SUSTAINABILITY OF ETHANOL BLENDING PROGRAMME IN

INDIA

ABINASH VERMA

DIRECTOR GENERAL

INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI

POINTS OF DISCUSSION TODAY

1. General Overview: Benefits of EBP Programme

2. Policy Initiatives on EBP taken by Indian Government

3. Domestic Availability of Ethanol

4. Cyclicality of Sugar Production in India

5. Sustainability of the Programme

• Pricing of the Product

• Incentives by Government

BENEFITS (1/1)

• Boost to rural/ sugarcane economy

• Reduced dependence on fossil fuel

• Reduction in import bill of crude oil

• Curb on vehicular pollution, reduction in GHG gases

• Good oxygenate

• Control cyclicality of sugar production in India

POLICY INITIATIVES TAKEN BY GOVERNMENT OF INDIA (2/1)

• EBP introduced with the objective of benefittingcane farmers

• Programme first initiated in 2002 in sugar producingStates only

• Rates finalised through tenders with a cap fixed byOMCs

MANDATORY BLENDING DECISION (2/2)

• Decision taken in October 2006 for 5% mandatoryblending

• All over the country, except Jammu &Kashmir, North Eastern States and IslandTerritories

• Uniform procurement price fixed at Rs.21.50 perlitre ex-factory for 3 years

• OMCs procured ethanol through tenders withceiling price of Rs.21.50 per litre

• Supply defaults due to higher price for alcoholand down cycle of sugarcane production andmolasses availability

INITIAL PROBLEMS FACED (2/3)

• Some States imposed import/export duties onethanol

• Restrictions/controls on inter-State movementof ethanol

• Tedious procedures for sale and movement

• Annual permissions required by distilleries insome States for making ethanol

• Could not be implemented in some Statesearlier

PRESENT STATUS OF PROGRAMME(2/4)

• Mandatory Blending of 5% ethanol with petrol

• Procurement price of Rs.27 per litre ex-factory(fixed by Government provisionally)

• Committee under Member, Planning Commissionset up in July 2010 to recommend final price ofethanol

• Procurement of ethanol from indigenous sources

• Flexibility in implementation of the programmewith upto 10% blend in some States

• Duties/taxes on inter-State movement of ethanollargely resolved

PRESENT STATUS OF PROGRAMME (2/5)

• Requirement of 1000 million litres of ethanol for13 months (Sept ‘10 to Sept ‘11) byOMCs, annually of about 920 mn litres

• Contracts for about 700 million underfinalisation, supplies begun in October 2010

• Standards for 10% blending fixed by Governmentin April 2009

• Comprehensive trials by Oil sector indicated thatvehicles on road can operate at 10% blendwithout encountering any problems

DOMESTIC AVAILABILITY OF ETHANOL (3/1)

• Molasses is the primary feedstock for ethanol in India

• Installed capacity of 3500 million litres for production of alcohol and of 1500 million litres of fuel ethanol production

• Moving average of last 5 years molasses production isaround 8 million tonnes, equivalent to around 2000million litres, sufficient to meet 5% EBP programme

• Even in lean years, the availability of fuel ethanol isabout 1100 million litres, after meeting therequirement of potable industry at 900 million litres

Production of Molasses by the Sugar Industry (3/2)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Mill

ion

Mt

Molasses 5 yrs Moving Avg

AVAILABILITY OF ETHANOL FROM SUGAR INDUSTRY (3/3)

Lean Year Normal Year Projected 2010-11

Sugar Produced 18.8 mn tons 24 mn tons 25.5 mn tons

Molasses Production @ 4.5% 8.2 mn tons 10.8 mn tons 11.4 mn tons

Molasses available for

distillation

7.8 mn tons 9.6 mn tons 10.8 mn tons

Potential Alcohol Production 1950 mn litres 2400 mn litres 2700 mn litres

Alcohol for Potable Purposes 900 mn litres 900 mn litres 945 mn litres

Balance for Fuel Ethanol and

others

* In addition to above, about 350

mn litres of alcohol is produced

by khandsari manufacturers

and from grains

*1050 mn litres 1500 mn litres 1755 mn litres

CYCLICALITY OF SUGAR PRODUCTION IN INDIA (4/1)

• 5 year sugar cycle of 2-3 years of good production of sugarcane followed by 2-3 years of low production

• Diversion of cane by alternate sweetnermanufacturers, in the range of 15 to 30%

• Ratoon of just about 1 year

• Price and timely payment to cane farmers

• Returns from alternate crops

Improved Agriculture Extension Services = More T/Ha

Sugarcane: Acreage In India

In Million Hectares

Source: ISMA

0

1

2

3

4

5

6

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-0707-08

08-0909-10

4.22 4.31 4.41 4.59

3.93

3.66

4.2

5.155.05

4.394.2

Large Variations in Sugar Production

Sugar: Production

In Million Tons

Source: ISMA

12.86

15.54

18.2 18.51 18.53

20.14

1412.69

19.67

28.32

26.33

14.6

18.9

25.5

0

5

10

15

20

25

30

97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 (E)

Present Molasses Produced Is Adequate For E 5 Programme

Molasses Availability

Source: ISMA

In Million Tons

0

2

4

6

8

10

12

14

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10

8.02 7.82 8.068.87

5.95.51

8.55

13.1

11.31

6.5

8.4

SUSTAINABILITY OF THE ETHANOL BLENDING

PROGRAMME IN INDIA:

“THE WAY FORWARD”

4 PRONGED STRATEGY (5/1)

• Control cyclicality of sugarcane production

• Assured continuous demand for ethanol

• Ensure competitive pricing for ethanol

• Appropriate and adequate policy initiatives/ subsidies by Government

CONTROL SUGARCANE CYCLICALITY (5/2)

• Need to have adequate molasses and sugarcane juice for continuous supply of ethanol

• Direct conversion of surplus sugarcane intoethanol

• Improve farmers’ income– Inter-cropping– Yield increase– Ratoon

• Diversion of cane to alternate sweetnermanufacturers

• Long term relationships with farmers

There Is Enough Scope To Improve Yield To At Least 90 Tons Per Ha

Sugarcane: Yield (5/3)

Source: ISMA

The present All India cane yield per hectare ~ 62 Tons

In Tons per Hectare

52

54

56

58

60

62

64

66

68

70

72

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10

70.9

68.667.4

63.6

59.4

64.8

66.9

69 68.9

64.566.1

DIRECT CONVERSION OF SUGARCANE TO ETHANOL (5/4)

Decided by the Government in December 2006

Direct conversion of cane juice to ethanol bysugar mills permitted

Surplus sugarcane can be diverted to ethanol inyears of surplus sugar and consequent depressedprices

For this to happen, the ex-factory price of ethanolshould be around one and a half times the priceof sugar

ETHANOL PETROL

Component Rs./Litre Component Rs./ Litre

Ethanol Price inclusive

of denaturant cost

27.0 Depot Price of Petrol* 40.67

Dealer Commission 1.27

Excise Duty 10.3% 2.78 State Tax (ex) 9.76

Sales Tax on Ethanol 1.30

Transportation Cost 1.10

Total 32.18

Depot Price of Petrol 40.67* Price of Petrol 51.70

Profit to OMCs

On cost to cost basis

OMCs paying capacity

of ethanol.

8.49

34.00

Basis for fixing ethanol price (5/5)

• Parity of issue price of gasoline

BASIS FOR FIXING ETHANOL PRICE –II (5/6)

• Import parity price of Ethanol

FOB Price of Hydrous Ethanol US$ m3 600

Freight from Brazil to India US$ m3 50

CNF Price Western India Port US$ m3 650

Exchange Rate INR/USD 44.6

CNF Price Rs./Litre 28.99

Import Duty @ 7.5% Rs./Litre 2.17

Landed Price Rs./Litre 31.16

Port Handling, Clearing & 30 days storage Rs./Litre 1.50

Dehydration Cost from Hydrous to Fuel Grade Rs./Litre 4.00

Delivered Cost Fuel Grade Ethanol Rs./Litre 36.66

INCENTIVISE RENEWABLE ENERGY (5/7)

• Renewable energy is being incentivised all over the world

• Preferential tariff structure available for renewable energy

• US and Brazil, the two largest producers and users of fuel ethanol, follow this principle

“Let’s Grow Our Own Fuel. Let’s Go.” SHELL

“Helping to create new energy sources such asbiofuels is something we are proud of at shell.This renewable energy is one of the mosteffective ways of reducing co2 from cars andtrucks today. As one of the world’s biggestdistributors of biofuels we’re playing a leadingrole in powering vehicles for now and for thefuture. Let’s use cleaner energy. Let’s go.”

www.shell.com/letsgo

THANK YOU