Decision comes soon after Prime Minister Narendra Modi said promoting ethanol production in a big way is the long-term solution for cash-starved sugar mills, which owe over Rs 14,000 crore in dues to cane growers.
The government has decided to boost ethanol production by making 10% blending with petrol mandatory from the next year, starting October 2015 in its efforts to resolve the sugar imbroglio.
A decision in this regard has been taken by the Petroleum Ministry after Prime Minister Narendra Modi in a recent meeting said promoting ethanol production in a big way is the long-term solution for cash-starved sugar mills, which owe over Rs 14,000 crore dues to cane growers.
At present, it is compulsory to blend 5% ethanol with petrol, but oil marketing companies (OMCs) are able to do around 2%.
"Sugar mills will be asked to increase ethanol production from the 2015-16 marketing year (October-September) to meet the demand of 230 crore litres for 10% blending with petrol," a senior government official told PTI.
OMCs will also be asked to procure ethanol based on 10% blending requirement from the next year, he said.
To avoid piling up of surplus sugar stocks next year, the official said mills will be asked to step up ethanol output following the 'B-heavy' molasses route to help reduce sugar output by 1.5 million tonnes annually.
Normally, mills manufacture ethanol only from 'C' (final -stage) molasses, a by-product of sugarcane.
"It makes economic sense to manufacture higher quantity of ethanol instead of sugar, considering a sharp fall in sugar rates in view of surplus stocks both in domestic and global markets," the official added. Mills can earn as much as Rs 48-49 per litre of ethanol.
In the case of sugar, they are not even able to recover the production cost as ex-mill rate has fallen below Rs 20 per kg now.
There has been a weak response from sugar factories to the ethanol-blending programme. So far this year, OMCs have been able to contract 82 crore litres of ethanol as against the requirement of 133 crore litres for 5% blending.
The country has an installed capacity to manufacture 450 crore litres of ethanol, of which 240 crore litres of capacity are with sugar factories, while the rest is standalone.
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