Ethanol Blending Policy – Boon for farmers

With the vision to boost agricultural economy, to reduce dependence on imported fossil fuel, to save foreign exchange on account of crude oil import bill & to reduce the air pollution, Government has fixed target of 10% blending of fuel grade ethanol with petrol by 2022 & 20% blending by 2025.

With a view to support sugar sector and in the interest of sugarcane farmers, the Government has also allowed production of ethanol from B-Heavy Molasses, sugarcane juice, sugar syrup and sugar; and encouraging sugar mills to divert excess sugarcane to ethanol. In previous sugar season 2019-20 about 9 LMT of sugar was diverted to ethanol. In current sugar season 2020-21, it is likely that more than 20 LMT of excess sugar would be diverted to ethanol. By 2025, it is targeted to divert 50-60 LMT of excess sugar to ethanol, which would solve the problem of high inventories of sugar, improve liquidity of mills thereby help in timely payment of cane dues of farmers.  In past 3 sugar seasons about Rs. 22,000 cr revenue was generated by sugar mills/ distilleries from sale of ethanol to OMCs.

To increase production of fuel grade ethanol and to achieve blending targets, the Govt of India has allowed use of maize and rice with FCI for production of ethanol. Government has declared that rice available with FCI would continue to be made available to distilleries in coming years. The extra consumption of surplus food grains would ultimately benefit the farmers as they will get better price for their produce and assured buyers; and thus will also increase the income of crores of farmers across the country.

Government has fixed price of ethanol from maize as Rs 51.55/litre & rice available with FCI as Rs 56.87/litre for ethanol supply year 2020-21. For FY 2020-21, Government has fixed the price of FCI rice to Rs 2000/quintal for production of ethanol. For FY 2021-22, Government has decided to continue the price of FCI rice to Rs 2000/quintal for production of ethanol. This will give confidence to industry about the stability in raw material price and its availability. For the purpose of supply of surplus rice for the production of ethanol, distilleries are at liberty to choose the nearest FCI depot as per requirement/logistics.

In current ethanol supply year (ESY) 2020-21 (December to November) to achieve 8.5% blending target, about 325 Cr ltrs ethanol is required to be supplied to OMCs. As on 26.04.2021, about 349 cr ltrs ethanol have been allocated by OMCs to sugar mills/ distilleries,  out of which  contracts of about 302 cr ltrs have been signed by distilleries &124 cr ltrs have been supplied. Efforts are being made by DFPD &MoPNG / OMCs to ensure achievement of blending target. Also, in next ESY 2021-22, it is likely to supply more than 400 cr ltrs of ethanol to OMCs to achieve 10 % blending.

With a view to increase existing capacities further, DFPD has notified modified interest subvention scheme on 14.01.2021 for setting up new grain based distilleries/ expansion of existing grain based distilleries, dual feed distilleries & molasses based distilleries to produce ethanol & production of ethanol from other 1G feed stocks.  422 proposals with a capacity of 1684 cr ltrs for a loan amount Rs. 42000 crore have been approved by DFPD. It is expected that from the proposals approved, more than 600 cr ltrs may come up in next 2 to 4 years. Thus, the ethanol distillation capacity from these projects and ongoing projects may reach to 1500 cr ltrs by 2024-25 which would be sufficient to achieve 20% blending target.

Sugarcane and ethanol is produced mainly in three states viz Uttar Pradesh, Maharashtra and Karnataka. Transporting ethanol to far flung States from these three states involves huge transportation cost.  By bringing new grain based distilleries in the entire country would result in distributed production of ethanol and would save a lot of transportation cost and thus prevent delays in meeting the blending target & would benefit the farmers across the country.

For production of ethanol, there is sufficient availability of feed stocks; & Govt. has also fixed remunerative prices of ethanol derived from various feed stocks. Moreover, OMCs being the assured buyer for ethanol has given comfort for purchase of ethanol from distilleries for next 10-15 years. Hence, these ethanol projects are viable. Ministry of Environment, Forest & Climate Change has also streamlined the process of getting environment clearance (EC) for ethanol projects. Department of Financial Services and State Bank of India have also issued Standard Operating Procedure (SOP) for sanctioning and disbursal of loans for ethanol projects which would expedite sanctioning and disbursal of loans.

Production of ethanol would not only facilitate diversion of excess sugar to ethanol but would also encourage farmers to diversify their crops to cultivate particularly maize/corn which needs lesser water. It would enhance production of ethanol from various feed stocks thereby, facilitate in achieving blending targets of ethanol with petrol and would reduce import dependency on crude oil, thereby, realizing the goal of Atmanirbhar Bharat. It will also enhance income of farmers as setting up of new distilleries would not only increase demand of their crops but would assure farmers of getting better price for their crops.