Interview with ethanol expert Abinash Verma on ethanol production, challenges, and way forward

In a recent Government directive, the Oil Marketing Companies (OMCs) have been advised to revise allocation of ethanol produced from sugarcane juice and B-Heavy molasses to each distillery. Meanwhile, the Government continues to prolong the ban on FCI rice for grain-based distilleries, thereby limiting raw material/feedstock availability for grain-based distilleries. What are the likely implications of these developments on the ethanol blending target of the current Ethanol Supply Year of 2023-24? Can we keep up the pace to achieve ethanol blending target of 10-12%, in the run-up to the 20% ethanol blending target in 2025?

In an exclusive chat with Abinash Verma, ethanol expert, ex-bureaucrat, former DG ISMA and now Promoter of grain-based ethanol plant, he said that to make up for the shortfall of ethanol production from sugarcane juice/syrup, the Government should allow grain-based ethanol producers to use FCI rice, which has surplus availability in the country right now. This will help the country achieve 12% ethanol blending target in the current supply season. Alternatively, the Government should increase the price of ethanol produced from maize, broken rice and C-Heavy molasses to encourage more ethanol production.
He said his budget wish-list to the Government will be to reduce GST on flex-fuel vehicles (FFVs) to 5% from the current 28%, which will make FFVs affordable to consumers.

Q. Government on 7/12/23, had banned the use of sugarcane juice/syrup to produce ethanol, and later on 15/12/23, amended the same and advised OMCs to revise the allocation of cane juice and B-Heavy molasses based ethanol to each distillery. How will this impact this year’s ethanol blending program?
Ans. The sugar industry had offered/bid to supply 130 and 135 crore litres of ethanol respectively from sugarcane juice/syrup (SCJ) and B-heavy molasses (BHM) and just 4 crore litres from C-heavy molasses (CHM) in 23-24 ESY. The Order of 7/12/23 and now of 15/12/23, read along with the Food Secretary’s statement that only 17 lakh tons of sugar will be diverted to ethanol in 2023-24, restricts ethanol production from SCJ and BHM to a total of around 130 crore litres (reduction by almost 135 crore litres from total bid offered). However, with more CHM production now, the 130-135 crore litres of ethanol production will increase by a few more crore litres.

So the bids of 562 crore litres for 2023-24, including bids from grains, will reduce to 430-440 crore litres. Unless there is a strong and conscious attempt to increase the use of alternate raw materials like maize and rice, ethanol blending may fall to around 8-9% in 2023-24.

Q. Govt in July had stopped ethanol production from FCI rice. However as per recent reports, FCI might have twice the buffer requirement by the end of the current procurement season. Do you expect the Government to revoke the ban soon?
Ans. Buffer norms of FCI for rice is 7.61 million tons as on 1st January, whereas the reported rice stocks with FCI was at 40 million tons (including FCI paddy stocks with rice millers) in the end of Nov 2023, more than 5 times of the buffer norms. With FCI procuring rice now, the stocks will continue to be very high.

Thanks to recent Government decisions, ethanol supplies from sugarcane/molasses will fall to around 150 crore litres in 2023-24. The Government will have to therefore, seriously incentivise the use of rice and maize for ethanol.

Surplus FCI rice was the main raw material for grain-based ethanol producers, till July 2023. It was subsidised by the Government and sold at Rs.20,000 per ton to distilleries, because of which grain-based ethanol production was viable. It also gave confidence to Banks about raw material availability. But with that now stopped, and broken rice and maize price being very high and unviable, Banks are already showing reluctance to fund new grain-based ethanol projects.

Therefore, as also to compensate for the fall in ethanol from sugarcane/molasses, I personally feel that during 2023-24 ESY, to achieve 12% blending again this year, the Government will very soon either allow use for surplus FCI rice for ethanol again or significantly increase the price of ethanol from maize and broken rice as also CHM.

Q. Govt wants maize to be used for ethanol production. Do you see maize emerging as the primary source of grain-based distilleries soon? What are the challenges?
Ans. In the long run, maize will have to be the most used raw material for ethanol production. As compared to rice and sugarcane, maize uses substantially less water. Farmers can get upto 3 crops a year. Maize is grown in many States across the country, making ethanol production more broad-based based, reducing the cost of transporting the ethanol over large distances.

The most important advantage is that there is a massive potential of increasing per hectare yield of maize in India from the current 3.5 tons per hectare to 5.5 tons (world average is 6 tons), which will increase maize production from the current 34 million tons per annum to 54 million tons, without the need of increasing acreage under maize. This additional 20 million tons of maize, at the rate of 380 litres of ethanol per ton of maize, can comfortably give the country 760 crore litres of ethanol.

However, there are several challenges which need to be overcome. The first challenge will be to arrange and distribute such high yielding maize varieties, which give yields of 5.5 tons per hectare, to farmers across the country. There are these hybrid maize varieties which do already give 7-8 tons per hectare in some parts of the country. Production and availability of such varieties, as per climate and soil conditions, will have to be ensured. The second challenge will be to improve the ethanol price for maize, (current Rs.66 per litre is inadequate). Thirdly, maize is not an easy raw material to handle in our distilleries. We will all need a few seasons to adapt to maize and fine tune our distilleries to the challenges maize poses as a feedstock for us.

Q. If you have to present a charter of demands to the Government to improve supplies from grain-based ethanol units, what will those be? Any budget wish-list?
Ans. The first request is very obvious and that is that the price of ethanol for grains should be better and dynamic. Unlike sugarcane, which is available at a Government fixed FRP and the availability of the same to sugar mills is guaranteed with reserved cane areas, the market price of maize and rice are extremely volatile, and availability also is not easy. Hence, the Government/OMCs have to be more proactive with ethanol price and recognise market conditions to accordingly change ethanol prices faster. The second request is that the ethanol payments by OMCs have to be quicker, say within 7 days from receipt of ethanol at their depots and uploading of invoices on their Portal. The current 21 days from receipt of ethanol is unreasonably high, considering that we have to make our payments to suppliers in a couple of days. Thirdly, unlike sugarcane/molasses-based ethanol prices being fixed by the Union Cabinet, grain-based ethanol prices are fixed by OMCs themselves. When the Cabinet fixes the cane/molasses ethanol prices, why can’t they do the same for grain-based too? Lastly, the Government should quickly restart use of surplus FCI rice for ethanol production.

My budget wish list is just one, and that is that GST on flex-fuel vehicles (FFVs), which can run on any blend of petrol-ethanol including pure ethanol, should be reduced from current 28% plus to 5%, at par with EVs or even to 12%, to make them acceptable to consumers esp. when India requires BS-6 standards even for FFVs, which increases the cost of such vehicles by few lakh rupees.

Q. As a sugar industry veteran and expert, what challenges do you foresee in the near future for their ethanol ventures?
Ans. The ethanol sector in India is still at a nascent stage and large capacities are getting built up very fast. The pressure on raw materials therefore will be tremendous, which will push up their prices. Secondly, with 90% of ethanol market being controlled by public sector OMCs, who together float a single combined tender, 300-400 ethanol producers will have to deal with a monopoly buyer and the consequent pressures. Thirdly, and most importantly, I foresee a lack of adequate demand for ethanol by the vehicle users to consume 1020 crore litres of ethanol required for 20% blending in 2025-26, because only 25% of vehicles will be E-20 compliant by then and rest will be only E-10 compliant. The answer could come from the increased use of FFVs which can increase the use of ethanol manifold, but then we don’t see FFVs yet getting rolled out in the next couple of years in substantial numbers.


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