The government on Wednesday fixed the price for procurement of ethanol for blending with petrol at Rs 48.50-49.50 per litre, higher than the price being paid by oil companies till now to buy sugarcane extract.
ISMA director general Abinash Verma believes the sugar industry will see better realizations with the new price. The industry revenue will increase by nearly Rs 5,000 crore, he adds.
The oil marketing companies have been paying Rs 47.50 per litre at oil depot for procurement of ethanol.
Verma says, with the new fixed price in place, almost all private sugar companies will benefit going ahead. Infact, he adds, procurement may also increase up to 10 percent if supply increases.
Below is the verbatim transcript of Abinash Verma's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Yesterday we got news that the government has asked oil companies to buy ethanol around Rs 49 per litre. Is this very big positive for sugar companies?
A: There are two positives that I see from here – first, the government has increased the ethanol procurement price at the mill-gate by Rs 1.50 per litre. If I talk about 100 litres of procurement, it means about Rs 150 crore annually extra for the sugar industry, but if you look at the revenue realisation; the revenue realisation at about Rs 49 into Rs 100 crore means about Rs 5,000 crore of revenue realisation which today was about Rs 2,000 crore.
This move of the government gives a clear direction that they are interested in this ethanol blending programme. This clear direction from the new government means that the blending programme will be successful and we can expect about 100-150 crore litres of ethanol procurement every year now certainly and surely.
Latha: Last year they procured only 2 percent isn’t it, in spite of 5 percent order?
A: If you look at the offers from our side, from the industry side we had offered about 120 crore litre which was more than 5 percent and for 5 percent you require about 110-115 crore litres but the unfortunate part was that the oil marketing companies (OMCs) had rejected a lot of offers. Therefore, what I was always saying is the implementation was the issue. Now that the government has given clear direction that the OMCs have to purchase it. They have given clear direction that it is going to be at a fixed procurement price, no longer a tendered kind of system. Therefore, the procurement will be faster, the decisions would be faster and we expect that 5 percent procurement will happen now.
Sonia: What is the exact price at which the OMCs procure it now?
A: It not about the tender which was accepted about one-and-a-half month back. They had accepted at Rs 47.50 at the oil depot – that was the maximum price which was given by them and some of them were lower to that. This new policy which has been accepted yesterday by the cabinet, it says that the fixed procurement price of Rs 49 to Rs 49.50. Therefore it’s an increase of Rs 1.50 per litre.
Latha: Which are the companies that stand to benefit because the stock market has given a thumbs up to Bajaj Hindusthan, Balrampur Chini Mills and Shree Renuka Sugars? Would you reckon these are the biggest gainers?
A: If you talk about the ethanol programme then about 120 sugar mills out of 500 which correctly speaking manufacture ethanol and the biggest ones are Bajaj, Balrampur, Shree Renuka, Dhampur Sugar Mills, Triveni Engineering and Industries. All the private large sugar companies do manufacture ethanol. So, I believe all of them should be the gainers.
Sonia: All these private companies, any indication of what is the percentage of sales volumes that comes from ethanol blending?
A: It would be in the range of 8-12 percent of the total revenue realisation should be from ethanol.
Latha: When does this money come in. is it over 12 months starting today?
A: Yes, the oil companies procure every month, a proportionate every month out of the total annual orders.
Latha: You aren’t factoring in the fact that this time also the order could be ignored by the oil companies. For the moment cost is not a big problem for them because crude prices are falling. So you are not factoring in the fact that this order could simply be ignored or implemented poorly?
A: It will be implemented strongly because the directions from the new government, the National Democratic Party (NDA) government is very clear that they are interested in the programme.
Sonia: You had mentioned that the procurement will go up to about 5 percent or so. When do you see it rise to about 10 percent?
A: The government has also indicated that 5 percent mandatory has to be across the country but it can go up to 10 percent if the supplies are there. If you look at the Maharashtra sugar prices; it is hovering around Rs 25-26 and if they can convert some of the surplus sugar into ethanol and supply it for ethanol programme, not only will be get higher quantum of ethanol more than 5 percent but some of the surplus sugar can conveniently get converted into ethanol. So there is an indirect benefit also that the industry can get by converting the surplus sugar.
Sonia: A word on the extension of the export subsidy on sugar. The government was examining that. What is the latest on that front and when do you think that could come through?
A: We are also hearing the same thing that the government is examining that because this was a policy which was announced in February for two years – that is up to September 2015 and therefore the government need to announce continuation of the scheme this season and I believe that it’s a very consideration, there is deliberation on that. We have been requesting the government strongly and I believe something can come out in the next 10-15 days or so.
Latha: What can come out?
A: The same thing, the policy was to assist the industry to produce raw sugar and export raw sugar for which there was an incentive of Rs 3,300 per tonne of exports, so some number has to be announced, could be Rs 3,500-4,500 range.
Latha: An increase in the subsidy amount?
A: Increase or similar number, whatever is the market condition.
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