10% ethanol blending can save Rs 9000cr of FX: Shree Renuka

The government of India has proposed that oil marketing companies blend 10 percent of ethanol with petrol instead of the current 5 percent.

Speaking to CNBC-TV18, Narendra Murkumbi, VC and MD, Shree Renuka Sugar says the move can save around Rs 8,000-9,000 crore of foreign exchange which is currently being used to import crude. It will reduce the sugar surplus by almost one million to one-and-half million tonne and that will be beneficial for the sugar industry. Therefore, it is a benefit in terms of new demand, new market for ethanol and scope to reduce sugar surplus, he adds.

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According to Murkumbi, there is a big new tender for 1.3 crore litre of national petrol consumption for the oil marketing companies. “If the oil companies are prepared to buy industry, we are prepared to respond by ramping up production of ethanol,” he adds.

Below is the verbatim transcript of Narendra Murkumbi's interview on CNBC-TV18

Q: Have you heard anything on the ethanol blending proposal lately and if it does come through, can you give us an indication of how it would help companies like yours?

A: The sugar industry is taking up with the government that we can go to 10 percent blending much quicker than the earlier plan. Currently, the mandate is for 5 percent blending but if we go to 10 percent, one could save about Rs 8,000-9,000 crore of foreign exchange which is currently being used to import crude.

One of the most positive effects of that will have to be done by diverting more molasses to production of ethanol and that would also reduce sugar surplus by almost by one million to million and a half tonne. Therefore, it would have a very positive effect on the sugar market as well. So, it is dual benefit in terms of new demand, new market for ethanol as well as to reduce the sugar surplus.

Q: Is it a problem of supply or is it that oil marketing companies (OMCs) are not lifting even after the rule is in place?

A: There had been considerable delay in terms of placing orders and then to start lifting but in the last few days things have accelerated quite a bit. There is a big new tender for 1.3 crore litre which is effectively another 6 percent of national petrol consumption, for which bids have already been received and that should be opened in the next week.

OMC seem to be on part II completing the current requirement. You can go up even more. If the oil companies are prepared to buy industry, we are prepared to respond by increasing ramping up production of ethanol.

Q: Will that mean a little more money for you this year?

A: Absolutely. Currently petrol prices, the ethanol price equivalent to the imported price of petrol is over Rs 55. The oil companies are looking for the best price and it will be subject of negotiation and tender and the lowest bidder. If one looks at parity, India is better off buying ethanol rather than paying equivalent of Rs 55.

Q: Do you think it is feasible that this ramp up will take place to 10 percent because currently the industry has not even met the 5 percent limit of ethanol blending and only 1.5 percent is what the industry has been able to provide so far?

A: The problem is if you will keep tenders open for seven months it is very hard for anyone to offer supplies and not knowing when the orders will come through, people will have to continue their business, generate cash flow that has been the problem. If there is more certainty, the industry will respond. This is not going to happen overnight.

If one sees the next tender, for example if it is finalised quickly, orders are placed within a month or so, you will see a much faster and bigger response from the industry. There is enough industrial capacity and there is raw material, the question is to put market and the buyer and the price together in a way that motivates the producers.