basis in two depots; one in Maharashtra and one in Uttar Pradesh, which is starting very shortly. It will further validate the fact that existing vehicles can actually use a 10% blend no doubt about that from some of the vehicle manufacturers. So that is the current state of the ethanol-blending programme.

Q: Given that crude oil is more than USD 100 per barrel right now, what would be your price that you would seek from Rs 21.5 per litre on the ethanol?

A: We have just had some 45 tenders for supply to the oil marketing companies in Maharashtra and the price range was between Rs 27-30 per litre. So that is a fairly good - mainly it is a discovered price from the market because this was a sealed tender.

Q: Is capacity adequate to meet the demand for oil production made by oil marketing companies right now?

A: We are seeing a substantial investment pipeline in the industry and currently there is more than enough ethanol for the 5% blend. There is enough visibility that the 10% blend is going to be rolled out in a few months; there should be enough production by then to cope with the supply for 10%. As you know government has also allowed the swapping of sugarcane juice to either sugar, ethanol depending on commercial consideration.

Q: There are some doubts being raised about the availability of sugarcane with the same abundance that it was available last year. But the sugarcane crop normally follows a three-year cycle with having reached abundance and normally sees a fall in production for a couple of years thereafter. Do you think given that kind of potential shortage this plan could get postponed?

A: Actually the domestic availability of molasses is the same as last year because last year whatever surplus molasses were there more than a million tonne got exported out. So the raw material availability for domestic distillation is virtually unchanged. So I don't see a problem in raw material supply, as I said it is no longer about sugarcane or molasses, it is about even if you divert just 3% of the sugarcane crop to ethanol, we will have more than enough for the 10% blend.