Why is alcohol an obstacle to India's strategy to reduce oil imports?
NEW DELHI: India, the world's largest oil consumer, seeks to reduce its addiction to imports by using more sugarcane ethanol as fuel, but the mandate to supply molasses to the liquor industry in the state of greatest production threatens to derail those plans
In Uttar Pradesh, there is a local government order that requires sugar mills to provide fixed amounts of molasses, a product of the refining process, to alcoholic drinks Manufacturers at rates well below market levels, which means there is less available to convert into ethanol to power cars.
Asia's third largest economy would like to increase the amount of ethanol in gasoline to 20% in a decade from 6% now to reduce its dependence on foreign oil, which is currently more than 80%. India competes with Brazil as the world's leading sugar producer, and has seen how its rival has run a program for decades to use large quantities of ethanol in fuel, replace oil and support sugar prices.
Many companies have invested to increase ethanol manufacturing capacity, said Abinash Verma, CEO of Indian sugar mill association . The situation is “bad for them and for the whole government ethanol mixing program. Supplies will be adversely affected.
The availability of ethanol from sugar mills and grain-based producers for oil refineries will likely remain stable at 1.9 billion liters in the 12 months from December 1, compared to the previous year, Verma said.
The Uttar Pradesh government recently announced an additional increase in the molasses quota that must be supplied to liquor manufacturers from 16% to 18% of total state production. It was 12.5% at the beginning of September. The mills in Uttar Pradesh could have offered more ethanol to mix with gasoline if the restriction on the sale of molasses was not there, Verma said.
The so-called C-heavy molasses used for alcohol sells for around Rs 5,000 per ton in Uttar Pradesh in the open market, compared to around Rs 750 for purchases of liquor manufacturers, according to the association.
Sugar mills need to invest Rs 10,000 million ($ 1.4 billion) to increase ethanol manufacturing capacity to 6,000 million liters, from 3,550 million today, Verma said. They would be required to invest an additional 25,000 million rupees to further increase capacity to 12 billion liters. What is happening in Uttar Pradesh could discourage investment, according to Verma.