Government Curbs On Using Sugar For Ethanol Could Risk 20% Fuel Blending Target

The government curbs on the use of sugar for ethanol production to tackle a shortage in Indian markets may delay its 20% fuel blending target.

Sugar mills cannot produce ethanol from sugarcane juice, according to a notification. They, however, can continue to produce ethanol from B-heavy molasses to meet the requirement for blending in gasoline.

The government should have created a buffer last year if they anticipated a shortage of sugar, said M Manickam, chairman and managing director at Shakthi Sugars Ltd. This will lead to a marginal production loss for sugar companies, and it will become difficult for India to achieve its target of 20% ethanol blending by 2025, Chaturvedi said.

Shares of sugar producers like Dalmia Bharat Sugar and Industries Ltd., Balrampur Chini Mills Ltd., and Bajaj Hindusthan Sugar Ltd. fell as low as 6.14% during trade as the market expected the curbs.

Atul Chaturvedi, executive chairman of Shree Renuka Sugars Ltd., said the government notification is a relief as earlier the noise was that ethanol production from both sugarcane juice and B molasses would be curbed. However, the notification curb applies to only sugarcane juice, said Atul Chaturvedi, executive chairman of Shree Renuka Sugars Ltd.

Manickam does not worry about the availability of sugar and said the prices of the sweetener are at a comfortable level. "However, the government probably knows something we do not and, hence, has taken this step."

Companies with heavy capex on the production of ethanol will have to put their plans a hold. Banks might also pull the plug on funding ethanol production-based capex.

No policy for sugarcane is a concern and that is why investment in sugar will go down, according to Manickam. South-based sugar companies did not opt for ethanol production as they suffered from the old policies, he said.