Surplus ethanol leaves the industry uneasy

THE ETHANOL CONUNDRUM - Part - 1

Entrepreneurs unhappy as expansion plans stall

Kolhapur: An ambitious government programme that once drew enthusiastic participation from industry is now threatening to trip up the very sector it sought to promote. India’s ethanol manufacturing industry is grappling with a paradox: despite strong policy backing, assured pricing and generous financial incentives, producers are staring at excess capacity and inadequate procurement orders.

The Centre’s push to blend ethanol with petrol — initially pegged at 30 per cent — was accompanied by long-term financial support, low-interest loans and firm purchase guarantees. The policy certainty encouraged rapid capacity addition, with manufacturers investing heavily and ramping up production. However, supply has now far outstripped demand, leaving the industry anxious about how to absorb the surplus.

Unless addressed urgently, industry insiders warn, the situation could echo the collapse witnessed during the UPA years under then Prime Minister Manmohan Singh, when policy uncertainty led to a near-decimation of the ethanol sector.

The ethanol blending programme was conceived against the backdrop of rising foreign exchange outgo on fuel imports, increasing pollution from fossil fuels, and mounting surplus sugar stocks during crushing seasons. In 2018, the Centre unveiled the National Bio-Energy Policy, setting targets of 10 per cent ethanol blending by 2022 and 20 per cent by the end of 2025.

Sugar Stability

A robust floor price for ethanol brought stability to the sugar sector, with surplus sugar diverted towards ethanol production. The 10 per cent blending target was achieved well ahead of schedule. The government expanded the scope to include ethanol production from grains, bringing the food processing sector into the fold.

To promote grain-based ethanol — from cereals, mixed grains and maize — the Centre rolled out long-term credit and interest subvention schemes. Before the scheme’s deadline in 2024, over 196 entrepreneurs came forward, leading to a rapid build-up of ethanol plants and a sharp rise in production. But procurement orders issued by oil marketing companies (OMCs) have now left many of these investors worried.

At present, India’s installed ethanol production capacity stands at about 19.9 billion litres (1,990 crore litres). With several projects nearing completion, capacity is expected to touch 22 billion litres by the end of December. In contrast, achieving 20 per cent blending requires only about 13.5 billion litres of ethanol.

Accordingly, OMCs have issued procurement orders for around 14.82 billion litres — barely 50 per cent of the available capacity. This effectively leaves half the ethanol produced without buyers. Some plants have received orders for just 30 per cent of their capacity, forcing producers to consider shutting operations for over 45 days, and in some cases up to three months.