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Explained | How India’s ethanol-blending plan impacts industry

Blending petrol with more of home-grown ethanol can reduce India’s oil import bill by $4 billion a year, and is great news for sugar mills as it is produced from a byproduct. It also helps farmers.

June 30, 2021 / 04:42 PM IST

As part of the central government's target to blend petrol with ethanol up to 20 percent 2023, the Ministry of Road Transport and Highways on June 28 issued a draft notification to facilitate manufacture of automobiles designed to run on petrol blended with ethanol to the extent of 12 percent and 15 percent.

The government hopes that higher blending of ethanol would reduce the oil import bill by $4 billion a year, reduce pollution and support sugarcane farmers.

Moneycontrol looks at how this plan would work out for automobile makers, oil marketing companies, and sugar manufacturers?

Sugar Companies

Increasing the use of alcohol in gasoline is good news for the sugar sector.

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To meet the government's target of 20 percent blending of gasoline, ethanol storage capacity of sugar companies needs to expand to three times the current level of about 300 crore litres.

About 10 billion liters of ethanol would be required each year to meet the 20 percent ethanol-blended fuel standard by 2025, India’s Oil Secretary Tarun Kapoor said this month.

Similarly, the secretary in the Ministry of Food and Public Distribution, Sudhanshu Pandey, said last month that investment of Rs 41,000 crore is expected to meet the requirement.

This presents an opportunity for sugar companies that have historically struggled with a surplus production of sugar as well as outstanding cane dues from states.

Ethanol is a kind of alcohol of more than 99 percent purity, which can be blended with petrol and is a by-product of sugar mills, although it can also be produced from grains or cane juice.

Mills typically crush cane with a total fermentable sugars (TFS) content of about 14 percent, and every 100 kg of TFS yields 60 litres of ethanol.

Thus, from one tonne of cane, mills can produce 115 kg of sugar and 45 kg of molasses that gives 10.8 litres of ethanol.

Equity analysts say the sugar sector is poised to benefit from the government's push for higher ethanol blending in India.

Dilip Bhat, Joint MD at Prabhudas Lilladher in an interview to CNBC-TV18 said the government's ethanol policy is adding good balance to the sugar companies and ethanol is something that can turn out to be very profitable.

Sugar manufacturers have already started investing to increase their ethanol storage capacity. Earlier this month Shree Renuka Sugars announced that it will invest Rs 450 crore to expand its ethanol capacity.

Oil Marketing Companies 

Oil marketing companies would also need to set up ethanol distillation facilities and need to provide timelines for making blended fuel available across the country.

The blending percentage of ethanol with petrol has gone up from 1.53 percent in 2013-14 to 8.5 percent in 2020-21. The National Biofuel Policy 2018 envisages an indicative target of 20 percent blending of ethanol in petrol and 5 percent blending of biodiesel in diesel by 2030.

The Cabinet Committee on Economic Affairs in December approved an Rs 8,460 crore modified scheme for extending interest subvention for those setting up standalone ethanol distilleries.

According to a report by the Independent Commodity Intelligence Service, Hindustan Petroleum Corp and GAIL India Ltd plan to build grain-based refineries to help boost India’s ethanol output by 2025.

According to the report, HPCL will invest Rs 4 billion on a 125,000 litre/day grain-based ethanol plant in Himachal Pradesh and GAIL is planning a 500,000 litres/day capacity grain-based ethanol plant.

Automobile Companies

TVS and Bajaj have already developed two-wheelers to run exclusively on ethanol, but many companies still produce two-wheelers and passenger vehicles that are designed optimally for 5 percent ethanol blend with petrol.

The government expects that as its Ethanol Blended Petrol Program rolls out, automobile companies would need to supply vehicles with rubberised parts, plastic components and elastomers compatible with 20 percent ethanol blend with petrol.

NITI Aayog in its research paper titled 'Roadmap for Ethanol Blending in India 2020-25' said that industry body Society of Indian Automobile Manufacturers had guaranteed that automobile companies would gear up to supply compatible vehicles in line with the roadmap.

NITI Aayog also said all the components required to make engines compatible with 20 percent ethanol-blended petrol can be made available in India and that "no significant change in the assembly line is expected".

Yaruqhullah Khan