The Union government should use the ethanol-blended fuel programme to reduce the growing sugar surplus, according to the industry.

With the Centre mulling GST incentives for ethanol production, sugar industry representatives, who did not want to be named, said the government should let the industry cut back on sugar production by stepping up alcohol output at competitive prices.

Traditionally, the industry makes alcohol from molasses, a by-product of sugar production. But, now, it should be produced earlier in the process, from B-heavy molasses, to divert from sugar.

Given the distillery capacity, the industry estimates it can cut back 5 lakh tonnes (lt) of sugar. This is only a temporary measure given the huge surpluses. Significant investments will have to go into enhancing distillery capacity to expand the fuel programme as envisaged by the government, they say.

Sugar output in the 2017-18 (October-September) season is estimated at over 310 lt against an estimated domestic consumption of about 240 lt. A similar surplus is expected in the coming season. Sugar prices have dropped to ₹28 a kg, against a cost of production of ₹35. Mills’ overdues to sugarcane farmers is pegged at about ₹18,000 crore.

On Wednesday, the Centre said it will pay ₹55 a tonne of sugarcane directly to farmers, which is an estimated ₹1,500-crore relief.

Ethanol pricing

With international prices of sugar ruling even lower than domestic prices, exporting 20 lakh tonnes as suggested by the government is also not viable, they say.

As of now, with about 360 crore litres of alcohol output from distilleries — mostly linked to sugar mills — over 155 crore litres are being supplied to meet the 5 per cent ethanol blending in automobile fuel. About 110 crore litres go to potable alcohol and 60 crore litres for industrial use.

However, if the sugar mills cut back on the sugar output, they will have to be compensated with competitive price for ethanol. A litre of ethanol from B-heavy molasses will have to be priced at ₹52 a litre, about ₹11 costlier than the present ethanol price, they say.

Streamline movement

Also, the Centre should address interstate movement of ethanol which is regulated by the State governments.

For example, moving ethanol from UP to Haryana costs an additional ₹4.15 a litre due to levies by the two governments. Oil marketing companies do not reimburse this money because State governments are not supposed to levy such tax under the GST regime.

Only Maharashtra and Karnataka have agreed not to levy State tax or control movement, according to industry sources.

Enhance capacity

Also, the government has planned for 10 per cent blending since 2009. This will mean supply of more than 300 crore litres of ethanol just for the fuel programme.

Over ₹5,000 crore investments will be needed in distillery by the sugar industry to enhance distillery capacity. This will have to be funded at competitive interest rates through the sugar development fund. A clear policy announcement is needed on this front, felt industry sources.

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