Can you breakdown why govt’s ethanol push is crucial? What are the pros and cons, and is it truly achievable? Can we ensure that that level of supply continues?
So, to answer that question let us look at what has been happening over the past few years. Because of the introduction of new varieties of sugarcane which have substantially boosted the cane production as well as the recovery rate in the north. Because of a relatively stable monsoon in several key growing areas, India has been producing a surplus every year of almost 5 to 6 million tonnes of sugar. Now the government has addressed that position by allowing substantial number of exports to go out of the system through a support mechanism which basically gives you certain financial incentives, provided you export a certain percentage of a sugar production in the international market.
There is a problem with this. First off, all your ability to export would really depend upon the international supply demand scenario. In the case of an international surplus scenario, continued Indian exports would not be viable. More importantly there are also rulings against subsidies given to exports. It is very clear that exports are not a viable solution in the long run. In fact, I believe those will have to be restricted by 2023.
The only way we can address this situation – in fact the government is trying to address the situation by basically diverting the sucrose which would otherwise be used for producing sugar as a raw material for generation of ethanol by processing it in the distillery. That is the main motivation behind this. We must remember one thing: while having more ethanol does help us with the forex position, petrol is only about 10% of the total petroleum consumption in the country. Even if we increase it from 10%, although we are right now at only about 8%, so we are really reducing the total petroleum imports by only about 1%.
Of course, every penny saved or every dollar saved in foreign exchanges is very important for us. But it is not really a game changer. As for the forex, where it is really a game changer is in providing stability and sustainability to the sugar industry which is a very large employer; both providing a lot of quality income to the farmers as well as lot of employment in the factories in the supply chain. So, I see it as a very important move from the sugar industry perspective than from the energy security or forex perspective.
Do you think that the industry is ready to come to the 20% ethanol target? What are the downside risks of sugar prices being affected over the long term?
The point is, we are already exporting about 5 million tonnes of sugar. If that entire diversion of exports was to take the route of ethanol, production of ethanol would safely be able to reach that 20%. I mean of course the mills and the farmers would all got high sugar prices, but I do not think a higher production of ethanol by sacrificing on the exports will really destabilise the domestic sugar prices from the consumers perspective.
Yes, there is a possibility that some of these new varieties in UP lose steam or there are major weather issues which substantially result in a reduction of sugarcane production. But in that case of course, the government always has the option of reducing the ethanol offtake. So, balancing is possible. I do not think from the consumer perspective at this moment we need to be too considerate of price shocks because of diversion towards ethanol; at least up to the 20% of it.
Is there concern over things like ethanol-blended fuel being less efficient?
Yes, I mean let us be clear that ethanol and petrol, they are not really equivalent. We talk about ethanol being priced at let us say Rs 50 or Rs 60, while petrol is Rs 100. But it is not really an apple to apple comparison. Almost half the price which is there in petrol is really taxes. So, at 70 the real cost of petrol would be perhaps somewhere near Rs 40.
We have to remember that ethanol-specific fuel value is somewhere around 40% or so of petrol. I think petrol is about 11,000 kcal per litre, whereas ethanol is about 4,600. In terms of price, in terms of calorific value, of course ethanol is much lower than petrol. But again, ethanol also has its advantage in the sense that it is cleaner burning fuel as there is an oxidant in the fuel. So, there are pluses and minuses.