Modi govt’s twin target: Support sugar, cut oil import bill with ethanol. Here’s latest step

Modi govt’s twin target: Support sugar, cut oil import bill with ethanol. Here’s latest step

The government has decided to raise the amount of subsidised loans to sugar mills to expand their ethanol production to Rs 6,139 crore, up 38% from Rs 4,440 crore announced earlier, an official source told FE.

By: Banikinkar Pattanayak | New Delhi | Updated: October 3, 2018 4:13 AM

PM Narendra Modi. (Reuters)

Prabhudatta Mishra & Banikinkar Pattanayak

The government has decided to raise the amount of subsidised loans to sugar mills to expand their ethanol production to Rs 6,139 crore, up 38% from Rs 4,440 crore announced earlier, an official source told FE. The lure of subsidised loans and a recent hike in prices of ethanol meant for blending with petrol, have prompted dozens of sugar companies to plan capacity expansion to produce more ethanol. As many as 114 sugar units belonging to various companies have been selected by the food ministry to avail of the subsidised loan.

Triveni will get a maximum subsidised loan of Rs 696.9 crore, followed by Shree Renuka Sugars (Rs 382.7 crore), Dalmia Bharat Sugar (Rs 198 crore) and EID-Parry (Rs 194.6 crore). Interestingly, biscuit maker Parle had applied for a subsidised loan to set up a new distillery in Uttar Pradesh to produce ethanol.

It will be granted a maximum loan of Rs 68.12 crore under this scheme to promote ethanol production. The mills will get an interest subsidy of up to 6% or a half of the actual interest they pay for the loan offered to expand ethanol capacity, whichever is lower. The government will offer the interest subsidy for five years, within which the loans have to be repayed by mills. With the hike in the loan amount now, the government’s total interest subsidy is expected to rise to around Rs 1,850 crore, against the earlier estimate of Rs 1,332 crore.

The move follows the government’s decision in June to make available subsidised loans of Rs 4,440 crore to sugar mills to create additional ethanol capacity. It also comes at a time when the sugar mills, already struggling to cut a glut in the market, are expecting another year of record production.

To provide relief to the sugar industry, already struggling to cope with exorbitant state-fixed cane prices, the Cabinet committee on economic affairs (CCEA) last month decided to raise the rate of ethanol produced directly from sugarcane juice by 25% from the rate announced in June, for blending with petrol.

The move was aimed at incentivising mills to cut surplus sugar production that would prop up prices of the sweetener, and proportionately trimming oil imports that have weighed on the country’s trade balance and the rupee. Cane arrears have come down to around Rs 13,000 crore, against Rs 22,000 crore around June, but are still ruling at the record levels for this time of the year.

To further promote ethanol production, the CCEA last month hiked the price of ethanol made of the so-called B-heavy molasses by over 11% from the level declared in June to Rs 52.43 per litre. But it reduced the rate for the bio-fuel produced from the usual C-heavy molasses marginally to Rs 43.46 per litre. All these price changes will be effective from the 2018-19 ethanol year, starting this December. While sugarcane juice is very rich in sucrose content and is used to produce sugar first, the B-heavy molasses, too, have some sweetener in them; only C-heavy molasses don’t typically have any sugar content.

Currently, ethanol is allowed to be produced only from C-heavy molasses and the price is fixed at Rs 40.85 per litre for 2017-18. The move, while hailed by sugar mills, can potentially narrow the wide margins currently enjoyed by oil marketing companies.

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