Dismissing talks of the government doubling mandatory blending of ethanol to 10 percent, M Manickam, managing director, Sakthi Sugars, says the previous 5 percent blending wasn't implemented.
Speaking to CNBC-TV18, Manickam says until cane prices are fixed at parity, the hike on blending limit will not make a big difference.
Also read: No agreement yet between oil cos & ethanol producers: Praj“We need the sugar prices to go up above Rs 34 for us to even breakeven. Nobody is talking about sugar prices they are only talking about marginal concepts. I think it is not going to really make any impact,” he explains.
Below is the edited transcript of Manickam's interview to CNBC-TV18.
Q: What is your initial reaction to if this comes through and what could this do actually to the prices?
A: I don't believe it will come through because even the 5 percent hasn’t happened, they are only talking it on paper. Of course everything happens in Delhi on paper but nothing happens on the ground. Even if it did, I think we will need a price of about Rs 55 for it to really make an impact for the sugar economy which I don't think the oil companies are willing to pay.
Also read: GoM OKs Rs 72Kcr interest-free loan to bailout sugar millsQ: Has nothing moved on the 5 percent ethanol blending?
A: Nothing really. The oil companies took about three-four months to get the tender done, and the first day it threatened us saying that we will import. They went ahead and got an import tender and they got Rs 90 per litre for the imported alcohol. They graciously were willing to pay us Rs 41, still it has not moved. It is taking a long time.
Q: It has not moved for any company any part of the country?
A: In UP a little bit has moved, a little bit in Maharashtra. In Tamil Nadu too its is just partial hence, oil companies are not really happy.
Q: If it does, then how much money do you personally make if even 5 percent happens?
A: If you were to look at the economics of it let us assume a UP miller for instance, Rs 28 is his cane price and as per Rangarajan formula Rs 36 should be the sugar price. Based on that alcohol should be about Rs 54 for it to actually make a difference to the economy. Now, they are still getting offered only Rs 35-41. So, until the prices are really fixed at parity to cane price it is not going to make a big difference.
Q: Overall for the industry if this comes through hypothetically then what would the gains be?
A: Very little, because we need the sugar prices to go up above Rs 34 for us to even breakeven. Nobody is talking about sugar prices they are only talking about marginal concepts. I think it is not going to really make any impact.
Q: What is your sense in terms of how sugar prices will move this year?
A: The Futures markets are still at Rs 27-28 because we have lot of stock on hand and import parity is also at a low price. Today’s breakeven price in UP is Rs 34 and they are going to realise Rs 29 so it is still going to lose money this year.
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