Indian sugar mills, oil companies and banks have agreed to a tripartite financing mechanism to boost funding for expanding the ethanol industry.
The agreement, which came out of a government-chaired stakeholder meeting on 21 August, is one of a string of measures aimed at enhancing ethanol production capacity and boosting its blending ratio with gasoline under India's Ethanol Blended with Petrol programme (EBP). It also seeks to address the sugar industry's viability by enabling more mills to manufacture the higher value product.
Banks under the new mechanism will hold oil companies' payments in escrow until sugar mills supply contracted fuel ethanol volumes. This will reduce risks of lending the 186bn rupees ($2.5bn) in soft loans already approved in principle to 362 projects for enhancing or setting up ethanol distilleries and boosting production capacity by 6bn l. The government will bear Rs40bn in interest subsidies for five years.
The country's sugar industry has long pushed for such a tripartite arrangement, pointing to inadequate access to funding as the main barrier to domestic ethanol production growth and achieving a targeted 10pc blending ratio with gasoline.
Refiners need to blend over 4bn l/yr of ethanol to meet the E10 target, which the Indian government aims to achieve by 2022. This December 2019-November 2020 ethanol supply year should see 1.9bn-2bn l blended against 1.89bn l in the previous supply year.
Only 64 projects representing 1.65bn l of potential ethanol capacity growth had been fully sanctioned for loans without the help of the new finance mechanism.
Indian oil companies on 12 August also proposed a five-year expression of interest (EOI) to enroll bidders to supply around 25.6bn l of fuel ethanol from 1 December 2020 until 30 November 2025. Enrollment as a long-term supplier aims to streamline the tender process and cut down the time mills and distillers spend on repeat paper work.
Oil companies forecast a year-on-year increase to 5.8bn l of fuel ethanol during December 2024-November 2025 from 4.65bn l in December 2020-November 2021. But tenders will still be issued and bid each year before the start of each ethanol supply year.
The five-year EOI, which closes on 2 September, reiterated that only domestic sources may supply ethanol from domestic feedstock for gasoline blending under India's EBP.
The government is using penalties as well as incentives to hasten the switch to ethanol from sugar production. India's Cabinet Committee on Economic Affairs said on 19 August it will increase the price mills must remunerate sugarcane growers for the October 2020-September 2021 sugar supply year. Mills will pay Rs285 rupees/quintal ($38/t) for a basic recovery rate of 10pc, up from Rs275/quintal in the current supply year.
India's sugar mills had accumulated sugarcane price arrears totalling $2.74bn as of 20 March 2020, according to government data, largely because of a sugar glut and depressed prices following oversupply during the 2017-2018 and 2018-2019 sugar supply years.
The government supports advancing the EBP as a means to stabilise returns for mills and sugarcane growers, as well as enhance energy sovereignty and reduce transport emissions.
