Ethanol is a renewable fuel that can be made from corn grain, sugarcane and other bio-wastes. United States has recently moved towards blending 15% ethanol in gasoline, while Brazil blends as much as 25%. Last week, the Brazilian government announced plans to test even higher blends of ethanol.
Those in favour of substituting ethanol for petrol point out that it is cheaper and can save non-oil producing countries valuable foreign exchange. Automobile companies, however, oppose it since it has a lower calorific value than petrol and hence gives lesser mileage. A more substantial critique raises concerns that the cultivation of biofuels would come at the cost of food crops, leading to inflationary pressures. Some have questioned the environmental benefits of ethanol: while it reduces the use of fossil fuels, does its production consume more energy and release more greenhouse gases?
While these questions are the subject of research worldwide, in India, there has been little public debate over ethanol. The push for ethanol has primarily come from the sugar industry, which makes ethanol as a byproduct of sugar.
In fact, the doubling in the cap on ethanol blending was announced by Food Minister Ram Vilas Paswan as part of a slew of sops to the sugar industry. The announcement was made at the end of a meeting attended by several ministers, including Road Minister Nitin Gadkari, who has had a long association with the sugar and ethanol industry.
Why the sugar industry wants more use of ethanol
Bound to purchase a fixed quantity of sugarcane from farmers, sugar mills often end up with surplus cane, which leads to sugar production in excess of domestic demand. This brings down the price of sugar as well as their profits. By setting up ethanol manufacturing units, mills can divert sugarcane to the production of the biofuel, thereby reducing their sugar output. But this would make sense only if there is an assured market for ethanol, which explains the lobbying by the sugar manufacturers for mandatory purchases of ethanol by oil companies.
In December 2013, an industry meet of leading firms of Maharashtra adopted a seven-point resolution asking the government to enforce 10% ethanol blending in petrol. Nitin Gadkari was the chief patron at the Nagpur event.
The former BJP president is the founder-promoter of the Purti Group in Maharashtra's eastern region of Vidarbha. Purti Power and Sugar Limited was among the first to set up an ethanol manufacturing unit as an adjunct to its sugar mill.
"Our plant was commissioned in 2005 but we did not produce any ethanol till 2010," said Sudhir Dive, the managing director of Purti Power and Sugar Limited, in a phone conversation with Scroll.in. This was because of the lack of demand. Oil companies did not show much interest in purchasing ethanol until the United Progressive Alliance government made it mandatory for oil companies to blend 5% of ethanol in petrol in November 2012. Even then, oil companies did not step up purchases, the Business Standard reported, partly due to a dispute over prices.
Last year, PPSL produced and supplied 70 lakh litres of ethanol to oil companies, which was a fraction of its installed capacity of 3 crore 60 lakh litres per year. "To make ethanol production commercially viable, the price must be raised from 37-40 rupees per litre to 45-50 rupees per litre," Dive said.
Ethanol manufacturers might finally get the price they want. Within a month of taking charge, not only has the Narendra Modi government raised the cap for ethanol-blending, it is also expected to enforce the blending more proactively. In addition, in his first press conference as Minister for Road Transport, Gadkari has identified the introduction of cars fitted with E85 engines as a priority. E85 engines are powered by a blend of 85% ethanol and 15% petrol. Gadkari said the adoption of ethanol-friendly engines could help India cut down on its oil and gas import bill, which would result in major savings for the country.
A day after the government's sugar sops became public, the stock prices of sugar companies went up. The stock price of Praj, a Pune-based company that provides new technology to produce ethanol from bio-wastes, also saw a spike. Purti Group is setting up a new ethanol manufacturing unit in collaboration with Praj outside Nagpur.
Does Gadkari’s advocacy of ethanol constitute a conflict of interest given his association with the industry? Gadkari did not respond to queries emailed by Scroll.in.
But Sudhir Dive, the managing director of PPSL, said, “Gadkari ji set up the company but over the last 3-4 years, he has divested his stake. On paper, he does not hold more shares worth more than one lakh rupees.”
On the eve of elections, the newspaper Mint had published a series investigating the business interests of major politicians by analysing data available on the corporate affairs ministry’s online database. It found that Gadkari holds 0.001% stake in Purti Power and Sugar Limited. His son holds 0.01%. Gadkari and his family members also hold a small stake in other companies that have invested in PPSL.
The real gains
More than financial capital, Gadkari stands to make political capital out of the government's incentives to the sugar and ethanol industry. The sops come months before the assembly elections in Maharashtra. The state is the leading producer of sugar in India, although Uttar Pradesh produces double the quantity of sugarcane. Both states have nearly the same installed capacity for ethanol production, according to data made available by the Indian Sugar Mills Association. The Bharatiya Janata Party is seeking to expand its base in both the states.
In Maharashtra, the party has faced a recent setback with the death of Gopinath Munde, an important grassroots leader. Gadkari, who is seen as an organisation man with strong links with the RSS, now has an opportunity to cement his reputation at the grassroots. The sugar industry has deep inroads in the countryside. Nearly 3 million farmers grow sugarcane in the state. The push towards ethanol comes at a time when the state has been reeling from worsening droughts and lowering water tables on account of the cultivation of sugarcane which is a water guzzling crop.
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