One of the drivers plying the congested roads of Mumbai said, “ aaj kal Govt is mixing daaru with petrol and diesel. Is that good?” Well, when put like that, in the barest form, it does sound crude. But yes, that is indeed the truth today. The blending of ethanol, at grassroot level, actually means blending of alcohol. And many big wig companies, driven by the rising crude oil prices are now looking at running a sugar unit or a distillery, mainly for laying its hands on supplies of ethanol, which in some years time will become a gold mine.
And the latest company, albeit very late, Indian Oil Corporation, is now making grandiose plans of getting into ethanol production.
So why is IOC getting into ethanol production?
Currently the Govt of India has made 5% blending mandatory and from October 2008, 10% blending is expected to come into effect. The procurement price of ethanol has been fixed at an ex-factory price of Rs.21.50 per litre, for three years from October 2007. Hence it makes a lot of sense to get into ethanol production.
What exactly is ethanol?
Ethanol is a by product of the sugar industry. Currently, ethanol is used for making alcoholic beverages and the same ethanol is as fuel, produced by fermentation. In technical terms, when certain species of yeast, metabolises sugar in the absence of oxygen, ethnol is produced. Simple, molasses, a by-product of sugar mills is the raw material.
Why ethanol for blending into fuel?
Ethanol can be used as an automotive fuel by itself and can be mixed with gasoline to form what has been called "gasohol". Because the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions. Since ethanol is produced from plants, it is a renewable fuel.
So what does IOC mean when it says that it getting into ethanol production?
The company can become an ethanol producer either by setting up a sugar unit or by following the simplest route which most of the other companies are doing – taking over existing suagr mills. The company is yet to decide about how it will go about procuring ethanol, it is not ruling out the viability of setting up a new unit also.
What would be the cost of setting up a new unit?
As per Ethanol India, to set up a ethanol unit using rectified spirit as raw material, with a capacity of 30,000 litres per day, it would cost Rs.3.84 crore. Same capacity, using raw material as molasses would cost Rs.7.90 crore and using sugar cane juice would cost Rs.15.25 crore.
Economical to buy a sugar unit?
The sugar mills in India are currently going through a very rough patch and most of the state onwed units have turned sick. The various state Govts are now giving the sugar units on lease. Infact the Bihar govt had invited bids for 15 of its sugar mills for long term lease of 60 years, extendable by 30 years. Reliance Industries was the highest bidder for the Motipur unit of Bihar State Sugar Corporation at a price of Rs.57 crore, marginally higher than the floor price of Rs.55.36 crore. HPCL had made a bid of Rs.45 crore for the Lauriya unit in West Champaran against the floor price of Rs.29.64 crore. For these prices, the capacities, which these companies are able to lay their hands on, are much larger. The economies of scale of taking over an existing sugar mill, compared to setting up a mill at today’s rates, are much higher.
On one hand, there is a major demand for ethanol and big companies are vying to lay their hands on these capacities. Yet, at the same time, sugar companies are sitting on huge stocks of ethanol where companies, blending it into fuel, are just not picking them up. The three State-owned oil marketing companies, BPCL, HPCL and IOC had contracted to lift a total 1,176.13 million litres of ethanol from sugar mills over a three-year period from November 2006. But till September 2007, these companies had procured just 7.2% of the total contracted quantity.
Are the environmentalists happy?
Currently we have a major shortage of wheat, edible oil and supply is tight in case of rice. Now henceforth, all efforts will be made to increase the production of these foodgrains. Sugar is in oversupply, which is why we do not see a spiraling run-up on its price. But now, with companies taking over sugar mills with the aim of making ethanol, it could soon lead to a situation in sugar from oversupply to shortage.
As Mr.Chidambaram had pointed out, developed countries are making more and more use of foodgrains for using as fodder for fuel and that, to a large extent has been the culprit leading to a run-up in the commodity prices. If that is the case, then this blending of ethanol will lead to a situation of sugar prices soaring and fall in production in the coming years. So this will once again be a double edged sword.
We can never keep all the people happy at all times, we can only keep some people happy for some time. So all in all, this is a good initiative on the part of IOC to get into ethanol production but it might not make sense to set up a new unit, which will have a longer gestation period, best would be to go for a readymade sugar mill and set the ball rolling immediately. The first big step would be to start at least lifting the abundant ethanol from the sugar mills, especially from those located in Uttar Pradesh.
And the latest company, albeit very late, Indian Oil Corporation, is now making grandiose plans of getting into ethanol production.
So why is IOC getting into ethanol production?
Currently the Govt of India has made 5% blending mandatory and from October 2008, 10% blending is expected to come into effect. The procurement price of ethanol has been fixed at an ex-factory price of Rs.21.50 per litre, for three years from October 2007. Hence it makes a lot of sense to get into ethanol production.
What exactly is ethanol?
Ethanol is a by product of the sugar industry. Currently, ethanol is used for making alcoholic beverages and the same ethanol is as fuel, produced by fermentation. In technical terms, when certain species of yeast, metabolises sugar in the absence of oxygen, ethnol is produced. Simple, molasses, a by-product of sugar mills is the raw material.
Why ethanol for blending into fuel?
Ethanol can be used as an automotive fuel by itself and can be mixed with gasoline to form what has been called "gasohol". Because the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions. Since ethanol is produced from plants, it is a renewable fuel.
So what does IOC mean when it says that it getting into ethanol production?
The company can become an ethanol producer either by setting up a sugar unit or by following the simplest route which most of the other companies are doing – taking over existing suagr mills. The company is yet to decide about how it will go about procuring ethanol, it is not ruling out the viability of setting up a new unit also.
What would be the cost of setting up a new unit?
As per Ethanol India, to set up a ethanol unit using rectified spirit as raw material, with a capacity of 30,000 litres per day, it would cost Rs.3.84 crore. Same capacity, using raw material as molasses would cost Rs.7.90 crore and using sugar cane juice would cost Rs.15.25 crore.
Economical to buy a sugar unit?
The sugar mills in India are currently going through a very rough patch and most of the state onwed units have turned sick. The various state Govts are now giving the sugar units on lease. Infact the Bihar govt had invited bids for 15 of its sugar mills for long term lease of 60 years, extendable by 30 years. Reliance Industries was the highest bidder for the Motipur unit of Bihar State Sugar Corporation at a price of Rs.57 crore, marginally higher than the floor price of Rs.55.36 crore. HPCL had made a bid of Rs.45 crore for the Lauriya unit in West Champaran against the floor price of Rs.29.64 crore. For these prices, the capacities, which these companies are able to lay their hands on, are much larger. The economies of scale of taking over an existing sugar mill, compared to setting up a mill at today’s rates, are much higher.
On one hand, there is a major demand for ethanol and big companies are vying to lay their hands on these capacities. Yet, at the same time, sugar companies are sitting on huge stocks of ethanol where companies, blending it into fuel, are just not picking them up. The three State-owned oil marketing companies, BPCL, HPCL and IOC had contracted to lift a total 1,176.13 million litres of ethanol from sugar mills over a three-year period from November 2006. But till September 2007, these companies had procured just 7.2% of the total contracted quantity.
Are the environmentalists happy?
Currently we have a major shortage of wheat, edible oil and supply is tight in case of rice. Now henceforth, all efforts will be made to increase the production of these foodgrains. Sugar is in oversupply, which is why we do not see a spiraling run-up on its price. But now, with companies taking over sugar mills with the aim of making ethanol, it could soon lead to a situation in sugar from oversupply to shortage.
As Mr.Chidambaram had pointed out, developed countries are making more and more use of foodgrains for using as fodder for fuel and that, to a large extent has been the culprit leading to a run-up in the commodity prices. If that is the case, then this blending of ethanol will lead to a situation of sugar prices soaring and fall in production in the coming years. So this will once again be a double edged sword.
We can never keep all the people happy at all times, we can only keep some people happy for some time. So all in all, this is a good initiative on the part of IOC to get into ethanol production but it might not make sense to set up a new unit, which will have a longer gestation period, best would be to go for a readymade sugar mill and set the ball rolling immediately. The first big step would be to start at least lifting the abundant ethanol from the sugar mills, especially from those located in Uttar Pradesh.
By Ruma Dubey
Source: sptulsian.com
