An optimal mix of Sugar and Oil
Shri Nitin GadkariBJP National President
Courtesy : The Financial Express
Fossil fuels, containing hydrocarbons, have been the prime source of energy for the transportation, power, domestic sectors, etc, for more than a century. However, their rapidly increasing consumption and consequent depletion of reserves clearly show that the end of the fossil fuel age may not be very far off. Besides, these fuels are major contributors to air pollution and are major sources of green house gases (GHS), which are considered to be the main cause behind the climate change phenomenon.
Currently, India is spending about R3,75,000 crore out of the total annual expenditure of R11,09,000 crore, amounting to a staggering 34%, on the import of crude oil. The oil reserves in India would only last for another 20-25 years at the current rate of consumption. It is high time that India looks at a biofuels programme, which would go long way in reducing import dependency, and move towards self-reliance in our energy needs.
In contrast to fossil fuels, biofuels are renewable. Hence, biofuels can supplement hydrocarbon fuels, assist in their conservation, as well as mitigate their adverse effects on the climate. The use of biofuels leads to a number of other direct benefits: an increase in employment and a significant improvement of rural economy, enhanced energy security owing to reduced dependence on oil imports, savings in foreign exchange, and reduced air pollution. The promotion of biofuels is crucial for the country’s self-reliance in energy. The ever-increasing crude oil import bill and its impact on the environment is a cause of worry for all. Biofuel is indigenous and green and has enormous potential of generating employment in rural areas, thereby providing an impetus to growth of the rural economy.
The Indian biofuels programme started by the NDA government in January 2003, when 5% ethanol-blended petrol was made mandatory in nine states and four union territories. The bio-diesel mission aimed at bringing four lakh hectares of waste and degraded land under cultivation of tree-based oilseeds (TBO’s) was also initiated during the same period. However, despite its need and potential, India has not made any significant progress in this sector in the last six years.
Ethanol and bio-diesel are fast becoming popular in many countries around the world, particularly in the US, Brazil, Canada, and European countries. Ethanol is produced from raw materials such as molasses, beet and sugarcane juice, grains and tubers and bio-diesel is produced from vegetable oil derived from oil-bearing seeds.
The Government of India initiated the biofuels policy and implementation programme in December 2009. However, the progress for the last two-and-a-half years is insignificant. Looking at the need of the country, it was expected that the government would implement the programme seriously on a war footing to save the country on account of energy security and global warming.
We have been regularly raising this issue both inside and outside the Parliament. My party has constituted a biofuel cell at the national level under Shri MK Anna Patil, former Union Minister of States (RD). The cell, through widespread deliberations with all stakeholders, has prepared a charter of demands for the implementation of the biofuel programme.
I will now like to draw attention to issues pertaining to ethanol pricing in India. We strongly recommend that for successful implementation of the biofuel programme, ethanol price should be linked with average petroleum product prices. An expert committee under the chairmanship of Dr Saumitra Chaudhuri has also recommended a similar pricing formula for ethanol for blending with petrol. The committee has recommended the linking of ethanol price during a particular quarter to the average petrol price in the previous quarter.
The recommendations of the committee are yet to be adopted. From October 2010 till date, oil marketing companies (OMCs) have been procuring indigenous ethanol from the Indian sugar industry at an interim price of R27 per litre recommended by CCEA to achieve the 5% blending mandate.
The biofuel steering committee (headed by the Cabinet secretary, with secretary MNRE as member secretary) has recently recommended to the National Biofuel Coordination Committee (headed by the PM, with secretary MNRE as convenor) the suggested formula for ethanol pricing, but with a cap of R31 per litre and a floor of R23 per litre. These cap and floor prices will make it unviable for the industry to provide adequate prices for sugarcane to farmers and produce and supply ethanol.
Ethanol is a by-product of the sugar industry and provides an additional cash flow to the industry. The industry has been facing cash flow problems due to increasing costs leading to the mounting of cane arrears. An effective ethanol pricing policy would essentially provide additional cash flows to the industry and in turn enable timely cane payments to the farmers. Japan, China, the European Union, Brazil and the US have embarked on ambitious plans of ethanol blending with petrol (EBP) programmes. Some of them, which are deficient in ethanol, import the same from other countries. The US even provides huge incentives and subsidies for the production and use of bio-ethanol to the extent of 15% of the total consumption and is slowly moving on to higher levels of blend percentages. Contrastingly, the Indian EBP is almost negligible. EBP reduces India’s dependence on fossil fuel imports and allows the nation to move slowly but surely towards energy sufficiency. Being the best oxygenate, it helps petrol burn better, thereby reducing environmental pollution that fossil fuel are infamous for. Since the EBP programme was conceived to directly benefit sugarcane farmers and rural employment, the ministry of petroleum and OMCs put a specific condition in September 2010, for the procurement of ethanol for blending with petrol.
With 346 million tonnes of sugarcane in 2010-11, of which 80-85% would have been used by the sugar industry, 290 crore litres of alcohol would be available in the country. With a demand of 100 crore litres by the potable liquor industry and contracted amount of 60 crore litres for the EBP programme, around 130 crore litres is the balance available to meet the demand of other sectors. The demand of the chemical industry is known to vary between 25 to 60 crore litres (depending on crude oil prices). It is because of excess production of molasses, a part of which could not be sold, that a good quantity of molasses, over 600,000 tonnes, had to be exported during the current year. If these molasses could have been converted into ethanol, it could have displaced 1.5% of the country’s imported petrol requirement. With an estimated 6-8% increase in cane production in the 2011-12 sugar season, the total quantity of alcohol available would still be higher.
By adapting the pricing mechanism suggested by the panel under Dr Chaudhuri, ethanol procurement price will always be lower than the ex-depot petrol price and at present the OMCs are able to save about R12 over the price of petrol. EBP is therefore financially beneficial to the OMCs. The committee has also recommended passing part of the savings to petrol consumers. To ensure more supplies of ethanol for the programme, it is important for the government to quickly finalise the ethanol price, recommendation for which is now pending with them for over 2 months.
It should be noted that the ethanol blending programme had not taken off in 2006 primarily due to a low interim price of R21.50 per litre making it unviable for the industry to supply ethanol to the OMCs. If the ethanol price falls to a low of R23 per litre, supplying ethanol to OMCs for blending would be unviable with competitive prices from potable and chemical industry. This may jeopardise the ethanol supply for the blending programme.
The national biofuel policy aims to achieve 20% ethanol blending by 2017. Questions and doubts are being raised by vested interests who procure alcohol at a throwaway price for other uses. India has an indigenous installed capacity to produce over 400 crore litres of rectified spirit/alcohol and over 150 crore litres of fuel ethanol, which is sufficient to meet the requirement for 7-8% ethanol blending with petrol. This will only be possible if the supply of ethanol for blending is made viable for the industry with competitive ethanol pricing and a potential upside for sustained growth.
This is a matter of great national importance and, therefore, immediate steps are required to expedite the implementation of the recommendations of the committee.